Posts

The Public-Private Tug-O-War

avatar of @taskmaster4450le
25
@taskmaster4450le
·
·
0 views
·
3 min read

Part of what we are going to see over the next decade is the polarization of politics. This is rather obvious.

There is another war that is going to gear up and we might be seeing one of the first battles.

It is the war between public and private.

Elon Musk is drawing a line in the sand against the public entities in California. He filed a lawsuit against the county claiming they have no legal authority to keep businesses closed and that it violates both California law and the Constitution.

Of course, this get the emotions flowing on both sides of the dispute.

One California assemblywoman from San Diego, Lorena Gonzalez, put this on Twitter:

"F*ck Elon Musk"

Musk, never the saint himself, is feeling the pressure. Tesla's plants, along with all other automakers in the United States, have been closed for two months. Musk is anxious to reopen and the local Sheriff's Office won't allow it.

In response, Musk fired this off:

The Assemblywoman defended her statements with a follow up Tweet.

What the Assemblywoman fails to realize is the states of Texas and Nevada will heavily subsidize Musk just like they do every other company. Politicians love to hand out money to companies for the publicity that comes from "creating jobs".

Of course, this goes to the core of the public versus private debate. This coronavirus is bringing everything to a head. Politicians are acting like it is just another day, not realizing they crushed the economy. They will really feel the pinch when states and other municipalities face severe budget cuts since tax revenue will fall off a cliff this year. The State of Florida, for example, has an 11% sales tax on every hotel room. For the past two months, that money amounted to next to nothing.

Florida is actually one of the states in decent shape. The ones who are in trouble are those like New York, Illinois, and California. They are overburdened, for example, with pension funds that are severely underfunded. Imagine what happens when the stock market completely collapses like many expect.

States are going to engage in their hunt for taxes. They cannot simply print money like the Federal Government can. The revenues of companies in their states are dropping like never before. It is likely that an extended recession/depression are on our hands.

The more pressure that is put on individuals and companies, especially small businesses, by governments, the worse it will get. Private corporations can turn to the capital markets for funding. Governments have their hands tied. This only gets worse if their bonds start to fail.

Investors ultimately will make the decision. We can expect the bond markets to implode as this reality starts to set in. Ultimately, this is good for equities as people will move their money there looking for a return.

Of course, this will only happen after the market accepts the fate of the new reality. All the money in the world from the Fed is not going to make up the tens of trillions of dollars that is being wiped out due to the global economy being shut down.

Sadly, we are just starting to see the impact of how bad things are.

Maybe it won't be as flamboyant as Musk but we can expect other CEOs are thinking the same thing.

Posted Using LeoFinance