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The coming civil war… over MONEY!
by Michael Becker

There’s a war coming in the US, and it’s going to be a civil war fought on three fronts rather than the North and South scenario last time around. The results of this civil war are likely to be much uglier than the fallout from the war between the states that killed 500,000 Americans and pitted competing economic cultures against one another. The new civil war is going to pit generations against one another while at the same time pitting the public sector of the economy against the private sector. This coming war will not be fought over slavery or “states rights”, it will be fought over retirement.

The issue we will fight over will be money, but the cause of the war will be politics, specifically the over-reach of government at all levels, the over-promising of politicians buying votes from the general population, the willingness of Americans to accept at face value what they’re being told by their elected officials, and finally the cartel between unions – all unions, but most specifically public employee unions – and their management, specifically elected officials who bargain with public unions and in the process buy their votes.

Let’s look at some numbers, and you might want to have alcohol handy. The problem with looking at the numbers we’re going to be talking about is that they are so big most people simply dismiss them because they refuse to relate to them.

We’ll start with the little numbers.

The US will have an outstanding national debt of $16.4 trillion dollars by the end of this year. At the close of this year we will have run budget deficits – not that we’ve actually had a budget – of over one trillion dollars per year for four consecutive years and the Administration is projecting, through very rosy glasses (Obama promised to reduce the deficit to about $200B by this year during his election campaign in 2008) of $5.6 trillion over the next ten years.

Let me put this in some perspective. Right now only two countries in the civilized world are running larger annual deficits or projecting larger debt in relation to their Gross Domestic Product than the US. Those countries would be Greece and Italy. Our sovereign debt crossed the 100% of GDP barrier this year. Your piece of our sovereign debt is a mere $55,000. If you’re married and have two kids, your household tab is $220,000.

Keep in mind, we’re just talking about “sovereign debt”, that’s the current balance of our national MasterCard and it does not include “unfunded liabilities”, future debt that there is no plan to cover. Here’s where the numbers get really big.

Social security and Medicare have unfunded liabilities of $106 trillion dollars, and there is not even no plan to deal with that number, there’s not even a discussion of when a plan might be discussed. The bottom line is that your retirement is based on your kids and grandkids being willing to pony up roughly everything they’re going to earn so you can refrain from becoming a Walmart greeter. From Deseret News…

The Congressional Budget Office estimates that it’s possible to sustain today’s level of federal spending and even achieve a balanced budget. All that Congress would have to do is raise the lowest income tax bracket of 10 percent to 25 percent and the middle tax bracket of 25 percent to 66 percent and raise the 35 percent tax bracket to 92 percent.

Got that? If you’re hoping your kids are middle class Americans, they’re going to be forking over 66% of every dollar they earn to the federal government, and most of that will go to pay for Social Security and Medicare (TODAY they would amount to 55% of the federal budget, if we had one). How would you feel if your tax bill tripled? Yeah, me too. That’ll give you an idea how they’ll feel, and why I am insisting we’ve got a civil war brewing.

And, we’re not done. There’s the second front of this war, and the shooting has actually started on this front. It’s called unfunded state and local government pensions and this one is hitting right now.

Orrin Hatch – hopefully serving his final term in the US Senate – published a report last month on the state of public pension systems.

Senator Orrin Hatch, a Utah Republican and ranking member of the Senate Finance Committee, said last month, “Today, public pension debt stands at an alarming $4.4 trillion with outstanding state and local municipal debt at nearly $3 trillion. The public pension crisis plaguing our nation demands a real solution.”

The Hatch report shows that the unfunded pension liabilities of state and local governments have been rising. Mr. Hatch plans to bring forward a series of proposals to reform public pension plans over the next few weeks.

And Senator Hatch’s estimate of $3 trillion is based on the rosy glasses assumption that state and local pension funds will earn 8% returns on their investments – the historical average. Economists use a much lower number for return and estimate that the shortfalls in pension funds could be as high as $4.4 trillion. And, Senator Hatch should keep his nose out of the problem at the state level. The Federal Government has proven to be at least a hundred times more irresponsible with our money than the states and any federal involvement will simply lead to another bail-out, not a fix.

The causes of this shortfall are twofold. First, politicians negotiating with public employee unions, promising a defined benefit and essentially no contribution from union members. Second, those same politicians pushing off funding the plans because the bill wouldn’t come due until long after they’re out of office. Retired on a fat defined-benefit pension.

Let’s be clear. If a businessman tried to put a pension plan in place that emulated Social Security, he’d be put in prison. Same for the state pension funds. I’d love to see politicians going to prison for their part in these Ponzi schemes, but we’d have to expand the corrections system and that’s out of control too.

At the state level the problem is NOW. States can’t print money and most of them can’t borrow to sustain current operations so they’re beginning to have to deal with the issues now, and it’s starting to get ugly. California will likely be the point of the spear on this fight as a number of cities and counties are discovering that they’re in way over their heads.

Chuck McDougald, the chair of the San Mateo County Republican Party wrote an editorial in the San Mateo Daily Journal last month that will give you some feel for the problem. Here’s the money quote (no pun intended).

A pension tsunami is rolling over California taxpayers, destroying all budgets in its path. Years of out of control pension grabs by politicians, unions and complicit managers have left California taxpayers on the hook for close to half a trillion dollars in unfunded state pension liabilities, according to a recent Stanford University study.

State, county and city budgets are also drowning in pension red ink. San Mateo County is one of the worst offenders. According to a study by Northwestern University’s Kellogg School of Management, our county’s taxpayers owe close to $2.5 billion in unfunded pension liabilities for current and future retirees…

Our Board of Supervisors has abdicated its fiduciary responsibility. This year’s budget was “balanced” by withdrawing close to $50 million from reserves to meet escalating pension liabilities. If trends continue, by 2016, the gap will be almost $80 million and county reserves will be gone.

He presents some ideas for solutions to San Mateo County’s problems and the article is worth reading.

So, what to do about all this? In my anything-but-humble-opinion, we need to do two things and do them quickly.

First, at the national level we must return to the idea of individual responsibility. This will be a bitter pill to swallow and it’s going to have to be force fed to about half the population. My retirement has to be my responsibility, and my medical care does too. Social security and Medicare – and Medicaid – must be privatized. They will likely have to be phased out over an extended period of time, but they have to disappear from the federal budget.

Second, we need to drive a stake through the heart of public employee unions. They need to be thrown on the ash heap of history with other bad ideas, like Communism and socialism.

If we don’t start now, don’t expect to be on speaking terms with your progeny, or theirs.

Source: libertynews

Read this and other articles at Mail Magazine 24


 
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