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Fiscal Finger Food Adds Up to One Big Feast on the Budget

This is one of those weeks when there’s time to catch up on new developments on a few items that I’ve already written about and to deal with a few stories that so far haven’t been big enough to merit a column of their own. Think of it as budget tapas, a series of small portions that are not that filling by themselves but make a complete meal when eaten together.

California Really Is Too Big to Fail. Ask yourself this question: If AIG and other Wall Street firms are considered by policymakers to be too big to fail, what does that say about California?

California, which like many other state and local governments is still experiencing extreme budget problems, has an economy larger than all but about 10 countries. Even without the actions that the federal government has already taken to provide corporate bailouts, there is little likelihood that Washington, D.C., could or will allow a default in the municipal bond market to occur in the current economic and financial environment. In fact, through the stimulus bill and other actions, the federal government has already taken a number of steps to make that less likely.

That’s why the rumor about a plan being prepared in Washington to deal with the financing needs of state and local governments should be taken seriously even though it could have a significant effect on the federal budget. Especially with California’s large economy (and 55 electoral votes), there really isn’t much of a choice.

Obama Optimism Now Not as Unlikely. The Obama administration’s economic forecast, which when it was first released caused many experts to say it was reminiscent of Ronald Reagan’s “rosy scenario” from almost 30 years ago, is no longer considered to be as unrealistic as it was originally.

Although last week’s economic statistics were not as good as many people had expected, the economy clearly has improved since President Barack Obama’s forecast was released in February. That’s leading some to say that while the president’s numbers are still on the high side, they seem to be less optimistic than 10 weeks or so ago.

What Happened to the Second Budget Resolution? Senate Budget Chairman Kent Conrad (D-N.D.) earlier this year floated the idea of doing a second budget resolution.

Conrad’s plan was not to include reconciliation instructions in the budget resolution that Congress considered early in the year and, therefore, to avoid the Republican criticism that Democrats were considering using reconciliation for health care reform. But he held out the possibility of including reconciliation instructions on health care in a second budget resolution later in the fall if Senate Republicans filibustered what was developed under the standard legislative process.

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