Governor David Paterson says state lawmakers have agreed on most of a plan to narrow a $10 billion budget deficit. All that remains to be settled to patch up the ship of state while it floats in a sea of red ink are $800 million in cuts in education and health care — the two biggest parts of the budget.

Not encouraged by the hapless governor's pronouncement? Bet against New York State's financial survival. InTrade, the Ireland-based trading market on all sorts of issues, opened bets yesterday on whether — and when — the state government will go into default.

The cuts are already bad enough. Leaving aside the poor, hungry, and homeless, now it's students who are being hammered, and not by alcohol. New York City itself is suffering from budget problems, despite the fact that Wall Street appears to be pretty healthy. For the first time ever, New York City's community colleges are being forced to abandon their "all-are welcome admissions policies."

From the Pew report "Beyond California: States in Peril."

Getting ink this afternoon is the red ink flooding not only California but your state, too. "Beyond California: States in Peril," a new report from the sharp Pew Center steams through the dire straits in much more dramatic fashion than a similar report of states' last rites from the Center for Budget and Policy Priorities (see "Recession's Over? States in Deep Trouble; Even More Jobs Will Be Lost").

The Pew report lists the top 10 troubled states: California, Arizona, Rhode Island, Michigan, Oregon, Nevada, Florida, New Jersey, Illinois, and Wisconsin. New York is close behind. Stories on this from CNN, Daily Finance, and the Detroit Free Press.

Capitol Hill and the White House have passed the "stimulus" torch to the states. Too bad for the states that the torch isn't lit.

Celebrate the recession's end, if you like, but it's not over. Barack Obama's Recovery Act is softening the blow to state budgets, but that's only temporary. The shit continues to roll downhill from Wall Street to Main Street, as the Center for Budget and Policy Priorities points out (though not in those words) in "Additional Federal Fiscal Relief Needed to Help States Address Recession's Impact":

We're talking about nearly a million jobs still to be lost, on top of the current 10 percent jobless rate, which some think is on its way up to 12 or 13 percent.

Let the Fratricide Begin (WashPost, Dana Milbank)

"As Michael Moore threatens moderates, Democrats begin tearing each other apart over health care." (WashPost's straight news story here.)

'08 rise in NYC rich club (NY Post)

"The jump was part of a rapidly growing income gap across the country that saw middle- and low-income families get pinched more by the recession."

Mixed Data Reflect Fragility of Economic Recovery (WSJ)

Are We Poised for Another Great Bull Market? (Seeking Alpha, Babak)

Probably not. "At best, we are going through a cyclical bull market — otherwise known as a bear market rally."

Moral decay? Or deregulation? (NYT, Paul Krugman)

A big dose of fluoride squirted on David Brooks's "moral decay."

Cyber Gangs Hit Healthcare Providers (WashPost)

Yet another threat to health care that's even bigger than the Democrats' infighting: Thieves, believed to be based in Eastern Europe, defrauding U.S. nonprofits that serve the disabled, uninsured, and kids. Another health threat from overseas, but this one affecting people from overseas: "The 'keister bomb' is the newest terror threat."

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From Security Spending Primer: Getting Smart About The Pentagon Budget

Confused about the federal budget? Don't worry, so are your congressmen and congresswomen.

Here's a guide from the National Priorities Project that explains the process and zooms in on some of the political wrangling. Security Spending Primer: Getting Smart About The Pentagon Budget includes the obligatory charts, so you're welcome to stage a pie fight when you're done reading.

The above chart breaks down the "discretionary" budget, the stuff that Congress and the White House wrangle over. As the NPP's summary of its report notes: "Despite rhetoric to the contrary, the Obama Administration is not cutting defense. In fact, the Pentagon budget is projected to grow 25 percent over the next decade."

Oh, you say, it's those nasty Iraq/Afghan wars, right? Wrong. "Even without including current war allocations, U.S. military spending is at its highest level since World War II," the NPP report says. "This takes into account the war-time budgets of Vietnam and Korea."

Your state is in deep financial trouble, and now that it has managed to patch together a fiscal 2010 budget, the real trouble begins. Service cuts, federal stimulus money, reserve funds — those are history. Where are the new solutions for next year's budgets — and the next year's? Bailouts? Yeah, right.

A new report from the Center on Budget and Policy Priorities paints a bleak picture that won't have the impact on the stock market that the Fed's lukewarmly optimistic statement today ("Fed Says Economy Appears More Stable," as the WSJ puts it) had. The Dow industrials rose 120 points after the Fed's announcement, because the state budget woes play no part in market psychology.

While Wall Street is digging out from last year's disaster, amid the Fed's pronouncement that we may very well have reached bottom, the states are still sliding down rapidly. See the chart above, which compares the current recession with a recent one.

