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Mail Magazine 24...
The coming civil war…
over MONEY!
by Michael Becker
There’s a war coming in the US, and it’s going to be a civil war fought
on three fronts rather than the North and South scenario last time
around. The results of this civil war are likely to be much uglier than
the fallout from the war between the states that killed 500,000
Americans and pitted competing economic cultures against one another.
The new civil war is going to pit generations against one another while
at the same time pitting the public sector of the economy against the
private sector. This coming war will not be fought over slavery or
“states rights”, it will be fought over retirement.
The issue we will fight over will be money, but the cause of the war
will be politics, specifically the over-reach of government at all
levels, the over-promising of politicians buying votes from the general
population, the willingness of Americans to accept at face value what
they’re being told by their elected officials, and finally the cartel
between unions – all unions, but most specifically public employee
unions – and their management, specifically elected officials who
bargain with public unions and in the process buy their votes.
Let’s look at some numbers, and you might want to have alcohol handy.
The problem with looking at the numbers we’re going to be talking about
is that they are so big most people simply dismiss them because they
refuse to relate to them.
We’ll start with the little numbers.
The US will have an outstanding national debt of $16.4 trillion dollars
by the end of this year. At the close of this year we will have run
budget deficits – not that we’ve actually had a budget – of over one
trillion dollars per year for four consecutive years and the
Administration is projecting, through very rosy glasses (Obama promised
to reduce the deficit to about $200B by this year during his election
campaign in 2008) of $5.6 trillion over the next ten years.
Let me put this in some perspective. Right now only two countries in
the civilized world are running larger annual deficits or projecting
larger debt in relation to their Gross Domestic Product than the US.
Those countries would be Greece and Italy. Our sovereign debt crossed
the 100% of GDP barrier this year. Your piece of our sovereign debt is
a mere $55,000. If you’re married and have two kids, your household tab
is $220,000.
Keep in mind, we’re just talking about “sovereign debt”, that’s the
current balance of our national MasterCard and it does not include
“unfunded liabilities”, future debt that there is no plan to cover.
Here’s where the numbers get really big.
Social security and Medicare have unfunded liabilities of $106 trillion
dollars, and there is not even no plan to deal with that number,
there’s not even a discussion of when a plan might be discussed. The
bottom line is that your retirement is based on your kids and grandkids
being willing to pony up roughly everything they’re going to earn so
you can refrain from becoming a Walmart greeter. From Deseret News…
The Congressional Budget Office estimates that it’s possible to sustain
today’s level of federal spending and even achieve a balanced budget.
All that Congress would have to do is raise the lowest income tax
bracket of 10 percent to 25 percent and the middle tax bracket of 25
percent to 66 percent and raise the 35 percent tax bracket to 92
percent.
Got that? If you’re hoping your kids are middle class Americans,
they’re going to be forking over 66% of every dollar they earn to the
federal government, and most of that will go to pay for Social Security
and Medicare (TODAY they would amount to 55% of the federal budget, if
we had one). How would you feel if your tax bill tripled? Yeah, me too.
That’ll give you an idea how they’ll feel, and why I am insisting we’ve
got a civil war brewing.
And, we’re not done. There’s the second front of this war, and the
shooting has actually started on this front. It’s called unfunded state
and local government pensions and this one is hitting right now.
Orrin Hatch – hopefully serving his final term in the US Senate –
published a report last month on the state of public pension systems.
Senator Orrin Hatch, a Utah Republican and ranking member of the Senate
Finance Committee, said last month, “Today, public pension debt stands
at an alarming $4.4 trillion with outstanding state and local municipal
debt at nearly $3 trillion. The public pension crisis plaguing our
nation demands a real solution.”
The Hatch report shows that the unfunded pension liabilities of state
and local governments have been rising. Mr. Hatch plans to bring
forward a series of proposals to reform public pension plans over the
next few weeks.
And Senator Hatch’s estimate of $3 trillion is based on the rosy
glasses assumption that state and local pension funds will earn 8%
returns on their investments – the historical average. Economists use a
much lower number for return and estimate that the shortfalls in
pension funds could be as high as $4.4 trillion. And, Senator Hatch
should keep his nose out of the problem at the state level. The Federal
Government has proven to be at least a hundred times more irresponsible
with our money than the states and any federal involvement will simply
lead to another bail-out, not a fix.
The causes of this shortfall are twofold. First, politicians
negotiating with public employee unions, promising a defined benefit
and essentially no contribution from union members. Second, those same
politicians pushing off funding the plans because the bill wouldn’t
come due until long after they’re out of office. Retired on a fat
defined-benefit pension.
Let’s be clear. If a businessman tried to put a pension plan in place
that emulated Social Security, he’d be put in prison. Same for the
state pension funds. I’d love to see politicians going to prison for
their part in these Ponzi schemes, but we’d have to expand the
corrections system and that’s out of control too.
At the state level the problem is NOW. States can’t print money and
most of them can’t borrow to sustain current operations so they’re
beginning to have to deal with the issues now, and it’s starting to get
ugly. California will likely be the point of the spear on this fight as
a number of cities and counties are discovering that they’re in way
over their heads.
Chuck McDougald, the chair of the San Mateo County Republican Party
wrote an editorial in the San Mateo Daily Journal last month that will
give you some feel for the problem. Here’s the money quote (no pun
intended).
A pension tsunami is rolling over California taxpayers, destroying all
budgets in its path. Years of out of control pension grabs by
politicians, unions and complicit managers have left California
taxpayers on the hook for close to half a trillion dollars in unfunded
state pension liabilities, according to a recent Stanford University
study.
State, county and city budgets are also drowning in pension red ink.
San Mateo County is one of the worst offenders. According to a study by
Northwestern University’s Kellogg School of Management, our county’s
taxpayers owe close to $2.5 billion in unfunded pension liabilities for
current and future retirees…
Our Board of Supervisors has abdicated its fiduciary responsibility.
This year’s budget was “balanced” by withdrawing close to $50 million
from reserves to meet escalating pension liabilities. If trends
continue, by 2016, the gap will be almost $80 million and county
reserves will be gone.
He presents some ideas for solutions to San Mateo County’s problems and
the article is worth reading.
So, what to do about all this? In my anything-but-humble-opinion, we
need to do two things and do them quickly.
First, at the national level we must return to the idea of individual
responsibility. This will be a bitter pill to swallow and it’s going to
have to be force fed to about half the population. My retirement has to
be my responsibility, and my medical care does too. Social security and
Medicare – and Medicaid – must be privatized. They will likely have to
be phased out over an extended period of time, but they have to
disappear from the federal budget.
Second, we need to drive a stake through the heart of public employee
unions. They need to be thrown on the ash heap of history with other
bad ideas, like Communism and socialism.
If we don’t start now, don’t expect to be on speaking terms with your
progeny, or theirs.
Source: libertynews
Read this and other articles at Mail Magazine 24
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