The Haphazard Blog

After finishing work on Friday I headed over to the living room to watch TV and FOX News was on the TV. Turned out, they were the only “news” channel not to be going on-and-on about Tiger Woods with pointless opinion. (He cheated on his wife over and over. There’s no excuse. No one will ever know if he’s really sorry. What did people expect from him besides an apology?) In any case, Glenn Beck was starting and he was talking about pensions.

Personally, I think pensions are the next big mess. I don’t see the government standing by as pensions start to get wiped out when they can no longer be paid. Especially when so many of them will be for former government employees and unions. Just like social security and Medicare, pensions are becoming untenable. The simple math makes no sense on them. Beck showed a clip of the Governor of  New Jersey talking about what it looks like in his state.

One state retiree, 49 years old, paid over the course of his entire career, a total of $124,000 toward his retirement pension and health benefits. What will we pay him? $3.3 million in pension payments over his life and nearly half a million dollars for health care benefits: A total of $3.8m on a $124,000 investment.

So the worker that replaces him will be contributing $8,070/yr to the pension and it will be paying the retired worked $72,300/yr (assumes 30 years of contributions and 35 years of pension payments with 5% increases). What kind of ROI are they expecting to get? This is going on all over the country. When Mercedes-Benz was trying to sell Chrysler off a couple years ago, the buyer’s were trying to avoid purchasing the pension obligations. That was their biggest concern, not the other assets.

Pensions are going to crush companies and states. Here in Kansas, the pension fund is only 56.5% funded ($8.3B shortfall) for their calculated future obligations. I’m certain those calculated future obligations are larger than they calculate given the explosion in government salaries over the last few years. Healthcare is 0% funded ($317M shortfall). Pew Research released an in depth paper for all 50 states, the trillion dollar gap.

Again this is a case where politicians will wait until the last minute to do anything because the only possible solutions for state/federal government are to raise taxes to cover the shortfall or reduce benefits. Best to let the next politician deal with the problem (even better if they can collect theirs first).

Companies will have to stare down bankruptcy to get out. Depending on how well the workers/unions at those companies are connected, the taxpayers may get to bail them out too.

So far, President Obama has talked about taking care of the long term now, but he hasn’t shown any leadership or made any demands of Congress to make those goals a reality. Are we doomed to let things continue until they are so bad? When no one will buy our debt and inflation is running out of control? The Tea Party is a good idea in concept, but from my perspective, they are simply a partisan group who chose a popular issue to attack the President and Democrats with. They’d have a lot more legitimacy if they formed before President Bush left office and attacked his policies that did the same thing we see them attacking now (stimulus, debt).

David Walker was the head of the Government Accounting Office (GAO) from 1998 to 2008. I will assume that he is somewhere between left and center on the political scale since he was appointed by Bill Clinton. The political leanings really shouldn’t matter since this person does not set policy, they only review financials. David Walker was vocal (and continues to be) that the U.S. is on a course for bankruptcy. He was saying this before the wars in Afghanistan and Iraq. Before the economic melt down. Before we added trillions of dollars to the national debt.

Now, when the majority of people in Congress talk about fiscal responsibility they are just a bunch of hypocrites. They are all presiding over the continued destruction of the U.S. budget. The Republicans have essentially forced the Democrats to write a bill that removes virtually all of their objections from last summer yet they will not vote for it. The Democrats have successfully sold out to special interests. When President Obama tells us that their healthcare bill is supported by doctors, nurses, insurance companies and pharmaceutical companies, that is just another way of saying that none of them are going to be adversely affected.

The goal here is reform and a reduction in costs. Medicare is already destroying state budgets (who are unable go to China to get more money i.e. print money) and will eventually bankrupt the federal government. I don’t expect anyone to happily hand over money/profits, but how else do costs come down? If everyone directly involved is happy, then it’s more than likely the rest are getting the short end of the stick.

There is a disconnect when President Obama talks about reform and thinking long term when you look at the bill. They used some trickery talking about the impact of the bill on the budget. They provide a 10 year cost, but you have to dig a little deeper to see that they are booking revenue to spend on the bill immediately, but the actual reform wouldn’t happen until 2013. So with a 3 year head start, the bill will still a $1T deficit after 10 years.  A long term plan would have a surplus after 10 years. If the plan adds to the deficit, then it is just making things worse. If it does nothing, then the current problems remain unchanged.

The bill is nothing more than giveaways to the healthcare industry and tax favors for unions. The healthcare industry is going to get millions of new customers. Millions more with insurance. Millions more seeing doctors and getting procedures. Millions more buying prescription drugs. The unions get a pass on taxes on their super-expensive health insurance. “Reform” is great when you just need to make things worse for the long term.

The entire system is corrupted and slanted in the worst direction if you’re at all concerned about the majority. Everyone is lining up to get “theirs” while they still can. At this rate, when it all comes crumbling down, it will take a very long time to recover. I predict one of two things. It will be worse than the great depression. The government will have no money and all the people who got theirs will leave this country or it will be a twisted parallel of the Wall Street melt down where the United States is too big to fail. The major difference being that every Country that bails us out will be a lot smarter than the government was with Wall Street. Every condition will be tilted in their favor and they’ll do their due diligence.

Getting back to David Walker. He’s been making the rounds on TV lately because he has a new book out now. Everything he says makes sense to me. Our national debt is quickly closing in on GDP. It hasn’t been this bad since the early 1950s. There needs to be a fundamental change in the mindset in Washington. President Obama needs to block bad bills regardless of where they come from, including healthcare. Congress needs to start doing what is best for the Country, not the special interests that cut them campaign checks. The American people need to get involved and elect people who will put what’s best for the Country ahead of their ambitions. It’s a monumental task given how entrenched everyone is, but without it, disaster looms.