Ponzi Scheme
Reader KEP John with interesting comments:
On page 5 of the 4th edition of “Rich States, Poor States,” by Art Laffer, Steve Moore & Jonathan Williams for 2011 outlines three different scenarios for the unfunded pension liabilities that is estimated for the 50 state pension funds for their government employees. The largest of these three estimates is almost $3 trillion. Several of these states are in extreme financial difficulties and any additional market downturn like today’s (July 27) large market drop will worsen these projections. Almost all of these state pensions are likely to have placed excessively large expected growth in annual revenue like the market enjoyed in the 1990s and not the sick economy that we’ve had in the age of the obamanation which worsens this problem. This ridiculous expectation of annual returns exceeding 7% a year are indications of denial by the state politicians who are ultimately responsible for overseeing these govt. pensions.
In otherwords, a bunch of financially weak states, like say Illinois and California will be going with their begging cups to DC for the obamanation to make this problem disappear when they run out of pension cash. In some states, this unfunded pension debt cannot be reduced in the defined benefit plans that have been in place for decades and protected by judicial decisions (gee, where do the state judges get their pensions?).
This sets up a state pension equivalent of the UAW money grab of GM/Chrysler assets in front of senior debt holders. The deterioration of state government pension plans could prove to be the political lever to begin a money grab justification for private pension funds. Glenn Beck has already warned of this possibility with leftist academics putting forth a plan to grab the IRA/401k money with the promise of a government fiat money monthly check.
Throughout history, desperate governments will declare some kind of “emergency” and exercise arbitrary power to engage in financial thuggery. Look at what Nixon did imposing wage/price controls that took roughly a decade to remove, with the last ones, on oil, abolished by Reagan early in his first term. Nixon was a piker compared to FDR’s odious gold grab in 1933. Worse has regularly occurred overseas with fiat money grabs in foreign countries (see Argentina from Peron to the present). A statist Chicago machine thug like our obamanation will not hesitate to take advantage of any financial opening that appears as the economy deteriorates.
Monty, your readers need to know the old Chinese curse: “May you live in interesting times.” July 28, 2011 our times become more interesting. I keep thinking that we are living in a 21st century version of 1932, but I believe that a reasonably good case can be made that we are living in the France of Louis XVI in 1788. These weren’t good years.
