The Bankrupt United States of America

JustaSCOUNDREL said:

Becuse fuckwaffle was incorrect. Any child born to a U.S. citizen (father or mother) outside the U.S. is eligible for citizenship if applied for by U.S. citizen parent.

In McCain's case he was born to U.S. citizens while stationed outside of the U.S. while serving in the military automatic citizenship is given just as though the child was born in Kansas.. A slightly different thing but, essentially the same as I first stated.

In the 2008 election when Obama's citizenship was questioned the same thing was brought up about McCain but was quickly shot down.

I'm not an expert on those things but I do have some knowledge.

Mike

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Specifically, we examine employment trends in 366 detailed occupations. We formed three equal groups, each representing a third of U.S. employment in 2008: lower-wage occupations with median hourly wages from $7.69 to $13.83; mid-wage occupations with median hourly wages from $13.84 to $21.13; and higher-wage occupations with median hourly wages from $21.14 to $54.55 (all in 2012 dollars).

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The pattern is striking. During the Great Recession, employment losses occurred across the board, but were concentrated in mid-wage occupations. By contrast, in the recovery to date, employment growth has been concentrated in lower-wage occupations, which grew 2.7 times as fast as mid-wage and higher-wage occupations:

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 Lower-wage occupations constituted 21 percent of recession job losses, but fully 58 percent of recovery growth.
 Mid-wage occupations constituted 60 percent of recession job losses, but only 22 percent of recovery growth.
 Higher-wage occupations constituted 19 percent of recession job losses, and 20 percent of recovery growth.

- National Employment Law Project, "The Low-Wage Recovery and Growing Inequality", August 2012

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The U.S. Postal Service, on the brink of default on a second multibillion-dollar payment it can't afford to pay, is sounding a new cautionary note that having squeezed out all the cost savings within its power, the mail agency's viability now lies almost entirely with Congress.

In an interview, Postmaster General Patrick Donahoe said the mail agency will be forced to miss the $5.6 billion payment due to the Treasury on Sunday, its second default in as many months. Congress has left Washington until after the November elections, without approving a postal fix.

For more than a year, the Postal Service has been seeking legislation that would allow it to eliminate Saturday mail delivery and reduce its $5 billion annual payment for future retiree health benefits. Since the House failed to act, the post office says it's been seeking to reassure anxious customers that service will not be disrupted, even with cash levels running perilously low.

"Absolutely, we would be profitable right now," Donahoe told The Associated Press, when asked whether congressional delays were to blame for much of the postal losses, expected to reach a record $15 billion this year.

He said the two missed payments totaling $11.1 billion for future retiree health benefits — payments ordered by Congress in 2006 that no other government agency or business is required to make — along with similar expenses make up the bulk of the annual loss. The remainder is nearly $3 billion in losses, he said, which would have been offset by savings if the service had been allowed to move to five-day mail delivery.

Donahoe said the post office will hit a low point in cash next month but avert immediate bankruptcy due to a series of retirement incentives, employee reductions and boosts in productivity among remaining staff that saved nearly $2 billion over the past year.

But the post office has few tools left to build its revenue, he said, without either having to pay upfront money it lacks or get approval from postal unions or Congress.

"We've done a lot to reduce cost out of our system," Donahoe said. "The problem now is this: There's nowhere to go."

Postal unions also say Congress is mostly to blame for losses, but disagree that a reduction to five-day delivery is an answer.

"What is needed is for Congress to undo the harm it has done with the prefunding mandate and for the Postal Service to develop a balanced plan moving forward," said Fredric Rolando, president of the National Association of Letter Carriers. He said cutting Saturday delivery would in particular hurt rural residents and the elderly who depend more heavily on the mail for prescription drugs and other goods.

The Postal Service last month failed to pay $5.5 billion, its first default ever on a payment. While it will miss a second payment Sunday, it expects to make a $1.4 billion payment due to the Labor Department on Oct. 15 for workers' compensation. Cash levels are expected to hit a low after that labor payment before rising again due to increased volume from holiday and election mail, including ballots for early voting.

The mail agency said the two payment defaults will not affect day-to-day operations. Post offices will stay open, and suppliers and employees will get paid. Longer term, however, Donahoe has cautioned that a "crisis of confidence" over postal solvency could damage growth.

The post office also remains vulnerable to shifts in the economy that could suppress mail volume. Both FedEx Corp. and UPS recently have cut their earnings forecasts, citing in part slow global economic growth.

"The key thing is Congress must act during the lame-duck session and get this whole thing behind us," said Donahoe, referring to the few weeks lawmakers will be in session after the election before a new Congress takes office in January. "We can't have a Postal Service where customers are constantly worried about our ability to make payments."

"That's no way to run a business," he said.

Congress will have a full agenda of pressing fiscal issues when it returns in November, and some lawmakers have raised the possibility that postal legislation will get pushed over to the next Congress. Rep. Darrell Issa, R-Calif., who chairs the House Oversight and Government Reform Committee and is a sponsor of the House bill, has said he believes some kind of legislation can be passed in the lame-duck session, although it may not be as comprehensive as initially sought.

The Senate passed a postal bill in April that would have provided financial relief in part by reducing the annual health payments and providing an $11 billion cash infusion, basically a refund of overpayments the Postal Service made to a federal pension fund. The House, however, remains stalled over a separate bill that would allow for aggressive cuts, including an immediate end to Saturday delivery. Rural lawmakers in particular worry about the impact of post office closures in their communities.

The Postal Service originally planned to close low-revenue post offices in rural areas to save money, but after public opposition it now is moving forward with a new plan to keep 13,000 of them open with shorter operating hours. The Postal Service also will begin closing more than 200 mail processing centers next year, but the estimated annual savings of $2.1 billion won't be realized until the full cuts are completed in late 2014.

"Once again, we are watching the days slip away before the U.S. Postal Service faces the second default of its history. Republican leaders in the House of Representatives have now had 11 months to do the right thing and fix the serious, but solvable, financial challenges," said Sen. Tom Carper, D-Del., a co-sponsor of the Senate bill. "Every day Congress delays fixing this problem, the financial challenge grows more difficult and the potential solutions become more expensive."

The Postal Service, an independent agency of government, does not receive tax dollars for its day-to-day operations but is subject to congressional control.

Art Sackler, co-coordinator of the Coalition for a 21st Century Postal Service, a group representing the private-sector mailing industry, said many businesses are preparing their budgets for next year and have no idea whether to expect disrupted service or higher postage costs.

"Congress needs to act quickly on comprehensive postal reform," he said. "These defaults, mounting debts and declining revenues aren't just going to hurt the Postal Service; they're going to hurt the 8 million Americans whose jobs depend on the mail."

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Funding for U.S. state retirement plans fell for a fourth straight year as insufficient contributions and inadequate investment gains overwhelmed cuts that more than 40 legislatures have made to benefits since 2007.

The median funding ratio was 71.7 percent for the year through June 2011, down from 74.3 percent the prior period, data compiled by Bloomberg show. Taxpayers in Illinois, the weakest of the group for the fourth straight year at 43.4 percent, are paying the price: the relative borrowing cost of the state and its localities is almost double the five-year average.

