FedUpUSA

Posts Tagged ‘Benefits’

Government promises to public employees have created “zero-risk” Wonderlands protected from the market forces of risk and consequence. These islands of privilege are snapping back to join the real economy.

Every government entity that reckoned it was moated from the market economy will be snapped back to “discover” risk and consequence. Let’s lay out the dynamic:

1. Every government can only spend what its economy generates in surplus.

2. Every government transfers risk and consequence from itself, its employees and its favored vested interests to the citizenry and taxpayers.

3. Every government collects and distributes the surplus of its private sector to its employees, favored constituencies and vested interests.

4. Since the government (State) promises guaranteed salaries, benefits and entitlements to its employees and favored constituencies, these individuals believe they are living in a risk-free Wonderland that is completely protected from the market economy.

5. Risk cannot be repealed or eliminated, it can only be masked or transferred to others.

6. The Federal government and the Federal Reserve have pursued a policy of inflating serial speculative credit-based bubbles.

7. These bubbles inflated assets, profits and taxes, creating the illusion that blow-off speculative tops were “the new normal.”

8. Speculative credit-based bubbles misallocate capital and incentivize malinvestment on a spectacular scale.

9. Once the bubble deflates, the capital is lost or trapped in illiquid malinvestments.

10. As a direct result of the dot-com bubble, Stockton’s tax revenues (general fund) leaped to $139 million in 2001. As a direct consequence of the housing bubble, it jumped to $186 million in 2007.

11. This “new normal” encouraged the belief that the stock market would double or triple every decade into the future, generating 8%+ annual returns for public union employee pension funds.

12. The city government granted employees open-ended guarantees of lifetime healthcare coverage.

13. This meant that there was no limit on the cost of each employee’s benefits.

14. As noted here many times, healthcare costs rise by 7%-10% every year, even as the economy which supports healthcare grows by 2% on average.

15. Healthcare alone will bankrupt the nation, and the bankruptcy of entities that promised open-ended healthcare is merely one manifestation of the coming bankruptcy of the entire sickcare/entitlement Status Quo.

16. Once the stock market reverts to the mean and is revalued to the “new normal” of global recession and low earnings growth, it will decline by 40% or more and yields will remain around 2%.

17. Pension funds earning 2% at best based on expectations of permanent 8% returns cannot sustainably pay the benefits promised.

18. If the city attempts to make up the shortfall annually, the services provided to the citizenry will be gutted. The risk and consequence of malinvestment and favoritism has been offloaded onto the citizens while those protected by the government moat live “risk-free” lives of guaranteed pensions and benefits.

19. The public-employee pension and healthcare benefits were separated from the market economy with this government guarantee: regardless of what happens in the real economy, you will be paid pensions and benefits that have zero exposure to the market economy and private-sector pensions/benefits.

20. In effect, the government has placed its employees and vested interests in a moated “risk-free” zone outside the market economy. The risk that is distributed to all participants in an open market (i.e. a democracy) is transferred to the citizens and taxpayers.

21. Any government that siphons off an increasing share of its taxpayers’ disposable income (to distribute to the privileged few) in return for declining services will eventually be overthrown by the citizenry and taxpayers who must bear the full consequences of the city’s mismanagement of their capital and income.

22. Every city, county and state in the U.S. which has secured a risk-free wonderland for its favored few will “snap back” into the real economy and face the discipline of the credit market and the “discovery” of price and value.

23. Risk cannot be eliminated by government mandate, it can only be transferred to others. No government entity can maintain a “risk-free” fortress outside the market forever. The moat around Wonderland will be drained or filled, regardless of what promises were made.

24. Government has no mechanism to transparently price risk, value and return on investment. The market will “discover” all these and re-set government services and salaries accordingly.

How Stockton went broke

Charles Hugh Smith – Of Two Minds

Military.com posted an article discussing the various proposals for ‘balancing’ the ever-ballooning budget.

There has been some recent buzz about the House of Rep­re­sen­ta­tives propos­ing more cuts to vet­er­ans’ ben­e­fits. This time, the focus has fallen on VA Health­care and exclud­ing some vet­er­ans over oth­ers. Here is what you need to know about the debate.

The House Bud­get Com­mit­tee recently announced plans to cut $6 bil­lion from VA Health­care for 1.3 mil­lion vet­er­ans who are in Pri­or­ity Group 7 and 8. Roughly 10 per­cent of these, some 130,000 vet­er­ans, will be forced out of the VA sys­tem with no avail­able alter­na­tives. Vet­er­ans from Group 7 & 8 have either a 0 per­cent service-connection or no service-connected rat­ing. While this does not mean the vet­eran is fit as a fid­dle, it does imply they do not need the amount of care needed for other vets. These vet­er­ans pay co-pay and have incomes over $32,000 and net-worths under $80,000, depend­ing on geog­ra­phy. In other words, they aren’t dirt poor but cer­tainly not wealthy, either.

