Skip to comments.When The U.S. Goes Bankrupt, Here’s Who Gets Out With The Least Pain
Posted on 10/25/2018 12:08:14 PM PDT by SeekAndFind
The problem of a government overcommitted to entitlement spending is one of the most predictable crises in American history. Neither of the two largest federal entitlement programs are on sound footing, according to their own trustees. The most recent report on Social Security predicts insolvency in just 16 years. For Medicare, researchers are predicting just eight more years of runwaythree years earlier than previously forecast.
Going down to the state and local level, a May 2018 report by Harvard Universitys Kennedy School revealed that public pension funding in New Jersey and Kentucky is already at high risk of insolvency and will shortly threaten the financial security of both current and retired government workers. The situations in California, Connecticut, Illinois, and Pennsylvania are not much better. According to a more recent estimate provided by Moodys to the Wall Street Journal, the combined pension hole of all U.S. states and cities is now equal to the worlds fourth-largest economy, Germany.
In response, many towns across the country are already cutting back on teachers, police, and even firemen just to have room in their coffers to fund their predecessors post-retirement benefits. In California, where average municipal pension contributions have increased 69 percent in real dollars over the last decade, Sacramento already spends 17 percent of its general fund on retirement costs, while nearby Davis expects to spend 26 percent by 2025.
From Santa Fe, New Mexico, to Allentown, Pennsylvania, to Berkeley County, South Carolina, worried voters are demanding audits of municipal budgets in desperate hope of finding enough waste, fraud, or abuse to avoid both major tax increases and essential service cutbacks.
While the economic boost from recent Republican tax cuts will likely produce enough revenue to buy all levels of government some extra time, few experts believe growth alone can provide anywhere near what is needed to make good on most government promises. Despite recent legislation, the United States’ long-term fiscal outlook is not good, says Goldman Sachs chief economist Jan Hatzius.
He predicts annual federal deficits more than doubling within the decade to $2.05 trillion7 percent of GDPand warns that, without radical policy changes, the countrys very stability will be at risk when the next recession comes around. As for the states, Pew estimates that even if their pension portfolios were growing at an exceptionally healthy 6.5 percent a year, they would still end up $1.7 trillion short of their estimated obligations.
Neither political party can honestly claim ignorance of the coming fiscal upheaval. In the case of Social Security and Medicare, every annual fiduciary report to Congress since 1993 has warned of pending insolvency. Everyone in Washington [has been] aware of the magnitude of the problem, the need for repair, and the danger that delay would make inevitable corrections more painful, says Charles Blahous, a former public trustee for both programs. As for precariously funded state and local pensions, respected think tanks like the Mercatus Center at George Mason University and the Stanford Universitys Institute for Economic Policy Research have joined the Kennedy School and Pew in warning what is to come.
But fearing that any effort to honestly address the widening gap between government promises and insufficient revenue would be demonized by their political opponents, most elected officials have hesitated to recommend specific solutions. Would it be better to print more money, raise taxes, cut promised retirement benefits, trim entitlement spending, create means tests for entitlement benefits, or some combination of each? Few politicians dare say. Instead, Democrats keep pretending that the fiscal crunch is not happening, while Republicans pretend that faster economic growth alone is the solution.
Indeed, the only thing most politicians seem willing to do is increase their inflammatory rhetoric on unrelated issues, perhaps imagining that this will confer a negotiating advantage on the day of fiscal reckoning. The illusion gripping on both sides of the aisle is that there exists some lopsided solution to the coming crisis, an adjustment that will take disproportionately from the greedy rich and socially irresponsible corporations (if youre on the left) or from lazy welfare cheats and overcompensated public employees (if youre on the right).
The historical truth is that whenever a society can no longer borrow enough to cover the gap between promised expenditures and actual revenuethat is, when government can no longer tap the credit markets without paying a prohibitively high interest rateevery faction endures a painful share of the subsequent economic adjustment.
That’s not because it is fair, and certainly not because the population has suddenly been seized by newfound generosity, but because shared sacrifice is the only way to keep a verbal civil war from becoming a real one. As those now suffering through Puerto Ricos recent default have already learned, the only peaceful way through a fiscal crisis is a begrudging accommodation by all parties.