More than 30 states, including New Jersey and California, had less than 80 percent of assets needed to meet obligations to workers and retirees, the data show. That left them short of the threshold for sustainability of their plans.

“A lot of the states have done the easiest stuff first,” Christopher Mier, chief municipal strategist at Loop Capital Markets in Chicago, said regarding benefit cuts. “From there it gets progressively more difficult.”

The funding drop shows the challenge states face trying to recover from investment losses suffered during the recession that ended more than three years ago. The Standard & Poor’s 500 Index (SPX) sank 38.5 percent in 2008, the most since 1937.

Not Enough
Lawmakers have lifted retirement ages, forced workers to contribute more to plans and suspended cost-of-living increases. Yet more than 30 states still failed to deposit enough into their systems last year as they struggled to balance budgets, according to Mier.

“If they had been diligently making their contributions there wouldn’t have been this crisis,” said David Draine, a senior researcher in Washington at the Pew Center on the States. “It’s the states that came into the recession with poorly funded plans and a history of failing to make sufficient contributions that were already in a very vulnerable spot.”

Estimates of states’ combined pension deficit have ranged from $1 trillion to as much as $4 trillion as lawmakers and regulators debate the appropriate rate for discounting liabilities. The Governmental Accounting Standards Board has adopted new rules for next year that could swell the gaps.

Lower Rates
Funding levels are falling as lawmakers cave to pressure to lower assumed rates of return amid volatility in performance.

New York, which has consistently made its actuarially required payments, had less than 100 percent of the assets it needed in 2011 after lowering its rate to 7.5 percent from 8 percent, Bloomberg data show.

The board of the California Public Employees’ Retirement System, the largest public pension fund with $244 billion of assets, voted in March to cut its rate to 7.5 percent from 7.75 percent. The fund earned 1 percent in the year ended June 30, after gaining 21 percent the year before.

California Governor Jerry Brown, a Democrat, last month signed the broadest rollback of public-employee pension benefits in the history of the most-populous state. The changes may save taxpayers as much as $55 billion over 30 years by requiring new employees to pay half the cost of benefits and work longer before retiring. The state’s funding ratio was 78.4 percent, down from 80.7 percent.

Adding Stocks
While corporate plans have been cutting equities in favor of fixed-income, public funds have done the opposite. They’ve increased stocks to nearly 70 percent of portfolios on average over the last decade as they seek higher returns, according to the Center for Retirement Research at Boston College. State systems are also boosting stakes in alternatives such as hedge funds, Cliffwater LLC, an investment advisory firm with offices in New York and Los Angeles, said in a June report.

“They are essentially doubling down to earn their way out of this problem and it’s not working,” said Kimberlee Lisella, vice president of customized strategies at Cutwater Asset Management Corp. in Armonk, New York, which oversees $32 billion. “These strategies have had mediocre returns at best and the volatility has been off the charts.”

Illinois lawmakers in August failed to act on a cost- cutting pension overhaul, ending a one-day legislative session called by Democratic Governor Pat Quinn.

The Democratic-controlled legislature considered increasing employee contributions, passing some costs to local school districts, and forcing workers to choose between the current system and receiving free retirement health care. None won majority support.

Rating Cut
Standard & Poor’s in August cut Illinois’s rating one step to A, sixth-highest, citing “weak pension funding levels and lack of action on reform measures.” New Jersey had its grade dropped by the three major credit raters last year, in part because of its unfunded retirement liability.

Investors demand about 1.5 percentage points of extra yield to own 10-year general-obligation bonds from Illinois issuers rather than AAA securities, compared with a five-year average of 0.88 percentage point, data compiled by Bloomberg show.

California, at A-, is the only state whose grade is lower from S&P.

“We all look like idiots,” Representative Daniel Biss, an Evanston, Illinois, Democrat, said in a speech in August as the House failed to advance a bill that would have eliminated the legislature’s own pension plan, one of five the state manages. “Not the governor, not the other side, not our side -- we all look like idiots.”

Court Challenge
Rhode Island, with an unfunded ratio of about 62 percent, passed one of the most ambitious retirement-system overhauls last year, as the Democratic-controlled legislature defied union opposition. Yet the law, which suspended cost-of-living increases and raised retirement ages, is among the handful being challenged by employees and retirees in court.

Lawmakers “were reckless in the way that they failed to fund the plans, and now they’re being equally reckless in the way they’re going to fix them,” said Steven Kreisberg, director of collective bargaining for the American Federation of State, County and Municipal Employees in Washington. “This is an example of politicians at their worst.”



http://www.bloomberg.com/news/2012-...ar-as-illinois-leads-decline-muni-credit.html

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Zeb_Carter said:

The only thing that brought America out of the depression was World War II...

100% employment
100% production capacity
100% everyone behind the government, well maybe 99.44%

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fuckwaffle said:

Gee all these things, except two, are paid at the state or local level and I live in a state which has no income tax and they seem to be able to pay for all those things with out dipping their fingers in my pocket.

It is true that they get a portion of the tax collected on gasoline to pay for their/my roads.

As for the army, that is one of the things I don't mind paying for.

What I do mind paying for is some asshat, sitting on his fatass in Washington, telling a county in Arizona that they have to reduce their dust emissions or pay a monster penalty. It's Arizona, it's a desert, there will always be dust there. Asshat.

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njlauren said:

One of the funniest things is when I hear the conservatives scream and yell that government stimulous doesn't work, that Keynesian economics is false, etc....they will then say that despite the spending of the New Deal programs, that the US didn't get out of the depression until WWII.......two ironies:

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1)In answer to cries from the conservatives to 'balance the budget' (akin to the tea party today claiming the salvation of the economy is to cut, cut and cut spending), Roosevelt did that in 1937 and the economy cratered, rather then flourished

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but more importantly

2)WWII ended up costing the US something like 765 billion dollars (in 1940's dollars.....back when the average worker was making 50 bucks a week and today makes roughly 1000, even being conservative, that is about 10 trillion in todays dollars...)..in fact, most of the accrued debt of the US in 1980, when Reagan took office, was WWII debt that had been continually refinanced.

In other words, what ended the depression was the largest government stimulous program in history, at least 10 times the size of Tarp and probably more like 30 or 40 times....

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Nine years ago, California Democrat Gray Davis became the first U.S. governor in 82 years to be recalled by voters. The state’s 20 million taxpayers still bear the cost of his four years and 10 months on the job.

Davis escalated salaries and benefits for 164,000 state workers, including a 34 percent raise for prison guards, the first of a series of steps in which he and successors saddled California with a legacy of dysfunction. Today, the state’s highest-paid employees make far more than comparable workers elsewhere in almost all job and wage categories, from public safety to health care, base pay to overtime.

Payroll data compiled by Bloomberg on 1.4 million public employees in the 12 most-populous states show that California has set a pattern of lax management, inefficient operations and out-of-control costs. From coast to coast, states are cutting funding for schools, public safety and the poor as they struggle with fallout left by politicians who made pay-and-pension promises that taxpayers couldn’t afford.

“It was completely avoidable,” said David Crane, a public-policy lecturer at Stanford University.

