4 ms·

The US will be fine until the promises of the governments, more state and city oriented, come to fruition. The pension debts are so high; think Greece times alm

The US will be fine until the promises of the governments, more state and city oriented, come to fruition. The pension debts are so high; think Greece times almost a hundred; that cities will have to bankrupt to avoid them and even then some may not be able to without changes to state Constitutions. (estimates are near four trillion dollars) All this happens in the background as the can gets kicked down the road again and again but courts are starting to push back forcing cities and states to pay. Then you have the Chicago experiment, where the public unions are ganging up to put one of their own into the mayor slot so they can pay their members what they are "owed". As in, the power of the public employee unions may come to the point where they run their cities top to bottom and the payout will damage the economy. So be bullish, Europe is already suffering through their own pay the piper with Greece as the first in line. Liberalism will collapse like communism for the same reasons, you cannot promise people everything and not pay up. A market crash may or may not happen on its own, there is definitely some very overvalued companies out there; Uber and Tesla come to mind; but watch carefully the play in courts as the tax man will be coming hard and businesses are the first to pay because they are easy to brand as evil

unabridged 12y ago
The public unions are just a tip of the entitlements that need to be paid out. Public union retirees were people with steady employment for 20+ years, they probably have houses and other investments. What about all the other people hitting retirement age who were bounced around many jobs and never even got a pension? This is how basic income will begin, a critical mass of retirees who either lost pensions through company fraud, municipal bankruptcy, or who never even had a pension in the first place. All it takes is a few southern populists to throw off the chains of fiscal conservatism and the money will flow. Greece will never happen here, because we can print as much money as we want. We have spent trillions in Iraq and interest rates haven't even gone up. We could easily put trillions into the hands of the poorest Americans and the Fed would still be able to sell debt below 5% interest.
- innguest 12y ago
  > We have spent trillions in Iraq and interest rates haven't even gone up. That's because they're set by the Fed and not allowed to fluctuate according to market pressure. Surely you knew this? It's the same reason why, some argue, the Fed can't raise rates now (because of leveraged derivatives).
  - unabridged 12y ago
    The Fed can set its discount rate, but the market determines the interest rate it will buy bonds at. And there is still a ton of money buying 30 yr bonds that only pay ~2.5% interest. The Fed keeps rates low because its in their best interest; they are owners, they want inflation to be as low as possible. As long as they can sell enough debt at current rate they would never raise interest rates. The same reason a company who could sell plenty of debt at 5% wouldn't raise their rate to 7%.
    - jbarham 12y ago
      > ...the market determines the interest rate it will buy bonds at. No, most newly issued government debt in the US, EU and Japan is now bought by their respective central banks at below fair market interest rates. Consider that some European banks now charge savers and pay borrowers [1]. Do you really think that a fair market would accept negative interest rates?! 1. http://www.nytimes.com/2015/02/28/business/dealbook/in-europe-bond-yields-and-interest-rates-go-through-the-looking-glass.html http://www.nytimes.com/2015/02/28/business/dealbook/in-europ...
  - adventured 12y ago
    Rates, and more importantly inflation, haven't soared because the US controls the global reserve currency, and printing a trillion dollars is barely relevant to that scale. The rest of the world absorbs a sizable portion of US inflation because of that reserve standard. Fair or not, that is how it works and will continue to for at least several decades. Every other country on earth is partially subsidizing US fiscal irresponsibility. The Fed can raise rates, and the US Govt can afford to pay another $500 billion on interest that would be incurred. It wouldn't be pretty, spending would either have to be frozen for five years to allow tax revenues to catch up, or the Fed would have to pay the bill for an extended period of time (again, at part cost to the rest of the world reliant on the dollar).
skywhopper 12y ago
In general the pension "debt" in most states and cities, like in the US Post Office, is overstated. Bizarre accounting assumptions that require the full pension cost for every current employee (or in the case of the USPO, employees not yet born) to be held in liquid assets in the present day are unrealistic. Yes, you may represent the presumed liability as a debt, but it's a debt that we know will not have to be paid out in full and which is constantly being paid off every cycle. In short, pension liability "concerns" are often an effort to create an artificial budget crisis to use for political purposes, rather than an actual crisis. When you have to estimate costs 75 years into the future (as the Post Office is required to), the numbers look big, but you also have 75 years to bring in the revenue to pay for it.
steven777400 12y ago
Moving forward, many governments are doing away with or reducing pensions for newer employees (for example, in Washington State where I work, the old PERS 1 pension was replaced with a choice of a lesser pension or a 401(k) style plan instead). Only "grandfathered in" employees have PERS 1 pension. However, I think the promises made to that generation must be considered. In many cases, working for the government is less cash salary in exchange for other benefits. For example, I make $87k working for the state but was offered $110k+bonus at Microsoft. Why the difference? The state can compensate me in additional non-monetary ways, which make up the difference of the value proposition. If that ceases to be true, so be it, and I will seek employment else; but don't try to go back in time and retroactively revoke something earned. If those promised, contracted benefits are taken away with the swipe of a pen, why should that be a legal or moral thing to do? I'm ok with saying "moving forward, we won't be offering pensions to anyone new", but to go back in time and invalidate the contracted benefit from past work? It's like if you contract with someone and say "work for a month and I will pay for $5000." Then at the end of the month, you say "Well, I don't have the money. That's too bad." Of course that would be a violation and the courts would step in. Should it be any different with the state?