At a recent conference on municipal finance, a paper by James Spiotto of Chapman Strategic Advisors articulated a disarmingly simple yet incontrovertible principle: No matter how difficult the problem of insupportable public debt, or how it came about, no workable solution can disproportionately punish a single constituency or jeopardize a vital mission of government. The challenge for every bankrupt democracy is to find a way forward that brings along all groups.
Illustrating his point in the case of underfunded public pensions, Spiotto analyzed the four most politically feasible mechanisms for addressing the problem: a prepackaged bankruptcy plan, creating a special federal bankruptcy court, creating a national commission with the power to bind all parties, and the last-minute willingness of state legislatures to finally bring expenditures in line with revenue. Despite their apparent differences, he noted, what makes each viable is the promise to make all factionsbondholders, taxpayers, beneficiaries of public programs, and municipal employeeschip in, like it or not.
Of course, maintaining political stability is not the same thing as addressing the anger each of us will feel as we come to terms with our own share of the looming government bailout, especially as vindicated policy analysts insist on reminding us of how our sacrifices could have been avoided with better leadership in years past. Whatever our individual lossbe it paying higher taxes, receiving a reduced public pension, losing previously promised medical benefits, facing higher mortgage interest rates, or going even deeper into debt to attend collegethe resentment will not ebb quickly or easily.
At least people with strong religious beliefs will have the comforts of knowing that adversity can serve a constructive purpose, that the faithful are called upon to be their best when times are bad, that human institutions were never to be fully trusted to begin with, and that no one escapes a worldly trial. Western scripture clearly celebrates those victims of an undeserved calamity who nevertheless managed to rise above it: Joseph sold into slavery by his own brothers, Daniel in the lions den, the Apostle Paul thrown into the late night ocean, and Job seeming to suffer for his very rectitude.
The religious also have a place they can find strength in the company of those similarly determined not to be discouraged or permanently victimized by their loss. One of the untold stories of the 2007-2008 financial crisis was the critical role organized religion played in helping parishioners cope with the abrupt collapse of home values, the subsequent drop in retirement savings due to falling stock prices, and even pink slips or salary cuts.
Some of this help was very practical, with almost every denomination providing free classes on how to better handle money. A February 2009 Lifeway Research survey of a thousand Protestant churches found that 31 percent were expanding or considering food banks, employment bureaus, inexpensive medical services, and low-cost recreational programs for children.
But Protestant, Catholic, and Jewish clergy also rose to meet the great intellectual challenge they always face in times of crisis: bringing perspective to lifes seeming unfairness. In the words of Rev. Dr. Willard Ashley, co-editor with Rabbi Stephen Roberts of Disaster Spiritual Care, Americas ministers, priests, and rabbis performed the kind of psychological/spiritual first aid that made it possible for tens of millions to constructively manage their fears and resentments.
Those who take pride in Americas record of overcoming major calamities, from economic depressions to world wars, are also better equipped to weather the coming fiscal storm. Whatever their personal loss, the patriotic among us will at least have historic grounds for believing the dark days are not permanent and that their sacrifice will benefit future generations.
J.P. Morgan is not generally remembered as an expert on the therapeutic power of patriotism, but the famous bankers response to the Panic of 1907 is instructive. Believing that the best way to get people back on their feet was to tap into their love of country, he reportedly locked the door to a board room where colleagues were plotting to save their private fortunes and refused to let them out until they had settled on a plan for national recovery that would be clear to every citizen.
Modern academics who study patriotism are often the first to acknowledge that the emotion can sometimes be manipulated by demagogues, but far more often inspires altruism, optimism, and cooperation. Nationalism is not inherently evil, says Allegheny College psychology professor Joshua Searle-White. Indeed, devotion to a nation can bring out transcendent qualities in people, facilitating selflessness, courage, and idealism.
A 2011 study on Subjective Well-Being and National Satisfaction by Tim Reeskens of the Center for Sociological Research and American Universitys Matthew Wright is just one of many to show that national pride is strongly related to self-confidence and the capacity for resilience.
Fortunately for the country, most Americans have not drifted nearly as far from their ancestors religious and patriotic beliefs as those in many other industrialized nations. Belgium, whose generous social programs have run up a per capita debt of more than $47,000; France more than $42,000; the United Kingdom more than $38,000; and Canada more than $45,000, all face fiscal reckonings of their own but without the benefit of what their elites have long derided as obsolete or unsophisticated sentiments.