“All it took was for political leaders to think more about the general population and the future, rather than their political futures,” said Crane, a Democrat who worked as an economic adviser to former Governor Arnold Schwarzenegger, a Republican. “Citizens should be mad as hell, and they shouldn’t take it anymore.”

Billions Short
Across the U.S., such compensation policies have contributed to state budget shortfalls of $500 billion in the past four years and prompted some governors, including Republican Scott Walker of Wisconsin, to strip most government employees of collective-bargaining rights and take other steps to limit payroll spending.

In California, Governor Jerry Brown hasn’t curbed overtime expenses that lead the 12 largest states or limited payments for accumulated vacation time that allowed one employee to collect $609,000 at retirement in 2011. The 74-year-old Democrat has continued requiring workers to take an unpaid day off each month, which could burden the state with new costs in the future.

Last year, Brown waived a cap on accrued leave for prison guards while granting them additional paid days off. California’s liability for the unused leave of its state workers has more than doubled in eight years, to $3.9 billion in 2011, from $1.4 billion in 2003, according to the state’s annual financial reports.

‘It’s Outrageous’
“It’s outrageous what public employees in California receive in compensation and benefits,” said Lanny Ebenstein, who heads the California Center for Public Policy, a Santa Barbara-based research institution critical of public payrolls.

“Until public employee compensation and benefits are brought in line, there will be no answer to the fiscal shortfalls that California governments at every level face,” he said.

Among the largest states, almost every category of worker has participated in the pay bonanza. Britt Harris, chief investment officer at the Teacher Retirement System of Texas, last year collected $1 million -- including his $480,000 salary and two years of bonuses -- more than four times what Republican Governor Rick Perry received. Pension managers in Ohio and Virginia made up to $678,000 and $660,000, respectively, according to the data, which Bloomberg obtained using public- record requests. In an interview, Harris said public pension pay must be competitive with the private sector to attract top investment talent.

Psychiatrists Lead
Psychiatrists were among the highest-paid employees in Pennsylvania, Ohio, Michigan and New Jersey, with total compensation $270,000 to $327,000 for top earners. State police officers in Pennsylvania collected checks as big as $190,000 for unused vacation and personal leave as they retired young enough to start second careers, while Virginia paid active officers as much as $109,000 in overtime alone, the data show.

The numbers are even larger in California, where a state psychiatrist was paid $822,000, a highway patrol officer collected $484,000 in pay and pension benefits and 17 employees got checks of more than $200,000 for unused vacation and leave. The best-paid staff in other states earned far less for the same work, according to the data.

Rising employee expenses are crowding out other priorities for state and local governments and draining resources for college tuition, health care, public safety, schools and other services, Schwarzenegger said in an e-mailed response to questions.

Salaries, Retirement
“California spends most of its money on salaries, retirement payments, health care benefits for government workers, and other compensation,” said Schwarzenegger, 65, who replaced Davis as governor. “State revenues are up more than 50 percent over the past 10 years, but still we’ve had to cut spending on services because so much of that revenue increase went to increases in compensation and benefits.”

Brown, who granted state workers collective-bargaining rights during his first tenure as governor more than three decades ago, has reduced pension costs for new employees while leaving most retirement benefits for current workers intact.

Last year, to balance the budget, he used a policy set by Schwarzenegger, his predecessor, to save $400 million through the forced monthly day off. He persuaded voters to back a tax increase, imposed a hiring freeze as his predecessors did and told as many as 26,000 prison employees they might lose their jobs as thousands of criminals are shifted to county jails.

Inherited Problems
“Governor Brown is busy fixing the many problems that he inherited from past administrations,” said Gareth Lacy, a spokesman for the governor. “California’s $26 billion budget deficit, and the decades-old structural imbalance, was eliminated in large part by cutting waste and slashing costs. The governor also achieved historic reforms to public pensions and workers’ compensation that will save the state billions of dollars.”

Former governor Davis, in a telephone interview, said he now believes state employee compensation is too high.

“I find it offensive that people who work for the state try to turn around and abuse the state through inflated overtime claims and lump-sum payouts,” Davis said. “We have high salaries, they have to come down. There was a time when we could afford them, but we can’t now.”

Brown, who took office in January 2011, had plenty of incentive to crack down. The per-worker costs of delivering services in California vastly exceed those even in New York, New Jersey, Illinois and Ohio, where unions have the same right to bargain collectively for the best pay packages, according to data compiled by Bloomberg.

Sinking Schools
The result isn’t only a heavier burden on California taxpayers. As higher expenses competed for fewer dollars, per- pupil funding of the state’s public schools dropped to 35th nationally in 2009-2010 from 22nd in 2001-2002. Californians have endured recurring budget deficits throughout the past decade and now face the country’s highest debt and Standard & Poor’s lowest credit rating for a U.S. state.

The story of one prison psychiatrist shows how pay largesse has spread.

Mohammad Safi, graduate of a medical school in Afghanistan, collected $822,302 last year, up from $90,682 when he started in 2006, the data show. Safi was placed on administrative leave in July and is under investigation by the Department of State Hospitals, formerly the Department of Mental Health.

Long Hours
The doctor was paid for an average of almost 17 hours each day, including on-call time and Saturdays and Sundays, although he did take time off, said David O’Brien, a spokesman for the department. In a brief interview outside his home in Newark, California, Safi said he’d been placed on leave for working too many hours and declined further comment. An increase in the number of beds at the facility where Safi worked forced him to cover more shifts, and he was allowed to do some of the work from home, said his lawyer, Ed Caden.

Safi and other psychiatrists employed by the state benefited from what amounted to a 2007 bidding war between California’s prisons and mental health departments, after a series of federal court orders forced the state to improve its inmate care. Higher pay in the prison system was matched by mental health, and as psychiatrists followed larger salaries, the state’s cost to provide the care soared.

Last year, 16 psychiatrists on California’s payroll, including Safi, made more than $400,000. Only one did in any other state in the data compiled by Bloomberg, a doctor in Texas. Safi earned more than twice as much as any state psychiatrist elsewhere, the data show.

Accumulated Vacation
The disparity with other states is also evident in payments for accumulated vacation time when employees leave public service. No other state covered by the data compiled by Bloomberg paid a worker more than $200,000 for accrued leave last year, while 17 people got such payments in California. There were 240 employees who received at least $100,000 in California, compared with 42 in the other 11 states, the data show. New Jersey Governor Chris Christie calls such payments “boat checks” because they can be large enough to buy a yacht.

Topping the list was $608,821 paid to psychiatrist Gertrudis Agcaoili, 79, who retired last year from the Napa state mental hospital after a 30-year career. Agcaoili said in a telephone interview that it was her right to take the payment.

‘Against Rules’
“Those payouts are payouts of accumulated salary that it’s against the rules to allow people to accumulate, and it shouldn’t have been done, and shouldn’t be done,” said Marty Morgenstern, California’s labor secretary, who served as state personnel director under Davis. “They didn’t accumulate that kind of leave time in one year. It’s something that went on and on.”

Lacy, the governor’s spokesman, said hiring freezes and furloughs, or the unpaid time Schwarzenegger forced employees to take, combined to inflate accruals of vacation and leave. Lacy said the expiration of Brown’s version of the furloughs at the end of June will help reduce the balances.