The Con­gres­sional Bud­get Office believes the U.S. can save $62 bil­lion over the next 10 years by remov­ing ser­vices for these vet­er­ans alto­gether. Accord­ing to the agency, 90 per­cent of the vet­er­ans in ques­tion have access to some form other health­care other than VA funded. How­ever, the CBO does not com­ment on whether the alter­na­tive health­care is afford­able.

I’m going to say right up front that this is reprehensible.  Not only is it disgusting, it’s pointless to pretend that ANY of these proposed cuts to VA benefits will be anything but a microscopic drop of water in an ocean.  Let’s talk about some reality here. 

So, let’s see….our overall spending on defense is only about 1/6th of our total budget outlay, or as indicated here, $744 billion.  Of that, only a tiny fraction goes towards healthcare to our current and retired military.  Keeping in mind that these brave men and women were willing to sacrifice their very LIVES to do their jobs, let’s compare that to banker welfare expenditures over the past 4 years.

First we have TARP, the Troubled Asset Relief Program, the program that has essentially been welfare for Wall Street bankers given by Congress to cover the massive Ponzi scheme they created by selling worthless securities to unsuspecting suckers like your pension and retirement fund managers.  This program allowed the US government to purchase assets and equity from financial institutions to ‘strengthen’ the financial sector.

Then we have TALF the Term Asset-Backed Securities Loan Facility, the program designed to allow the Federal Reserve to use taxpayer money to buy ‘distressed’ (I prefer ‘worthless’) loans.

Then we have the EESA, the Emergency Economic Stabilization Act of 2008.  Initiated under Bush, through acts of extortion by then Treasury Secretary Hank Paulson.  This spawned TARP cited above, as well as expanded the powers of the US government to basically use taxpayer money wherever and whenever Wall Street deemed it needed it.  This was where we got the ‘we’ll see tanks in the streets if we don’t get this money’ threat from Hank Paulson. 

1.  The Government As Investor:  Total expenditure of taxpayer money – $9.0 TRILLION.  This includes direct investments in financial institutions, purchases of ‘high-grade’ corporate debt and purchases of mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae (the latter of which is the only legitimately government-guaranteed entity). 

2.  The Government as Insurer:  Total expenditure of taxpayer money – $1.7 TRILLION.  Includes insuring debt issued by financial institutions and guaranteeing poorly performing assets owned by banks and Fannie Mae and Freddie Mac.

3.  The Government as Lender:  Total expenditure of taxpayer money – $1.4 TRILLION.  A significant expansion of the government’s traditional overnight lending to banks, including extending terms to as many as 90 days and allowing borrowing by other financial institutions, which includes foreign banks.

Sources

This only includes figures up through February 2009.  (Is your hair on fire yet?)

Now, let’s add in the most recent and nefarious taxpayer theft of all, ‘quantitative easing.’  What’s that?  Here’s a primer:

While it is often explained as ‘printing money out of thin air’ – that’s not quite accurate.  It is more specifically, printing money guaranteed by your future production.  It borrows against the taxpayer’s future potential to actually produce something of value.  If it sounds a little bit like exploitation or slavery, that’s because that is exactly what it is, which is precisely why the Federal Reserve is content to allow you to think it is printing money out of thin air.  As distasteful as that is, it’s preferrable to the truth.

Each time the Federal Reserve prints money for which there is no current production to support, it is ‘pulling forward demand’ or, devaluing the US dollar.  This is, in effect, a stealth tax on you, the taxpayer, as it then costs you more of those devalued dollars to purchase the things you need.  This is commonly referred to as price inflation.  So, you get hit on both sides.  Your future production has been used as collateral for these new dollars created and at the same time, it causes you to need to produce more to afford the things you need to live – like food and energy (gas, oil).  Conveniently those two catagories of expenditures are not included in the government’s calculation of inflation, (the Consumer Price Index or CPI). 

So, what is your total liability for the two rounds of Quantitative Easing performed by the Federal Reserve?

$2.7 TRILLION.

So, let’s see, $14.8 TRILLION has been spent on WELFARE FOR WALL STREET BANKERS!

Now, tell me how there is ANY justification for cutting health care benefits to our Veterans.

While you’re at it, tell me what items can be cut from the budget that even comes close to the liability our government has created by bailing out insolvent banking institutions.

Wake up America.  I don’t care where you stand on the current wars, are you willing to throw our troops under the bus for Wall Street welfare?!!

Who and what else are you willing to throw under the bus to allow our government to continue to support and hide massive corruption?

STOP THE LOOTING & START PROSECUTING!

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