is the US the next Argentina?

Discussion in 'Economics' started by zdreg, Aug 6, 2010.

  1. zdreg

    zdreg

    Argentina during its fiscal crisis went down because their federal government guaranteed the debt and pension obligations of their provinces.

    will the US do the same for the states with the same results? the results were massive unemployment and massive inflation.
    http://www.nytimes.com/2010/08/07/your-money/07money.html?src=me&ref=your-money

    The Coming Class War Over Public Pensions
    By RON LIEBER

    There’s a class war coming to the world of government pensions.

    The haves are retirees who were once state or municipal workers. Their seemingly guaranteed and ever-escalating monthly pension benefits are breaking budgets nationwide.

    The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of those people will be paying higher taxes or getting fewer state services as their states put more money aside to cover those pension checks.

    At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying.

    The figure comes from a study by the Pew Center on the States that came out in February. Pew estimated a $1 trillion gap as of fiscal 2008 between what states had promised workers in the way of retiree pension, health care and other benefits and the money they currently had to pay for it all. And some economists say that Pew is too conservative and the problem is two or three times as large.

    So a question of extraordinary financial, political, legal and moral complexity emerges, something that every one of us will be taking into town meetings and voting booths for years to come: Given how wrong past pension projections were, who should pay to fill the 13-figure financing gap?

    Consider what’s going on in Colorado — and what is likely to unfold in other states and municipalities around the country.

    Earlier this year, in an act of rare political courage, a bipartisan coalition of state legislators passed a pension overhaul bill. Among other things, the bill reduced the raise that people who are already retired get in their pension checks each year.

    This sort of thing just isn’t done. States have asked current workers to contribute more, tweaked the formula for future hires or banned them from the pension plan altogether. But this was apparently the first time that state legislators had forced current retirees to share the pain.

    Sharing the burden seems to be the obvious solution so we don’t continue to kick the problem into the future. “We have to take this on, if there is any way of bringing fiscal sanity to our children,” said former Gov. Richard Lamm of Colorado, a Democrat. “The New Deal is demographically obsolete. You can’t fund the dream of the 1960s on the economy of 2010.”

    But in Colorado, some retirees and those eligible to retire still want to live that dream. So they sued the state to keep all of the annual cost-of-living increases they thought they would be getting in perpetuity.

    The state’s case turns, in part, on whether it is an “actuarial necessity” for the Legislature to make a change. To Meredith Williams, executive director of the Public Employees’ Retirement Association, the state’s pension fund, the answer is pretty simple. “If something didn’t change, we would have run out of money in the foreseeable future,” he said. “So no one would have been paid anything.”

    Meanwhile, Gary R. Justus, a former teacher who is one of the lead plaintiffs in the case against the state, asks taxpayers in Colorado and elsewhere to consider an ethical question: Why is the state so quick to break its promises?

    After all, he and others like him served their neighbors dutifully for decades. And along the way, state employees made big decisions (and built lifelong financial plans) based on retiring with a full pension that was promised to them in a contract that they say has the force of the state and federal constitutions standing behind it. To them it is deferred compensation, and taking it away is akin to not paying a contractor for paving state highways.

    And actuarial necessity or not, Mr. Justus said he didn’t believe he should be responsible for past pension underfunding and the foolish risks that pension managers made with his money long after he retired in 2003.

    The changes the Legislature made don’t seem like much: there’s currently a 2 percent cap in retirees’ cost-of-living adjustment for their pension checks instead of the 3.5 percent raise that many of them received before.

    But Stephen Pincus, a lawyer for the retirees who have filed suit, estimates that the change will cost pensioners with 30 years of service an average of $165,000 each over the next 20 years.

    Mr. Justus, 62, who taught math for 29 years in the Denver public schools, says he thinks it could cost him half a million dollars if he lives another 30 years. He also notes that just about all state workers in Colorado do not (and cannot) pay into Social Security, so the pension is all retirees have to live on unless they have other savings.

    No one disputes these figures. Instead, they apologize. “All I can say is that I am sorry,” said Brandon Shaffer, a Democrat, the president of the Colorado State Senate, who helped lead the bipartisan coalition that pushed through the changes. (He also had to break the news to his mom, a retired teacher.) “I am tremendously sympathetic. But as a steward of the public trust, this is what we had to do to preserve the retirement fund.”

    Taxpayers, whose payments are also helping to restock Colorado’s pension fund, may not be as sympathetic, though. The average retiree in the fund stopped working at the sprightly age of 58 and deposits a check for $2,883 each month. Many of them also got a 3.5 percent annual raise, no matter what inflation was, until the rules changed this year.

    Private sector retirees who want their own monthly $2,883 check for life, complete with inflation adjustments, would need an immediate fixed annuity if they don’t have a pension. A 58-year-old male shopping for one from an A-rated insurance company would have to hand over a minimum of $860,000, according to Craig Hemke of Buyapension.com. A woman would need at least $928,000, because of her longer life expectancy.

    Who among aspiring retirees has a nest egg that size, let alone people with the same moderate earning history as many state employees? And who wants to pay to top off someone else’s pile of money via increased income taxes or a radical decline in state services?

    If you find the argument of Colorado’s retirees wanting, let your local legislator know that you don’t want to be responsible for every last dollar necessary to cover pension guarantees gone horribly awry. After all, many government employee unions will be taking contrary positions and doing so rather loudly.

    If you work for a state or local government, start saving money outside of the pension plan if you haven’t already, because that plan may not last for as long as you need it.

    And if you’re a government retiree or getting close to the end of your career? Consider what it means to be a citizen in a community. And what it means to be civil instead of litigious, coming to the table and making a compromise before politicians shove it down your throat and you feel compelled to challenge them to a courthouse brawl.