Employees are told they must take unpaid furlough days before using paid vacation. That has boosted the backlog of unused leave, especially at agencies with round-the-clock operations.

Other states have taken steps to limit vacation payouts. New Jersey caps checks for departing state employees at $15,000, and New York limits payment of accrued time to 30 vacation days. Most New York employees may accrue 200 sick days, which can be used to offset retiree health-care premiums.

Overtime Millions
California also leads in overtime expenses, data compiled by Bloomberg show. Last year, it paid $964 million in overtime to 110,000 workers, an average of $8,741 per employee. That was more than twice the $415 million New York paid in overtime to 80,000 staff members, for an average of $5,199, and almost as much as all the other states in the database combined. In Georgia, total overtime for 8,935 workers last year was $12.3 million, an average $1,378.

California employees generally make at least 1.5 times their regular pay to work overtime. The state’s overtime costs show mismanagement by the officials who run state departments, said former Georgia Governor Roy E. Barnes, a Democrat.

“Government is no different from business; you have to have good leaders,” Barnes said in a telephone interview. “When you have somebody having that amount of overtime, then there’s not good management control, there’s not good leadership.”

Highway Patrol
The California Highway Patrol, whose brown-and-tan uniforms and weekly adventures in the 1970s and 1980s lit up television screens in the series “CHiPs,” also boasts leading pay and benefits.

The best-paid among the patrol’s sworn and uniformed employees make far more than those in other states, with overtime and lump-sum payouts that enlarge earnings, data compiled by Bloomberg show.

Former division chief Jeff Talbott retired last year from the California Highway Patrol as the best-paid trooper in the 12 largest U.S. states, with $483,581 in salary, pension and other compensation. Talbott declined a request to be interviewed.

While California’s cost of living and relatively high private-sector pay account for some of the disparities in public payrolls, special circumstances in the Golden State combined to drive wages and benefits to levels far beyond other states, data show.

‘Arduous Duty’
Unions pressed for every perk they could squeeze out of governors and their department managers -- including “arduous- duty” pay for office workers and special bonuses for call- center employees “in recognition of the complex workload and level and knowledge required to receive and respond to consumer calls,” state documents show.

Most public employees aren’t overpaid, and differences in compensation can be tied to regional labor markets, whether some states prefer delivering services at the local level and whether they have adequate staffing, said Steven Kreisberg, director of collective bargaining for the American Federation of State, County and Municipal Employees.

“I don’t think there’s this kind of huge disparity as if somehow they’re being overpaid and taking advantage of the systems,” Kreisberg said in a telephone interview from Washington. “This is earned money.”

California has one of the leanest public workforces in the country in terms of the number of state employees per resident, said Lacy, Brown’s spokesman. Measuring the payroll of its state workers per capita, excluding university employees, California ranks third-highest among the 12 largest states, according to data compiled by Bloomberg and the U.S. Census Bureau.

The California payroll totals reflected in the Bloomberg data have their roots in wage negotiations carried out during Davis’s time as governor.

Pension Limits
One of the first goals of state employee unions when Davis took over in 1999 after 16 years of Republican governors was to unwind curbs on pensions put in place by Governor Pete Wilson in 1991. Workers also wanted broad wage increases.

Unions persuaded the California Public Employees’ Retirement System to sponsor legislation called Senate Bill 400, which sweetened state and local pensions and gave retroactive increases for tens of thousands of retirees. Highway-patrol officers were granted the right to retire after 30 years of service with 90 percent of their top salaries, a benefit that was copied by police agencies across the state.

California’s annual payment toward pension obligations ballooned to $3.7 billion in the current fiscal year from $300 million when the bill was enacted. Some cities that adopted the highway-patrol pension plan later cited those costs for contributing to their bankruptcy filings.

Pay Increases
Davis and the Legislature also agreed to labor contracts that gave 164,000 state workers pay increases of 4 percent in 1999 and again in 2000. Those contracts cost the state an extra $1.3 billion within a year, according to the state’s independent Legislative Analyst’s Office.

There were more to come.

After technology stocks plummeted in 2000, cutting tax revenue, Davis asked state workers to postpone additional raises.

In lieu of immediate increases, Davis and the California Legislature agreed to link highway patrol pay to an average of the five biggest law enforcement agencies in the state. The result: escalating raises that came due after Davis left office. Officers’ pay rose 2.7 percent in fiscal 2004, 12.1 percent in fiscal 2005 and 5.6 percent and 5.7 percent in the following years, according the Legislative Analyst’s Office.

Aiding Recruitment
The pay boosts were needed to help bring more officers to the agency at a time it couldn’t fill all its cadet positions, said Jon Hamm, chief executive officer of the California Association of Highway Patrolmen, the union for CHP officers.

“At the time we accomplished our biggest gains, I actually felt I was losing the recruitment war,” Hamm said in an e- mailed statement. “I think it is clear that when our biggest gains were negotiated I did not feel they were ‘excessive;’ in fact, almost the opposite was true.”

The wage increases help explain disparities in the data compiled by Bloomberg in which many California highway patrol officers now earn much more than counterparts in other states. For example, 45 California officers earned at least $200,000 in 2011, compared with nine in other states -- five in Pennsylvania and four in Illinois, according to the data. While more than 5,000 California troopers made $100,000 or more in 2011, only three in North Carolina did, the data show.

Guards Follow
The pay deal for the California Highway Patrol got the attention of the state’s politically potent prison guards’ union, which successfully lobbied to have its compensation tied to that of state troopers.

The result was a pay increase of more than 30 percent for members of the union over the five-year contract. The state’s auditor, Elaine Howle, in July 2002 estimated the contract cost taxpayers an extra $500 million a year.

The prison guards’ union gave Davis more than $3 million for his various elections, including $250,000 a few weeks after the pay increase was negotiated, campaign records show.

California had almost 11,000 workers in the Department of Corrections and Rehabilitation who made $100,000 or more in 2011, and about 900 prison employees earning more than $200,000 a year, data compiled by Bloomberg show. New York had none. Its top-paid officer is a sergeant at Sing Sing Correctional Facility who made $170,000 last year.

Deficit Balloons
Davis had taken office in 1999 with a $12 billion budget surplus. Four years later, he began his second term by reporting a $35 billion budget deficit -- about $1,000 for every man, woman and child in the state.

Davis was recalled in October 2003 amid criticism of the deficit, his handling of an energy crisis that saw power prices soar and political contributions from public-employee unions, technology companies and others.

After Davis left, lawsuits over the quality of care for prison inmates and patients of state mental-health hospitals rapidly elevated pay for doctors, dentists, nurses and psychiatrists.

In 2005 and the years that followed, a federal court took over prison health care and took steps that included reducing the time inmates had to wait for treatment.

That, combined with a crowded prison population, increased the workload and demand for nurses even as a shortage nationwide left the state with vacancies.

Union Rules
Union-negotiated rules required state departments to handle the extra work by offering overtime to California nurses before bringing in contract nurses from private companies. The requirement led to a greater reliance on overtime for nursing in California than in any other state, one that persists to this day.

Nurses in California last year made $673 million in total pay, including $103 million in overtime, or 15.3 percent. By contrast, those in New York made $561 million in total pay, of which almost $40 million was in overtime, or 7.1 percent.