Future historians may well regard the unexpected rise of nationalism in some European countries, not as the illiberal regression to authoritarianism that many editorialists now claim, but as a grass roots intuition of the need to buffer looming economic disruption. While no one can predict exactly when the United States will finally come to terms with insupportable government promises, religious faith and love of country will at least shield many millions from the worst psychological damage. It will be their surviving optimism that most constructively shapes Americas post-crisis future
Everything was great until Trump became president!! [/s]
They dont really answer the question. In fact they dont even really discuss the federal government going bust. One of my buddies says that he thinks when the government goes bust the thing to invest in will be land. I would agree except that you dont know what the politicians are going to do to try to fix the problem. If they jack up real estate taxes then maybe not.
Any solutions in this mental masturbation?
You can’t even talk about fixing any of this stuff without the democrats screaming that the republicans want to take you medicare and SS away etc.
I think Trump can give some fireside chats on how we got where we are and what we can do about it.
To his credit, Bush tried to point this out at the beginning of his second term and proposed restructuring social security to deal with the issue. He was universally reviled and demagogued by the media and the entire left for his trouble.
Answer - those with assets not tied to the dollar
Ditto. Didn’t see these articles under Obama who doubled the deficit.
Yeah, cut welfare.
Agree. Even land may not be safe as they’ll jack up taxes and/or regulations with the objective of confiscation.
Need assets that can be physically hidden and that can’t be diminished by inflation.
We’ll continue to print Monopoly money and spend for as far into the future as the eye can see.
Who is going to stop us? Does anyone on the planet benefit from the economic collapse of the US? NO! On the contrary, that would plunge the entire planet into a new Dark Age.
They won’t like it, but everyone is going to let us continue to print dollars and pretend that they are worth something. They have little choice. The alternatives are unthinkable.
Our government really IS....too big to fail.
Same thing that been happening to us our whole lives. We will be stuck working until we die cleaning up the incredible mess of every thing the Boomers created
Such as what?
We pay so many millions to people that don’t deserve it. We pay foreign aid to countries that hate us. We pay interest to the bankers who own our monetary system. We are being farmed, fools that we are.
At the founding of the nation, those who adopted the principles and philosophy of the Declaration and Constitution looked to their “Creator,” law giver, and “Divine Providence” for support, “blessings,” and guidance, as is evidenced by the following quotations:
IT IS THE DUTY OF ALL NATIONS TO ACKNOWLEDGE THE PROVIDENCE OF ALMIGHTY GOD, to obey His will, to be grateful for His benefits, and humbly to implore His protection and favor. George Washington
And can the liberties of a nation be thought secure when we have removed their only firm basis, a conviction in the minds of the people that these liberties are of the gift of God? That they are not to be violated but with His wrath? Indeed I tremble for my country when I reflect that God is just; that His justice cannot sleep forever. Thomas Jefferson
The Bible is the best of all books, for it is the word of God and teaches us the way to be happy in this world and in the next. Continue therefore to read it and to regulate your life by its precepts. John Jay: First Chief Justice
And check out the student guidelines at Harvard and Yale before the historic schools were overrun by perpetually offended snowflakes:
Let every student be plainly instructed and earnestly pressed to consider well the main end of his life and studies is to know God and Jesus Christ which is eternal life (John 17:3) and therefore to lay Christ in the bottom as the only foundation of all sound knowledge and learning. And seeing the Lord only giveth wisdom, let every one seriously set himself by prayer in secret to seek it of Him (Proverbs 2, 3). Every one shall so exercise himself in reading the Scriptures twice a day that he shall be ready to give such an account of his proficiency therein. Harvard 1636 Student Guidelines
All the scholars are required to live a religious and blameless life according to the rules of Gods Word, diligently reading the Holy Scriptures, that fountain of Divine light and truth, and constantly attending all the duties of religion. Yale 1787 Student Guidelines
These quotations are copied from Hobby Lobby’s 4th of July, 2018 ad.
Precious metals come to mind.
How many billions of dollars are illegal aliens draining from our state and federal coffers?
Seems to me, that would be the first thing to cut.
You are really asking that question?
“human institutions were never to be fully trusted to begin with, “
The author probably didn’t recognize how far-reaching his statement is ...
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