I'm a resident of New Jersey, which means that my property taxes double every decade or so. Sales tax too, keeps going up... Why is this? Our governor recently gave a speech to the State Legislature in Trenton: http://www.nj.com/politics/index.ssf/2010/02/chris_christies_speech_on_budg.html Here's part of the speech: "Letâs tell our citizens the truthâtodayâright nowâabout what failing to do strong reforms costs them. One state retiree, 49 years old, paid, over the course of his entire career, a total of $124,000 towards his retirement pension and health benefits. What will we pay him? $3.3 million in pension payments over his life and nearly $500,000 for health care benefits -- a total of $3.8m on a $120,000 investment. Is that fair? A retired teacher paid $62,000 towards her pension and nothing, yes nothing, for full family medical, dental and vision coverage over her entire career. What will we pay her? $1.4 million in pension benefits and another $215,000 in health care benefit premiums over her lifetime. Is it âfairâ for all of us and our children to have to pay for this excess? The total unfunded pension and medical benefit costs are $90 billion. We would have to pay $7 billion per year to make them current. We donât have that moneyâyou know it and I know it. What has been done to our citizens by offering a pension system we cannot afford and health benefits that are 41% more expensive than the average fortune 500 companyâs costs is the truly unfair part of this equation." ---------------------------------------- I work in the private sector. I'm not getting ANYTHING if/when I retire. Why should I support state workers? And this is global. The obvious case is Greece. We are no different though, it's beginning with our states right now. And I have not even touched upon Social Security and Medicare. And government workers here and in Greece can protest all they want.. but there is no money left. Tax the rest of us? Kill the Currency to pay everyone? Who knows how this will play out. And this is but one crisis of many that are converging.
Simple fact is some states eventually will be unable to fund these obligations. Several are already there. I would be uneasy if I was one of these pensioners and realize the picnic may be nearing an end. Bailouts will continue until there is a full-blown crisis.
No sure but I think he and you forgot to account for a beautiful thing called compounding before making any judgment. Not that I did the calculations or that I think it will make any more sense.
We have exactly the same situation here in California. Our governor is either incapable of understanding the problem, or he doesn't have the courage to say it. Either way, it's just a matter of time until the state goes belly up.
Compound what? I think people need to understand the concept of exponential growth. If something needs to grow, like say, a Pension Fund, 8% per year forever, do you know what that means? It means that it will basically DOUBLE every 8.75 years. Chart that kind of growth and you will see that it goes parabolic in no time. Nothing in nature grows like that forever. Nothing. Yet we created this fictitious monetary and financial system without taking into consideration the finite nature of our world. And how many people does a state have to hire every year to maintain pension contributions at a certain level? Does that number grow infinitely? How laughable... and tragic.
Yes, Misthos, this is the under the radar "public vs private" war that has been building just beneath the surface for a long time now. In good economic times, the ponzi element didn't attract much attention for obvious reasons. At this point, just about every state with substantial legacy costs is going directly down the tubes, all the while pretending that these legacy costs are not the source of the funding crisis. I also suppose that the decision to build a political campaign off of this debate is simply a numbers game. As the government rapidly becomes the sole source of jobs growth AND a larger percentage of the population becomes even more dependent upon government spending, a politician takes the risk of alienating a much larger audience. Meanwhile, those of us who see what a massive fraud these costs are to the taxpayer are moved to the fringe and third party candidates that have no chance of finding a voice in the two party system.
And just think a retired schoolteacher, public transportation worker, etc, etc is receiving a defined "benefit" payout equal to a significant percentage of their salary. On the flipside, a private sector worker, if they have any retirement savings, is forced to try and generate a return with zero percent interest rates and a stock market that has gone flat for what 10-12 years? Just how much savings would it take a private retiree to generate say $60-$70k in annual pension benefits, akin to what an average government worker receives each year of retirement. And just how much of the gigantic stimulus has been diverted into meeting the demands of these legacy costs? How much of the inflationary pressures we see against this backdrop of a deflationary depression is the need to pay out these legacy costs?
I think that's why Pension funds got cozy with Private Equity and Big Banks' riskier products. Many of these endeavors ultimately failed. But why did Pensions take this risk? Out of desperation. Deep down, they know it's a Ponzi and they try like hell to keep it going.