Forty-two nurses in California’s prisons and mental hospitals have reaped especially rich overtime payouts. They made an average of $1.3 million each during the seven years, including $674,000 in overtime.

The highest-paid nurse in the seven years was Lina Manglicmot, who worked at a state prison in Soledad, about 130 miles (209 kilometers) south of San Francisco. She collected $1.7 million from 2005 through 2011, including $1 million in overtime, the data show. Manglicmot declined to comment.

Wage Concessions
Curbing the compensation of California employees eluded Schwarzenegger through two terms as he tried to pry wage concessions back from their unions.

In 2009, he responded to a growing financial crisis by imposing furloughs, or a mandatory unpaid day off each month, for all state workers. The forced time off later grew to three days a month.

Furloughs depressed regular wages while increasing overtime compensation for employees, such as prison guards, who had to work through them. The first six months of the furloughs, for instance, cost California $52 million in accrued vacation time for prison guards alone, according to findings by the state Senate Office of Oversight and Outcomes.

The furloughs led to backlogs of vacation time for other state workers as well, in violation of state rules. California stipulates that workers shouldn’t accumulate more than 640 hours of vacation or personal leave.

Forced Furloughs
“Furloughs were never meant to solve the state’s structural budget problem or save money in the long run,” Schwarzenegger said. “We had to do what was necessary to keep paying the bills and keep the lights on.”

More than 111,000 government employees working for the 12 most populous states collected $710 million in leave payouts last year, the data show. California workers accounted for almost 40 percent and have collected about $1.4 billion since 2005. The payouts have more than doubled in California in the past seven years.

“Those kinds of payments, they are absolutely inappropriate and we are doing everything we can to make sure it doesn’t recur,” said Morgenstern, the state’s labor secretary.

Public employee unions have made some concessions at the bargaining table, such as contributing as much as 5 percent more of their earnings toward pensions, and forgoing overtime pay for some holidays. State worker furloughs under Schwarzenegger amounted to a 15 percent pay cut; under Brown, they’ve been about 5 percent.

Yet the legacy of California’s collective bargaining, budget battles and court struggles over inmate care continue to elevate its payroll, data compiled by Bloomberg show.

Allowing that to happen was a mistake, and taxpayers will be dealing with it for years, said Bob Stern, president of the nonpartisan Center for Governmental Studies in Los Angeles.

“The labor unions really called in their chits, and Davis went along with it,” Stern said by telephone. “In hindsight, they should not have done it, because they made future generations pay for the benefits they approved.”



http://www.bloomberg.com/news/print...-shows-california-leads-u-s-pay-giveaway.html

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DeeZire said:

I haven't been around here in a while, so excuse me for butting in, but one of the problems with our economy is the fact that tax rates on the super-rich are lower than they've been in generations. Plus, tax rates in general are too low - understandable in a recession, but eventually they're going to have to go up. The tax rate for the rich was 90% at one point, 70%, 50%, now the effective rate for many rich elites is 15%. And we wonder why we're running a deficit? Plus, the defense budget has tripled since the late 90's. Granted, defense spending acts like a stimulus if the money is spent here in the states, but the money would be better spent if it was making jobs for the lower classes, who's minimum wage is at least $3 per hour lower than it would be if it was adjusted for inflation from 1960. The lower class folks spend all their money as soon as the get it, which stimulates the economy and raises tax revenue. The rich send their money to offshore tax shelters, which sucks money out of the economy and results in less tax revenue. There's also the recession, which is a big reason why tax revenues don't come close to covering government expenditures.

This link - two investigative journalists interviewed on a PBS news show - gives a pretty good rundown on what's wrong with America today. I know very few people will watch it - as if denial will make the corruption that's ruining our country go away on its own - but the info's there if you're interested.

http://billmoyers.com/episode/full-show-plutocracy-rising/

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Illinois' pension-fund shortfall is by far the largest in the nation, and the clock is ticking for the state's governor and lawmakers to tackle the problem before a new Legislature is sworn in next week. So far, their proposals have stoked frustration from state employees and retirees.

Simply put, Illinois' unfunded pension liability is massive. Democratic Gov. Pat Quinn says the $96 billion of liability has been accumulating for decades, with the state's pension problems dating back at least 70 years.

"There have been 12 governors, 13 speakers of the House and 13 presidents of the Senate that have come and gone, and the issue has kind of confounded our predecessors," he says.

The State's Share
Over those many years, Illinois' teachers, state troopers, university professors and other state employees have been paying their share, contributing about 8 to 12 percent of their salaries out of every paycheck to their pension funds. But the state hasn't.

Illinois' governors and lawmakers have frequently shortchanged the pension systems. They've even skipped some pension payments altogether so they could more freely spend on things more popular with the voters, such as schools, highways, health care and prisons.

The result, says Quinn, is a huge pension shortfall that is growing bigger by the day.

"Our liability every day goes up by $17 million, so we've got to deal with this," the governor says.

Squeezy The Pension Python
Quinn says without changes, the state's pension payment next fiscal year will be quadruple what it was just five years ago. That would leave a lot less money for education, hospitals, health care and roads — a point the governor's office drives home in an informational video.

http://youtu.be/H62W9iLfKv4

The video shows a cartoon snake — Squeezy the Pension Python — squeezing the state Capitol. The tactic amuses some, but has been mocked by others, including some legislators.

Meanwhile, Illinois' credit rating continues to drop and, according to Moody's Investors Service, is now the lowest among all 50 states.

Laurence Msall, president of Chicago-based budget watchdog group The Civic Federation, says time is running out.

"The state is in a financial crisis. The state needs to act. The longer it waits, the more expensive it gets, and the more difficult it will be to stabilize the state," he says.

If the Legislature doesn't act soon, Msall says, Illinois' pension funds could eventually run out of money.

Public Employees Fight Back
Illinois teachers, state employees and retirees are outraged. Hundreds of them rallied at the state Capitol on Wednesday to protest not just the underfunding of their pensions, but also the pending legislation that tries to fix the problem by — in part — reducing their pension benefits.

"There is an assault on our retirement security," says Henry Bayer, who heads the union representing most Illinois state employees.

He says the politicians haven't lived up to their promises.

"Look, we're willing to work toward a solution to the problem, but we are not willing to have the burden of their past failures put on our backs," he says.

Bayer warns any changes will likely be challenged in court, as Illinois' constitution prohibits pension benefits from being diminished.

But a tax increase to shore up the pension funds isn't likely because Illinois just raised its income tax two years ago.

Quinn and legislative leaders will be meeting over the weekend in a race to broker a pension compromise before the Illinois Legislature's lame duck session ends and a new Legislature is sworn in on Wednesday.




http://www.npr.org/2013/01/05/168669269/illinois-claws-at-mountain-of-unfunded-pension-liability

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Stan Druckenmiller, one of the best performing hedge-fund managers of the past three decades, has a warning for the youth of America: Don’t let your grandparents steal your money.

Druckenmiller, 59, said the mushrooming costs of Social Security, Medicare and Medicaid, with unfunded liabilities as high as $211 trillion, will bankrupt the nation’s youth and pose a much greater danger than the country’s $16 trillion of debt currently being debated in Congress.

