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Tuesday, January 13, 2009

Gasping canaries at Fort Sumter

I've written and preached many times on the looming and soon to be unstoppable Social Security and Medicare disaster. The Chair of the Dallas Federal Reserve now estimates the current "infinite horizon discounted value" is $99,000,000,000,000 (yup, you read it right, "trillions"). "Infinite Horizon Discounted Value" (I really like that term! It's such a high brow way of saying "We're screwed!" ) is a term that tells us what we need to put away today, now, this hour, to meet the future debt of Social Security and Medicare. These numbers are not hidden. They're not secret. They're not mysterious or the result of conspiracy. Dallas Fed President Fisher, Dr. Walter E. Williams among many others have been telling us this for years. Williams also tells us that the annual growth of that "infinite horizon discounted value" is $4,650,000,000,000. I've also written that this is a future war between generations. The Baby Boomers first, then their children will start to draw on the system. Now, acknowledging the fact that there is no money in the trust fund, just a bunch of special Treasury Bonds (aka government IOU's), what to do? Well, it seems that that inter-generational is arriving just a bit sooner than I thought.
From Drudge, there is this headline "
Pension Losses Pit Old Against Young as States Beg For Relief...". The problem? The growth in government necessitates growth in bureaucrats and government employees. After a time all those government employees retire and continue to suck off the public teat. Now that states are facing huge debts and pension funds have taken a hit, the state pension funds are also in trouble. In trouble to the tune of over $800,000,000,000. These are monies owed. The money invested by all the states in their pension funds, nationwide, was 57% of what they spent in police and fire protection.
Frank Karpinski, Exec. Dir. of the Employees Retirement System of Rhode Island explains one side of the dilemma (raising taxes) quite nicely:"
I don’t think anybody wants to do that, likes to do that or would say it would be an easy sell anywhere, especially given the current economic situation”. The other remedy is to reduce benefits. However, that also will be a hard sell according to John Adler of Capital Stewardship Program that invests for the Service Employees International Union (the same union that has turned to the government for help):"I believe that our members will oppose such initiatives in collective bargaining or in state legislatures."
I'm not going to talk about the growth of government employee unions such as AFSCME. But, this article points out exactly what will be happening in just a few short years with a $99,000,000,000,000 "infinite horizon discounted value" debt. The only two future options are to raise taxes or cut benefits. Those two options will pit future benefit contributors against future benefit receivers. The present option is to radically address this problem now. But, you have the Democrats who opposed even a modest proposal from President Bush to allow younger workers to invest a small portion of their monies privately. And the prospects of something decent and workable coming from a Congress that can't even run its own lunchroom or Capitol Visitors Center (that started out at a $71MM project bit came in at over $600MM and years late)? Or from a Nancy Pelosi who now runs the House of Representatives as her personal ideological fiefdom?
What also is telltale is where the states expect relief: the Feds. There are only three places the Feds get the "bailout" money: taxes (you pay), borrowing (you pay with higher interest rates and the hope that people will accept the Treasury Bonds), or just print the money (inflation or hyper inflation) whereby you pay as the purchasing power of the dollars you own evaporate before your eyes.
I'm reminded of the laws of physics and economics. The result of attempting to restrain natural forces is a larger expected result: say you have a pressure cooker and keep the heat on and don't either reduce the heat or bleed off the pressure. Eventually the pressure cooker will catastrophically fail. In other words: it will blow up. Guaranteed. Same with economic laws. If something is probably going to happen, is forecast to happen and nothing intervenes to reduce its probability of occurrence, it will happen.
As I sign off on some of my emails:"
Illic est a tempestas in horizon. Instruo pro is." "There is a storm on the horizon. Prepare for it."

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