    “We have to do what unions call givebacks,” said Mr. Lamm, the former Colorado governor. “That’s the only way to sanity. Any other alternative, therein lies dragons.”
     
  2. MattF

    MattF

    "contracts" don't mean crap if there's no money to honor them.

    If anything they were a way to keep these people working, because not many else I bet would have taken some of those jobs during those decades.
     
  3. Personal "immunity" is very very important.
     
  4. Eight

    Eight

    Until the Warlords roll up and demand your food and women...
     
  5. Keep a lot of seeds around or know the local flora and fauna.

    Warlords are women; go to the movies more often.

    The hierarchy is money, power information.

    A neat recent book is about fighter pilot of the vietnam era.

    He was a german youth who came to America. Post WWII his mother taught him to live off the land in Germany before he immigrated and joined the Navy.

    One of the fun things about doing Sierra Club work projects is serving or' doevres each evening before dinner. The desert is an endless supply of food.

    Information is the source of immunity.
     
  6. Inflation - and the under reporting of inflation in the government Stats is the only solution.
     
  7. zdreg

    zdreg

    it is certainly a politician's solution who is looking towards reelection by the masses,
    It is certainly not the solution for a country looking to enhance its economic future.
     
  8. zdreg

    zdreg

  9. zdreg

    zdreg

    "
    washingtonpost.com
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    A remedy for beggar states

    By George F. Will
    Sunday, December 26, 2010;

    The nation's menu of crises caused by governmental malpractice may soon include states coming to Congress as mendicants, seeking relief from the consequences of their choices. Congress should forestall this by passing a bill with a bland title but explosive potential.

    Principal author of the Public Employee Pension Transparency Act is Rep. Devin Nunes, a Republican from California, where about 80 cents of every government dollar goes for government employees' pay and benefits. His bill would define the scale of the problem of underfunded state and local government pensions and would notify states not to approach Congress like Oliver Twists, holding out porridge bowls and asking for more.

    Corporate pension funds are heavily regulated, including pre-funding requirements. A federal agency, the Pension Benefit Guaranty Corp., copes with insolvent ones. By requiring transparency, the government gave the private sector an incentive to move to defined contributions from defined-benefit plans, which are now primarily luxuries enjoyed by public employees.

    Less candor, realism and pre-funding are required of state and municipal governments regarding their pension plans. Nunes's bill would require them to disclose the size of their pension liabilities - and the often-dreamy assumptions behind the calculations. Noncompliant governments would be ineligible for issuing bonds exempt from federal taxation. Furthermore, the bill would stipulate that state and local governments are entirely responsible for their pension obligations and the federal government will provide no bailouts.

    Nunes's bill would not traduce any state's sovereignty: Each would retain the right not to comply, choosing to forfeit access to the federally subsidized borrowing that facilitated their slide into trouble.

    Those troubles are big. A study by Northwestern University's Kellogg School of Management calculates the combined underfunding of pensions in the all municipalities at $574 billion. States have an estimated $3.3 trillion in unfunded pension liabilities.

    Nunes says that 10 states will exhaust their pension money by 2020, and all but eight states will by 2030.

    States' troubles are becoming bigger. Hitherto, local governments have acquired infusions of funds from federal budget earmarks, which are now forbidden. Furthermore, states are suffering "ARRA hangover" - withdrawal from the American Recovery and Reinvestment Act, a.k.a. the 2009 stimulus. With about $150 billion for state and local governments, it raised the federal portion of state budgets from about a quarter to a third. Also, in 2009 and 2010, states and localities borrowed almost $200 billion through the ARRA's Build America Bonds program, under which Washington pays 35 percent of the interest costs. Republicans, in another victory over the president in negotiations on extending the Bush tax rates, extinguished that program, which they say primarily produced more public-sector employees.

    There are legal provisions for municipalities to declare bankruptcy. Some have done so. As many as 200 are expected to default on debt next year. There are, however, no bankruptcy provisions for states. Some who favor providing such provisions say states are "too big to fail," and under bankruptcy, judges could rewrite union contracts or give states powers to do so, thereby reducing existing pension obligations. Unfortunately, government-administered bankruptcy of governments might be even more unseemly than Washington's political twisting of the bankruptcy process on behalf of General Motors and Chrysler, including the use of TARP funds supposedly restricted for "financial institutions."

    Oliver Twist did not choose his fate. California, New York and Illinois - three states whose conditions are especially parlous - did. And in November, each of these deep-blue states elected Democratic governors beholden to public employee unions.

    San Francisco is spending $400 million a year on public employees' pensions, up from $175 million in 2005. In November, San Franciscans voted on Proposition B, which would have required city employees to contribute up to 10 percent of their salaries to their pension plans, and to pay half the health-care premiums of their dependents. Michael Moritz, a venture capitalist, says: "A typical San Francisco resident with one dependent pays $953 a month for health care, while the typical city employee pays less than $10."

    San Francisco voters defeated Proposition B. If they now experience a self-inflicted budgetary earthquake, there is no national obligation to ameliorate the disaster they, like many other cities and states, have chosen.

    People seeking backdoor bailouts hope that the fourth branch of government, a.k.a. Ben Bernanke, will declare an emergency power for the Federal Reserve to buy municipal bonds to lower localities' borrowing costs. This political act might mitigate one crisis by creating a larger one - the Fed's forfeiture of its independence.

    georgewill@washpost.com

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    http://www.washingtonpost.com/wp-dyn/content/article/2010/12/23/AR2010122304421_pf.html

    http://snipurl.com/1pyyg7

    what is the remedy for a large beggar country like the US?
     
  10. doubtful- u cannot compare the US with such a small economy as agentina
     
    #10     Dec 27, 2010