“While everybody is focusing on the here and now, there’s a much, much bigger storm that’s about to hit,” Druckenmiller said in an hour-long interview with Stephanie Ruhle on Bloomberg Television’s Market Makers. “I am not against seniors. What I am against is current seniors stealing from future seniors.”

Druckenmiller said unsustainable spending will eventually result in a crisis worse than the financial meltdown of 2008, when $29 trillion was erased from global equity markets. What’s particularly troubling, he said, is that government expenditures related to programs for the elderly rocketed in the past two decades, even before the first baby boomers, those born in 1946, started turning 65.

Druckenmiller stopped managing money for outside clients in 2010 after three decades in the business, including more than a decade as chief strategist for billionaire George Soros. From 1986 through 2010 he produced average annual returns of 30 percent, one of the best long-term track records in the industry.

Spending Cuts
President Barack Obama and Congressional leaders are locked in a disagreement over the U.S. budget deficit. If no agreement is reached today, federal spending will be reduced by $85 billion in the final seven months of this fiscal year and by $1.2 trillion over the next nine years. Half of the cuts would come from defense and half from domestic spending. The reductions were designed to be so unpalatable that lawmakers would come up with a way to replace them.

Americans want Congress to delay the spending cuts to give the economic recovery more time to take hold, according to a Bloomberg News poll conducted Feb. 15-18. When Washington does confront the deficit issue, Americans back a compromise that includes more tax revenue and fundamental changes to Social Security and Medicare. Fifty-one percent of respondents said overhauling Social Security is necessary to substantially reduce the deficit, and 58 percent said the same of Medicare.

Seniors’ Lobby
In 2011, Social Security, Medicaid and Medicare accounted for 44 percent of the government’s $3.7 trillion in expenditures, up from 34 percent in 1990, according to statistics compiled by the government’s Bureau of Economic Analysis.

“The seniors have a very, very powerful lobby,” Druckenmiller said. “They keep getting more and more transfer payments” from younger generations through what’s essentially a pay-as-you-go system, he said.

There were 40 million people in the U.S. 65 and over, according to the 2010 U.S. Census, the year before the first baby boomers hit retirement age. By 2020, that number is expected to grow to 55 million, according to the U.S. Department of Health and Human Services.

Speaking Out
As the elderly population rises, the number of workers who pay into Social Security is dropping. By 2030, there will be about two workers per retiree, down from 3.4 workers in 2000, according to the 2004 book “The Coming Generational Storm” by Laurence Kotlikoff and Scott Burns. If a three-year-old born today is taxed at the same rate as today’s working population, he will get less than half of the benefits that our current seniors are getting, Druckenmiller said.

Usually press shy, Druckenmiller said he chose to speak out on the issue now, because he felt he hadn’t done enough before the financial crisis.

As early as 2005, he forecast the impending real estate crisis and its effects on banks “backing all those silly instruments,” he said. He met with a couple of policy makers and a representative of the U.S. Congress at the time. He also spoke at the Ira W. Sohn Investment Research Conference in New York.

“I had my 30 charts with colors and pictures and laid out for them why I thought it was going to be a huge, huge problem for the U.S. economy and the U.S. financial system,” he said in the interview.

No 1982
Today he sees an even bigger reason for concern because of the government’s massive unfunded liabilities. He also sees trouble with what he calls its trickle-down monetary policy.

The Federal Reserve’s decision to hold interest rates near zero and buy $85 billion of assets a month is pumping up the stock market, all with the hope that rich people will spend those gains, and that money will trickle down to the rest of the country.

While stocks may continue to rise for a while because companies are buying back shares and retail investors are coming back to the market in search of returns, the gains probably won’t last, Druckenmiller said.

“The chances of this being a new bull market like 1982 aren’t high because we’re not attacking the crux of the problem, which is too much leverage and too much debt,” he said. “I don’t know the timing of when the markets will respond to this, but it will happen.”




http://www.bloomberg.com/news/2013-...m-worse-than-08-as-seniors-bankrupt-kids.html

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The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.

Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.

So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.

THIS dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.

As the federal government and its central-bank sidekick, the Fed, have groped for one goal after another — smoothing out the business cycle, minimizing inflation and unemployment at the same time, rolling out a giant social insurance blanket, promoting homeownership, subsidizing medical care, propping up old industries (agriculture, automobiles) and fostering new ones (“clean” energy, biotechnology) and, above all, bailing out Wall Street — they have now succumbed to overload, overreach and outside capture by powerful interests. The modern Keynesian state is broke, paralyzed and mired in empty ritual incantations about stimulating “demand,” even as it fosters a mutant crony capitalism that periodically lavishes the top 1 percent with speculative windfalls.

The culprits are bipartisan, though you’d never guess that from the blather that passes for political discourse these days. The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry.

Under the exigencies of World War II (which did far more to end the Depression than the New Deal did), the state got hugely bloated, but remarkably, the bloat was put into brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House and William McChesney Martin Jr. at the Fed.

Then came Lyndon B. Johnson’s “guns and butter” excesses, which were intensified over one perfidious weekend at Camp David, Md., in 1971, when Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar. That one act — arguably a sin graver than Watergate — meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit. In effect, America underwent an internal leveraged buyout, raising our ratio of total debt (public and private) to economic output to about 3.6 from its historic level of about 1.6. Hence the $30 trillion in excess debt (more than half the total debt, $56 trillion) that hangs over the American economy today.

This explosion of borrowing was the stepchild of the floating-money contraption deposited in the Nixon White House by Milton Friedman, the supposed hero of free-market economics who in fact sowed the seed for a never-ending expansion of the money supply. The Fed, which celebrates its centenary this year, fueled a roaring inflation in goods and commodities during the 1970s that was brought under control only by the iron resolve of Paul A. Volcker, its chairman from 1979 to 1987.

Under his successor, the lapsed hero Alan Greenspan, the Fed dropped Friedman’s penurious rules for monetary expansion, keeping interest rates too low for too long and flooding Wall Street with freshly minted cash. What became known as the “Greenspan put” — the implicit assumption that the Fed would step in if asset prices dropped, as they did after the 1987 stock-market crash — was reinforced by the Fed’s unforgivable 1998 bailout of the hedge fund Long-Term Capital Management.

That Mr. Greenspan’s loose monetary policies didn’t set off inflation was only because domestic prices for goods and labor were crushed by the huge flow of imports from the factories of Asia. By offshoring America’s tradable-goods sector, the Fed kept the Consumer Price Index contained, but also permitted the excess liquidity to foster a roaring inflation in financial assets. Mr. Greenspan’s pandering incited the greatest equity boom in history, with the stock market rising fivefold between the 1987 crash and the 2000 dot-com bust.

Soon Americans stopped saving and consumed everything they earned and all they could borrow. The Asians, burned by their own 1997 financial crisis, were happy to oblige us. They — China and Japan above all — accumulated huge dollar reserves, transforming their central banks into a string of monetary roach motels where sovereign debt goes in but never comes out. We’ve been living on borrowed time — and spending Asians’ borrowed dimes.

