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 runway––three years earlier than previously forecast.
Going down to the state and local level, a May 2018 report by Harvard University’s 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 Moody’s to the Wall Street Journal, the combined pension hole of all U.S. states and cities is now equal to the world’s 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 trillion–7 percent of GDP–and warns that, without radical policy changes, the country’s 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 University’s 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 you’re on the left) or from “lazy welfare cheats” and “overcompensated public employees” (if you’re 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 revenue–that is, when government can no longer tap the credit markets without paying a prohibitively high interest rate–every 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 Rico’s 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 factions–bondholders, taxpayers, beneficiaries of public programs, and municipal employees–chip 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 loss–be 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 college–the 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 lion’s 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 life’s seeming unfairness. In the words of Rev. Dr. Willard Ashley, co-editor with Rabbi Stephen Roberts of “Disaster Spiritual Care,” America’s 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 America’s 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 banker’s 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 University’s 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 America’s post-crisis future
All that has to be done is seize 401K money from “the rich”.
Then duck and hide from the bloody retribution that will follow.
“Teachers and other public workers”
If they have to swim in the same investment markets as we do, those investment markets are sure to be better regulated and better for asset purchasers.
It’s time to end pension apartheid.
“Gold, silver, bitcoin.”
You can’t beat the government.
It can take 20 years of one’s work with 20 words of a law.
Oops - I left out Nixon decoupling the currency from gold backing in 1971. This led to unrestrained fiat money worldwide, more economic mess.
Very true. However, I can emigrate with my Satoshis/Bitcoins intact, through an airport, undetected. This cannot be done with PMs.
“will shortly threaten the financial security of both current and retired government workers.”
They’ll still have more financial security than most Social Security recipients.
M2 ball 168gr Black tip armor piercing.
Obama’s solution was:
1. make inflation 4 to 5%
2. officially pretend inflation was 1 to 2%
Here’s how you solve this crisis and make America 100 times more solvent than any other country. Get rid of medical insurance companies and go to direct pay for services, no middle man at all. That is the solution.
stop paying out govt pensions until at least age 62 ...
while we're at it, for SS, pay everybody every single dollar back that they paid in, but after that its all indexed to your income so if you're collecting your big fat obscene govt pension you won't be getting any more SS....
and stop paying illegals anymore SS and stop sending billions to mexico for the "children" or mexicans working here..
Cut welfare AND close the border. No benefits to illegals. None.
History repeats. How has this been handled before? How are we currently handling?
Ongoing-the Fed prints money and the purchasing power of the dollar decreases. In my lifetime, the value of the dollar has been reduced by 98% at least. Anyone remember when a 3 cent stamp was used to mail a letter? This helps debtors.
Source for below statements-James Rickards-Financial Advisor to DOD:
1978-US$ nearly ceased to be reserve currency-US Treasury issued bonds denominated in Swiss Francs.
1977-1981 Inflation was over 50% in 5 years-IMF issued 12.1 billion SDRs to provide liquidity.
1981-1986 Paul Volkner let interest rates climb and inflation was finally under control.
Those are the recent ones-there have been others-one that’s well known is the Roosevelt devaluation of the dollar, to fight deflation. Gold was revalued from $20.67 per oz to $35 per oz.- US$ devalued by 40%.
Hard Assets are necessary in such times-Precious Metals 10-20%, Land - 10-20%, cash 30% are his advice.
I consider food to be a good investment-you have to purchase it at some point, and it’s bound to cost more down the road. I like to buy Silver Eagles as a hedge to pay property taxes should the dollar be revalued.
We grow a lot of our own food. We are now out of debt. Get prepared for the worst, and hope for the best.
If u have weapons and ammo u will take what u need
Correct. The dollar sucks, except when you compare it to all other currencies.
During World War II, Congress introduced payroll withholding and quarterly tax payments with the vote of the Current Tax Payment Act of 1943.Without withholding, government could never have grown so big. I'd be fewer than one out of a thousand people have any clue how much they are paying in state and federal taxes because you get a net paycheck.
We should revert to everybody going to the Paymaster's window on Friday afternoon to collect cash. Then require people to send in quarterly estimated tax payments. The collective national wailing would wake people in Asia and Europe.
Thanks for informing me. I didn’t recognize that, but you are correct. I’ll add it to the list.
“Any solutions in this mental masturbation?”
Privatize it, give 25 cents on the dollar and let the markets handle it.
Just by scanning the text, it was obvious there were several errors. And they are just the ones I quickly noticed, I am sure that there are many more.
1. Medicare is NOT an entitlement. The people that paid into it were to receive it back as a retirement investment that the government was overseeing. Therein lies the problem LBJ and Clinton both raided the money from the SS fund. LBJ used it to fund his social program for the welfare recipients based on the belief that if we support them, they will become outstanding citizens. Instead, it did the opposite, they became dependant on the system thereby becoming dependant on the Democratic party to provide for them for generations to come. Clinton used the SS funds to pay off the national debt. thereby making himself look good.
2. The Dems have made it available to any and all. This makes those that have never paid a dime into it eligible for it. But those of us that are citizens must be eligible to receive it, by working for a certain amount of quarters. If you don’t contribute by working that set time, then you don’t get anything. But those that come to this country are automatically eligible without having to pay into the program. My (very liberal) mother was furious that those that were illegal immigrants were getting more SS than she was, while she worked for decades and contributed to the SS fund, they paid nothing. They have also expanded the program to anyone that has a handicap including minors. They get to double dip the program. Get your child a diagnosis of ADHD, then you get government money every month for them, and then on top of that, the government pays you to care for them. This is in addition to their welfare check.
2. Paul was not thrown into the water, he was thrown in jail. Jonah was thrown overboard at night, to be swallowed by the large fish.
It already has. China now has the world bank. We no longer get the discounts on trade and the politician can no longer authorize the world bank to loan money to us or to themselves.
LOUDER
No bailouts of states by the federal government.
LOUDER
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