Tag Archives: Debt

News

How is Obama responding to a recession and global instability?

1 Comment

From Investors Business Daily.

Excerpt:

When Democrats held Congress, the Obama agenda was audacious. Today, faced with global unrest and an economic reckoning, the president is filling out basketball brackets and scolding school bullies.

‘There is only one president,” Senate Budget Committee Chairman Kent Conrad, D-N.D., told Politico this week, when asked if President Obama should be exercising leadership toward reforming America’s out-of-control entitlement spending programs, such as Medicare and Social Security.

The soothsayer famously told Julius Caesar to “beware the ides of March.” One of the priority items for Obama on Tuesday, March 15, was taping his picks for the NCAA basketball tournament.

Last week, the president and the first lady were holding a “White House Conference on Bullying Prevention,” at which he recalled being taunted because of “big ears and the name that I have.” He lamented recent youthful suicides, such as those of Ty Field and Carl Walker-Hoover.

We can’t just accept that “kids will be kids,” Obama insisted, citing data showing that many American students have been “pushed, shoved, tripped, even spit on.”

Then, of course, there is the partying. Late last month, the president and first lady treated themselves to an East Room concert by Smokey Robinson, Sheryl Crow, comedian Jamie Foxx and others. At previous soirees, the Obama White House has hosted Stevie Wonder, Paul Simon, Tony Bennett, Bob Dylan, Joan Baez, and even a cavalcade of stars from Broadway shows.

And let’s not forget former Beatle Paul McCartney being flown in from England to sing “Michelle” to the first lady and attack President George W. Bush from the East Room stage.

He has no idea what the average American family is facing right now.

 

 

 

News

Veronique de Rugy debunks myths about public sector pension liabilities

Leave a comment

From Reason magazine. (H/T Hyscience)

Bullet point summary:

Myth 1: Unfunded state pensions do not represent an immediate threat and are therefore not in crisis.
Fact 1: In the best case scenario, some state pension funds will run out as soon as 2017. And the longer the states wait to fully fund their pensions, the more drastic the financial consequences will be.

Myth 2: State debt accurately reflects state liabilities. And state default is not a concern because the federal government will bail the states out before they reach that point.
Fact 2: Many government pension liabilities are kept off the books, so most states and cities underestimate their actual debt.

Myth 3: State and local workers are not overpaid. And even if they are, changing their compensation won’t make a difference.
Fact 3: While this is a complex issue, the total compensation package for state workers does tend to exceed that of their private-sector counterparts.

Myth 4: The financial crisis, which caused a depreciation of pension assets, is the real culprit behind pension underfunding.
Fact 4: While the recession dealt a severe blow to state pensions, the problem of pension underfunding dates back to the early 2000s. Many states had already failed to cover the cost of promised benefits even before they felt the full weight of the Great Recession.

And conclusion:

Here’s the bottom line: We can argue endlessly over when the pension plans will run out of cash, or what the true value of the unfunded liabilities is. We can even debate what the true meaning of being broke. But there is one issue where there is no room for debate. Once the pension plans run out of money, the payments will have to come out of general funds, meaning out of the pockets of taxpayers. If the states want to avoid this, they must push through reforms as soon as possible. A good first step would be to switch to accounting methods that show the true market value of their liabilities. Once those methods are in place, lawmakers should consider moving away from defined benefit pensions.

What states like Wisconsin and Ohio are doing is completely necessary. This is a real crisis, and we need to act now to make sure that taxpayers are not squeezed when the money runs out.

News

Government handouts make up 35% of all wages

1 Comment

From CNBC.

Excerpt:

Government payouts—including Social Security, Medicare and unemployment insurance—make up more than a third of total wages and salaries of the U.S. population, a record figure that will only increase if action isn’t taken before the majority of Baby Boomers enter retirement.

Even as the economy has recovered, social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.

“The U.S. economy has become alarmingly dependent on government stimulus,” said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients. “Consumption supported by wages and salaries is a much stronger foundation for economic growth than consumption based on social welfare benefits.”

The economist gives the country two stark choices. In order to get welfare back to its pre-recession ratio of 26 percent of pay, “either wages and salaries would have to increase $2.3 trillion, or 35 percent, to $8.8 trillion, or social welfare benefits would have to decline $500 billion, or 23 percent, to $1.7 trillion,” she said.

[…]Social welfare benefits have increased by $514 billion over the last two years, according to TrimTabs figures, in part because of measures implemented to fight the financial crisis. Government spending normally takes on a larger part of the spending pie during economic calamities but how can the country change this make-up with the root of the crisis (housing) still on shaky ground, benchmark interest rates already cut to zero, and a demographic shift that calls for an increase in subsidies?

At the very least, we can take solace in the fact that we’re not quite at the state welfare levels of Europe. In the U.K., social welfare benefits make up 44 percent of wages and salaries, according to TrimTabs’ Schnapp.

You can see a nice graph of welfare spending and another graph of single motherhood in this post at Director Blue. He makes the same point I made about increased welfare spending destroys marriage by reducing the need for men in their traditional roles.