This dynamic reinforced the Reaganite shibboleth that “deficits don’t matter” and the fact that nearly $5 trillion of the nation’s $12 trillion in “publicly held” debt is actually sequestered in the vaults of central banks. The destruction of fiscal rectitude under Ronald Reagan — one reason I resigned as his budget chief in 1985 — was the greatest of his many dramatic acts. It created a template for the Republicans’ utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy. In effect, the G.O.P. embraced Keynesianism — for the wealthy.

The explosion of the housing market, abetted by phony credit ratings, securitization shenanigans and willful malpractice by mortgage lenders, originators and brokers, has been well documented. Less known is the balance-sheet explosion among the top 10 Wall Street banks during the eight years ending in 2008. Though their tiny sliver of equity capital hardly grew, their dependence on unstable “hot money” soared as the regulatory harness the Glass-Steagall Act had wisely imposed during the Depression was totally dismantled.

Within weeks of the Lehman Brothers bankruptcy in September 2008, Washington, with Wall Street’s gun to its head, propped up the remnants of this financial mess in a panic-stricken melee of bailouts and money-printing that is the single most shameful chapter in American financial history.

There was never a remote threat of a Great Depression 2.0 or of a financial nuclear winter, contrary to the dire warnings of Ben S. Bernanke, the Fed chairman since 2006. The Great Fear — manifested by the stock market plunge when the House voted down the TARP bailout before caving and passing it — was purely another Wall Street concoction. Had President Bush and his Goldman Sachs adviser (a k a Treasury Secretary) Henry M. Paulson Jr. stood firm, the crisis would have burned out on its own and meted out to speculators the losses they so richly deserved. The Main Street banking system was never in serious jeopardy, ATMs were not going dark and the money market industry was not imploding.

Instead, the White House, Congress and the Fed, under Mr. Bush and then President Obama, made a series of desperate, reckless maneuvers that were not only unnecessary but ruinous. The auto bailouts, for example, simply shifted jobs around — particularly to the aging, electorally vital Rust Belt — rather than saving them. The “green energy” component of Mr. Obama’s stimulus was mainly a nearly $1 billion giveaway to crony capitalists, like the venture capitalist John Doerr and the self-proclaimed outer-space visionary Elon Musk, to make new toys for the affluent.

Less than 5 percent of the $800 billion Obama stimulus went to the truly needy for food stamps, earned-income tax credits and other forms of poverty relief. The preponderant share ended up in money dumps to state and local governments, pork-barrel infrastructure projects, business tax loopholes and indiscriminate middle-class tax cuts. The Democratic Keynesians, as intellectually bankrupt as their Republican counterparts (though less hypocritical), had no solution beyond handing out borrowed money to consumers, hoping they would buy a lawn mower, a flat-screen TV or, at least, dinner at Red Lobster.

But even Mr. Obama’s hopelessly glib policies could not match the audacity of the Fed, which dropped interest rates to zero and then digitally printed new money at the astounding rate of $600 million per hour. Fast-money speculators have been “purchasing” giant piles of Treasury debt and mortgage-backed securities, almost entirely by using short-term overnight money borrowed at essentially zero cost, thanks to the Fed. Uncle Ben has lined their pockets.

If and when the Fed — which now promises to get unemployment below 6.5 percent as long as inflation doesn’t exceed 2.5 percent — even hints at shrinking its balance sheet, it will elicit a tidal wave of sell orders, because even a modest drop in bond prices would destroy the arbitrageurs’ profits. Notwithstanding Mr. Bernanke’s assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making.

While the Fed fiddles, Congress burns. Self-titled fiscal hawks like Paul D. Ryan, the chairman of the House Budget Committee, are terrified of telling the truth: that the 10-year deficit is actually $15 trillion to $20 trillion, far larger than the Congressional Budget Office’s estimate of $7 trillion. Its latest forecast, which imagines 16.4 million new jobs in the next decade, compared with only 2.5 million in the last 10 years, is only one of the more extreme examples of Washington’s delusions.

Even a supposedly “bold” measure — linking the cost-of-living adjustment for Social Security payments to a different kind of inflation index — would save just $200 billion over a decade, amounting to hardly 1 percent of the problem. Mr. Ryan’s latest budget shamelessly gives Social Security and Medicare a 10-year pass, notwithstanding that a fair portion of their nearly $19 trillion cost over that decade would go to the affluent elderly. At the same time, his proposal for draconian 30 percent cuts over a decade on the $7 trillion safety net — Medicaid, food stamps and the earned-income tax credit — is another front in the G.O.P.’s war against the 99 percent.

Without any changes, over the next decade or so, the gross federal debt, now nearly $17 trillion, will hurtle toward $30 trillion and soar to 150 percent of gross domestic product from around 105 percent today. Since our constitutional stasis rules out any prospect of a “grand bargain,” the nation’s fiscal collapse will play out incrementally, like a Greek/Cypriot tragedy, in carefully choreographed crises over debt ceilings, continuing resolutions and temporary budgetary patches.

The future is bleak. The greatest construction boom in recorded history — China’s money dump on infrastructure over the last 15 years — is slowing. Brazil, India, Russia, Turkey, South Africa and all the other growing middle-income nations cannot make up for the shortfall in demand. The American machinery of monetary and fiscal stimulus has reached its limits. Japan is sinking into old-age bankruptcy and Europe into welfare-state senescence. The new rulers enthroned in Beijing last year know that after two decades of wild lending, speculation and building, even they will face a day of reckoning, too.

THE state-wreck ahead is a far cry from the “Great Moderation” proclaimed in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting because the Fed had tamed the business cycle and, as late as March 2007, testified that the impact of the subprime meltdown “seems likely to be contained.” Instead of moderation, what’s at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices — a form of inflation that the Fed fecklessly disregards in calculating inflation.

These policies have brought America to an end-stage metastasis. The way out would be so radical it can’t happen. It would necessitate a sweeping divorce of the state and the market economy. It would require a renunciation of crony capitalism and its first cousin: Keynesian economics in all its forms. The state would need to get out of the business of imperial hubris, economic uplift and social insurance and shift its focus to managing and financing an effective, affordable, means-tested safety net.

All this would require drastic deflation of the realm of politics and the abolition of incumbency itself, because the machinery of the state and the machinery of re-election have become conterminous. Prying them apart would entail sweeping constitutional surgery: amendments to give the president and members of Congress a single six-year term, with no re-election; providing 100 percent public financing for candidates; strictly limiting the duration of campaigns (say, to eight weeks); and prohibiting, for life, lobbying by anyone who has been on a legislative or executive payroll. It would also require overturning Citizens United and mandating that Congress pass a balanced budget, or face an automatic sequester of spending.

It would also require purging the corrosive financialization that has turned the economy into a giant casino since the 1970s. This would mean putting the great Wall Street banks out in the cold to compete as at-risk free enterprises, without access to cheap Fed loans or deposit insurance. Banks would be able to take deposits and make commercial loans, but be banned from trading, underwriting and money management in all its forms.

It would require, finally, benching the Fed’s central planners, and restoring the central bank’s original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism.

That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market “recovery,” artificially propped up by the Fed’s interest-rate repression. The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.