Click on the above video to read Barack Obama's lips as he says, "No new taxes!"

CNN's Ed Hornick asks whether that campaign promise puts Obama "on shaky ground." Well, of course it does.

Especially when the president's two main money advisers, Tim Geithner and Larry Summers, are already breaking Obama's word by not ruling it out, prompting a strong response from Obama flack Robert Gibbs, who insisted that Obama will not raise taxes on people who make less than $250,000 a year. The Washington Post's Michael A. Fletcher writes: "If two of President Obama's top economic advisers cracked open the door to the possibility middle-class tax increases Sunday, the White House slammed it shut on Monday."

No, the White House only says it was slamming it shut.

It's painful to get a reality check from Arizona's arch-conservative senator, Jon Kyl, who, no matter his motives, says: "I think that what the secretary and Mr. Summers said Sunday is actually more true than the press secretary tried to make it out to be. It's simply a recognition of a reality that you can't pay for all of this and not impose taxes on middle Americans."

There will be tax hikes — maybe disguised as fees, whatever. Yes, California Governor Arnold Schwarzenegger just signed off on a budget measure that included no tax increases. But he simply slashed and burned programs, and Obama has no such luxury: Who pays for the health-care package and the Afghan War? Not California.

And even if the recession really is easing, the federal government's still going to have to bail out the broke-ass state governments.

Where does your state rank among those in the rankest shape? Check this CNN graphic.

Here in NYC, we've been hammered by big hikes in fares for subways and buses (after threats of even bigger cuts). We're not the only place, of course. Salon's "Fed to mass transit: Drop dead" points out that national mass-transit is the highest it's been in 50 years, but service is being cut around the country, and no federal help is forthcoming.

Some states are trying to prop up transit to prevent drastic cuts in service and prevent major fare hikes, but they have no money. Check out the situation in Massachusetts, which is facing huge cuts across the board in the state budget, which means, of course, huge cuts for cities and towns. No matter what's happening on Wall Street (George Soros says the worst of the global crisis is "behind us"), where the markets are doing kinda fairly well, the shit has already started rolling downhill and it's gathering steam. (See the NYT's "States Turning to Last Resorts in Budget Crisis" for Maine's new taxes on candy and ski tickets and other states' "solutions.")

The latest budget news out of broke-ass California isn't all bad. On top of $16 billion in cuts proposed two weeks ago, Governor Arnold Schwarzenegger sent lawmakers his plans to trim $5 billion more.

In the wake of Treasury Secretary Tim Geithner's rejection of California's plea for a bailout, Arnold's new plans could be worse. Everything will be spared except for state programs for health care, higher education, welfare, parks, AIDS treatment and counseling, and prisoner rehabilitation, all of which will be either dismantled or sharply curtailed. The governor will announce $3 billion more in cuts by the end of the week.

Noreen Evans, chair of the Assembly's budget committee is quoted by McClatchy as saying:

She's wrong about that. New York has thrown plenty of sick children off of welfare — and even wants to cut funding to treat autistic children — and that still hasn't satisfied Wall Street.

Aside from those corporate socialists, even other socialists aren't satisfied. More cuts are in store in Hugo Chavez's Venezuela, where oil income has plummeted, and the populace may be too weakened to hit the streets in protest. As McClatchy reports:

Look, the U.S. is not technically a deadbeat. When it gets in debt, it just prints more money and gets deeper in debt.

The latest list — courtesy of David Hunkar's Seeking Alpha item on Memorial Day — of who owns us (they own our debt, so they own us) shows China's still our No. 1 creditor, holding $767.9 billion of our debt as of March '09, compared with $727.0 billion at the end of '08. Japan's No. 2, followed by, as the Treasury report euphemistically puts it, "Caribbean Banking Centers" and "Oil Exporters." In fifth place is Russia, followed by the U.K., Brazil, Luxembourg, Hong Kong, and Taiwan.

The overall amount of U.S. debt held by foreign countries has risen from $2.5 trillion in March '08 to $3.2 trillion this March, an increase of 28 percent.

Zounds and gadzooks! Or as Isabel Sawhill over at the Brookings Institution says:

But even our creditors are a little uneasy about our behavior. From the way China's talking, the U.S. is acting more like an addict than a deadbeat, considering that we're printing money to spend money on purchasing money that we just printed. In "China Warns Federal Reserve over 'printing money,'" Ambrose Evans-Pritchard quotes Dallas Federal Reserve Bank president Richard Fisher as saying Chinese officials are quite disturbed about our purchases of Treasury securities:

As if the U.S.'s scrambling to print more and more money were a long-term solution.