The highly regarded former chairman of the Federal Reserve, Paul Volcker, has severely criticized the State Governments in the U.S. over “faulty practices” used to devise budgets which mask the true financial position of those states.
Mr. Volcker, who as Fed chair reined in escalating inflation and stabilised the economy during Ronald Reagan’s tenure, announced in 2013 his intention to form the Volcker Alliance to focus on reforming democracy in the U.S.
It was in a report from the Volcker Alliance that the criticisms were published.
“The palpable erosion of trust in our democratic institutions of government demands a response,” he was quoted as saying.
Mounting fiscal problems in Obama’s Illinois, Detroit’s bankruptcy and the financial troubles coming to a head in Puerto Rico demonstrate the importance of developing better financial policies according to the report.
The dire state of finances in many states has intensified in recent years due to drastic cuts in federal funding following the recession. As a result state budgets are recklessly pushing the costs of current expenditure onto future generations.
“The continued fiscal stress is tempting states to continue, and even intensify, budgeting and accounting practices that obscure their true financial position, shift current costs on to future generations, and push off the need to make hard choices on spending priorities and revenue practices,” the report states.
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