unabridged 12y ago

The public unions are just a tip of the entitlements that need to be paid out. Public union retirees were people with steady employment for 20+ years, they probably have houses and other investments. What about all the other people hitting retirement age who were bounced around many jobs and never even got a pension? This is how basic income will begin, a critical mass of retirees who either lost pensions through company fraud, municipal bankruptcy, or who never even had a pension in the first place. All it takes is a few southern populists to throw off the chains of fiscal conservatism and the money will flow. Greece will never happen here, because we can print as much money as we want. We have spent trillions in Iraq and interest rates haven't even gone up. We could easily put trillions into the hands of the poorest Americans and the Fed would still be able to sell debt below 5% interest.

innguest 12y ago
> We have spent trillions in Iraq and interest rates haven't even gone up. That's because they're set by the Fed and not allowed to fluctuate according to market pressure. Surely you knew this? It's the same reason why, some argue, the Fed can't raise rates now (because of leveraged derivatives).
- unabridged 12y ago
  The Fed can set its discount rate, but the market determines the interest rate it will buy bonds at. And there is still a ton of money buying 30 yr bonds that only pay ~2.5% interest. The Fed keeps rates low because its in their best interest; they are owners, they want inflation to be as low as possible. As long as they can sell enough debt at current rate they would never raise interest rates. The same reason a company who could sell plenty of debt at 5% wouldn't raise their rate to 7%.
  - jbarham 12y ago
    > ...the market determines the interest rate it will buy bonds at. No, most newly issued government debt in the US, EU and Japan is now bought by their respective central banks at below fair market interest rates. Consider that some European banks now charge savers and pay borrowers [1]. Do you really think that a fair market would accept negative interest rates?! 1. http://www.nytimes.com/2015/02/28/business/dealbook/in-europe-bond-yields-and-interest-rates-go-through-the-looking-glass.html http://www.nytimes.com/2015/02/28/business/dealbook/in-europ...
- adventured 12y ago
  Rates, and more importantly inflation, haven't soared because the US controls the global reserve currency, and printing a trillion dollars is barely relevant to that scale. The rest of the world absorbs a sizable portion of US inflation because of that reserve standard. Fair or not, that is how it works and will continue to for at least several decades. Every other country on earth is partially subsidizing US fiscal irresponsibility. The Fed can raise rates, and the US Govt can afford to pay another $500 billion on interest that would be incurred. It wouldn't be pretty, spending would either have to be frozen for five years to allow tax revenues to catch up, or the Fed would have to pay the bill for an extended period of time (again, at part cost to the rest of the world reliant on the dollar).

skywhopper 12y ago

In general the pension "debt" in most states and cities, like in the US Post Office, is overstated. Bizarre accounting assumptions that require the full pension cost for every current employee (or in the case of the USPO, employees not yet born) to be held in liquid assets in the present day are unrealistic. Yes, you may represent the presumed liability as a debt, but it's a debt that we know will not have to be paid out in full and which is constantly being paid off every cycle. In short, pension liability "concerns" are often an effort to create an artificial budget crisis to use for political purposes, rather than an actual crisis. When you have to estimate costs 75 years into the future (as the Post Office is required to), the numbers look big, but you also have 75 years to bring in the revenue to pay for it.

steven777400 12y ago

Moving forward, many governments are doing away with or reducing pensions for newer employees (for example, in Washington State where I work, the old PERS 1 pension was replaced with a choice of a lesser pension or a 401(k) style plan instead). Only "grandfathered in" employees have PERS 1 pension. However, I think the promises made to that generation must be considered. In many cases, working for the government is less cash salary in exchange for other benefits. For example, I make $87k working for the state but was offered $110k+bonus at Microsoft. Why the difference? The state can compensate me in additional non-monetary ways, which make up the difference of the value proposition. If that ceases to be true, so be it, and I will seek employment else; but don't try to go back in time and retroactively revoke something earned. If those promised, contracted benefits are taken away with the swipe of a pen, why should that be a legal or moral thing to do? I'm ok with saying "moving forward, we won't be offering pensions to anyone new", but to go back in time and invalidate the contracted benefit from past work? It's like if you contract with someone and say "work for a month and I will pay for $5000." Then at the end of the month, you say "Well, I don't have the money. That's too bad." Of course that would be a violation and the courts would step in. Should it be any different with the state?