David A. Stockman is a former Republican congressman from Michigan, President Ronald Reagan’s budget director from 1981 to 1985 and the author, most recently, of “The Great Deformation: The Corruption of Capitalism in America.”




http://www.nytimes.com/2013/03/31/o....html?src=me&ref=general&pagewanted=all&_r=1&

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California taxpayers may see the municipal pension contributions they fund for the California Public Employees’ Retirement System rise as much as 50 percent under a plan to fill $87 billion in unfunded obligations.

Alan Milligan, the fund’s chief actuary, recommends that the biggest U.S. pension stop spreading out losses and gains over 15 years and instead set rates based on how much is needed to reach 100 percent funding within 30 years.

The Sacramento-based pension, known as Calpers, is about 26 percent short of meeting its long-term commitments. The state and cities contributed $7.8 billion in the last fiscal year, almost four times more than a decade earlier.

In a version of pay-me-now-or-pay-me-later, Milligan said the plan “will result in a lower probability of large increases in employer contribution rates” in the future, according to a report to a Calpers committee. If approved, the plan could be presented to the full board as soon as tomorrow.

Smoothing out gains and losses over 15 years, rather than accounting for them in one year, helps to ease potential spikes in the annual contribution rates. The rates are calculated as a percentage of the payroll of the state, cities and other local governments, financed by taxes.

Under Milligan’s proposal, the fund would shrink its 15- year rolling period for asset smoothing to five years and amortize gains and losses over a fixed 30-year period rather than the current rolling 30-year period. A fixed period means that all obligations will be fully funded by a specific date.

Increase Spread
If approved, the rates charged to governments would increase by as much as 50 percent. The boost would be spread over six years, beginning as early as next year for some.

Government contributions were already set to increase under the current smoothing and amortization policy. Half of the increase for the state, for example, would occur even under the existing policy.

The pension fund currently has about 74 percent of the money it needs to pay benefits over 30 years, after dropping to 61 percent in 2009 amid the global financial crisis that wiped out more than a third of the fund’s market value. Under the current rates and smoothing policy, the fund would reach an 80 percent funded status within 30 years.

The median funded status of state pensions, meaning how much money a system has in order to pay its obligations, fell to 72 percent in 2011 from 83 percent in 2007, according to data compiled by Bloomberg.




http://www.bloomberg.com/news/2013-04-16/california-pension-may-ask-for-50-boost-to-close-gap.html

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Public pension plans threaten the financial health of U.S. cities and states more than taxpayers realize, billionaire investor Warren Buffett said.

“Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made,” Buffett wrote in his annual report to shareholders of Berkshire Hathaway Inc. (BRK/A) released on March 1. “During the next decade, you will read a lot of news –- bad news -– about public pension plans.”

Obligations to retirees have weighed on governments from Puerto Rico to the bankrupt city of Detroit. Illinois lawmakers passed a bill last year to bolster the worst-funded U.S. state pension system. New Jersey Governor Chris Christie said last week that Detroit shows what could happen if his state doesn’t limit obligations to workers.

“Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn’t afford,” Buffett said. “Unfortunately, pension mathematics today remain a mystery to most Americans.”

The municipal bond market has defied prior warnings of disaster. Meredith Whitney, a former Wall Street bank analyst, in 2010 incorrectly predicted defaults totaling hundreds of billions of dollars. Buffett said that year that cities and states battered by the recession faced a “terrible problem” and might require a federal rescue.

Berkshire cut holdings of state and local obligations by half in a five-year period to about $2.3 billion as of Dec. 31. The company also scaled back insuring municipal bonds, after setting up a firm to back the debt in late 2007.

Buffett’s Indecision

“I don’t know how I would rate them myself,” Buffett said at a June 2010 Financial Crisis Inquiry Commission hearing. “It’s a bet on how the federal government will act over time.”

Apart from Detroit, communities including Stockton, California, and Jefferson County, Alabama, have sought the protection of bankruptcy court to sort out their debts.

Moody’s Investors Service said a measure of retirement obligations for U.S. states deteriorated in the 2012 fiscal year. The median ratio of pension liabilities to revenue was 64 percent, compared with 45 percent a year earlier, Moody’s said in a Jan. 30 statement. The net liability for all U.S. states stood at $1.2 trillion, though investment gains have probably helped since then, the ratings firm said.

‘Manageable Debt’

“Warren Buffett is a reasonable man, and he’s pointing out there are still some very visible pension issues among states and cities,” said Richard Ciccarone, chief executive officer of Hiawatha, Iowa-based Merritt Research Services, which analyzes municipal finance. “But the message shouldn’t be distorted into a panic about municipal bonds. The vast majority of credits in the muni market have manageable debt loads.”

There are signs that the fiscal health of municipalities is gaining strength almost five years after the recession. State tax collections have probably grown for 16 straight quarters, according to the Nelson A. Rockefeller Institute of Government in Albany, New York. Meanwhile, 60 issuers defaulted for the first time last year, down from 107 in 2012, data from research firm Municipal Market Advisors show.

The $3.7 trillion municipal bond market has been rallying, pushing benchmark 10-year yields to the lowest since June. State and local bonds returned 3.6 percent in the first two months of this year, compared with 2.9 percent for U.S. corporate debt, Bank of America Merrill Lynch data show.

Buffett isn’t the first to compare pension obligations to an unsavory creature. Illinois Governor Pat Quinn’s office likened the liabilities to a python strangling state finances. Lawmakers in his state voted last year to raise the retirement age for some workers and limited annual cost-of-living adjustments as part of a bill that’s expected to save the state $145 billion over 30 years.

Public Policy

As Berkshire’s chairman and CEO for more than four decades, Buffett has used his annual letter to shareholders to opine on matters of public policy, corporate governance and investing. In media appearances and op-eds, he’s argued for increased taxes on the wealthy and an end to political brinkmanship over the U.S.’s borrowing authority.

Buffett may have called attention to public pensions because they will influence the business climate in which his company operates, said Tom Russo, a partner at Gardner Russo & Gardner. The U.S. is the largest market for Berkshire subsidiaries from utility owner MidAmerican Energy to auto insurer Geico. The cost to meet retiree benefits could cause governments to raise taxes, said Russo, whose firm invests in Buffett’s company.

The Berkshire report this year also included a memo about pensions that Buffett wrote to his friend and former Washington Post publisher Katharine Graham in 1975. In it, he advised her to first understand the promises that are being made.

‘Expensively Clear’

“Rule number one regarding pension costs has to be to know what you are getting into,” Buffett wrote to Graham. “As will become so expensively clear to citizens in future decades, there has been even greater electorate ignorance of governmental pension costs.”

Investment policies also bear responsibility for shortfalls, Buffett said. He advised Graham to abandon Morgan Guaranty as the company’s pension asset manager and switch to investors that shared his approach of treating money management like acquisitions. Graham took the advice, helping give the pension plans at the former Washington Post Co. more assets than liabilities.

Buffett has been following a similar strategy at Omaha, Nebraska-based Berkshire by drawing on his deputy investment managers to oversee assets backing pensions at several subsidiaries. The deputies’ picks and a rising market helped narrow Berkshire’s pension shortfall by about $3 billion last year, the report showed.



http://www.bloomberg.com/news/2014-03-03/buffett-says-pension-tapeworm-means-decade-of-bad-news.html

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