Accross the nation, public sector union workers in the states are making on average 25% more than their private sector counterparts. And perhaps the most lucrative place to be today is as a federal government employee. This from the USA Today:
At a time when workers' pay and benefits have stagnated, federal employees' average compensation has grown to more than double what private sector workers earn, a USA TODAY analysis finds.
Federal workers have been awarded bigger average pay and benefit increases than private employees for nine years in a row. The compensation gap between federal and private workers has doubled in the past decade.
Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation, according to the Bureau of Economic Analysis.
In fairness, TNR makes the point that, when you adjust for variables such as education, then the gap closes. As to how much it closes, who knows, but the raw numbers themselves are damning. But regardless, we have seen a vast expansion of government workers at all levels, and particularly of federal government workers under Obama - with the number now cresting 2.15 million. The simple fact is that none of these people create a dollar for our economy. It is only the private sector that creates the wealth of America. And when we expand the federal government work force ever more, we are both shrinking the size of the pool of private sector employees and shrinking our tax base.
And then, of course, there are the retirement issues, where the confluence of public sector unions and scurrilous politicians who have underfunded pension committments have helped bring our nation to the brink of catastrophe. As the NYT noted:
Pew estimated a $1 trillion gap as of fiscal 2008 between what states had promised workers in the way of retiree pension, health care and other benefits and the money they currently had to pay for it all. And some economists say that Pew is too conservative and the problem is two or three times as large.
So a question of extraordinary financial, political, legal and moral complexity emerges, something that every one of us will be taking into town meetings and voting booths for years to come: Given how wrong past pension projections were, who should pay to fill the 13-figure financing gap? . . .
Who indeed? As it stands now, public sector unions are determined to soak American taxpayers for every possible dollar. And, as we have recently seen with an act of Grand Theft Democrat, our federal government is fully complicit in the corruption.
I think it clear that the one lesson to come out of all of this is that we need to tighten the laws significantly for funding defined benefit pension plans, particularly for the public sector and unions. Moreover, there should be a real push to move from defined benefit pension plans in the public sector and into 401k plans. The simple fact is that, if our economy can't sustain enough growth to allow for reasonable retirement on defined contribution plans, then we will be funding defined benefit plans either by printing dollars by the bushelload, thus leading to significant inflation, or by taxing the private sector to the point of killing the golden goose. We will further have a generation of Americans on the verge of revolution - and starvation.
The same concepts apply to Social Security - a program that has been run as a Ponzi scheme for decades. People who have paid into social secuirty all of their life will perhaps be surprised to find that the money they paid in went out the door upon as soon as our government got its greedy paws on it. This provides the double whammy - the bill has now come due on this Ponzi scheme, with outlays already in excess of annual inflow from taxes. Social Security is also a defined benefit plan, so that if you make promises while at the same time destroying our economy - well, its off to the printing presses. And the left demagogoues the issue of social security, wanting to sustain the unsustainable. Just amazing.
But even on the 401k front, the news looks bad indeed. Megan McArdle at the Atlantic has a depressing article, arguing that stocks are significantly overvalued today and we will likely see substanitally less growth in the stock market over the coming decade.
If the return on equities really has fallen, this decline poses a big problem for the average investor who planned to stick 5 to 10 percent of his or her annual income into stock funds and retire comfortably. At an annual inflation-adjusted growth rate of 8 percent, savings of just 5 percent of your income for 30 years will leave you with a nest egg big enough to replace almost half your income when you retire. Saving 10 percent will make you really comfortable.
But if the return is 2 to 3 percent, you’ll need to save close to 40 percent to replace almost half of your income. And a 2 percent return seems to be a real possibility—in fact, it’s a hair above the 1.8 percent that Smithers & Co., an asset-allocation consultancy, forecast for U.S. equities over the next decade.
Felix Salmon, a finance blogger, argues that with stocks showing both lackluster prospects and whiplash-inducing price swings, investors might want to get out of the market entirely. That conclusion is tempting: if a quarter of Americans are expecting bubble-grade growth in stock prices, mightn’t another correction be in the offing? . . .
Even more depressing is the assessment of Keith R. McCullough, CEO of the research firm Hedgeye. This from Mr. McCullough writing in Fortune magazine:
. . . Despite the many differences between Japan and the US, there is one similarity that continues to matter most in the risk management model my colleagues and I use at Hedgeye, our research firm -- debt as a percentage of GDP. Now that the US can't cut interest rates any lower, the only option left on the table is what the Fed just announced it would start doing -- buying Treasury debt. And that could lead the country to the brink of collapse: According to economists Carmen Reinhart & Ken Rogoff, whose views we share, crossing the 90% debt/GDP threshold is the equivalent of crossing the proverbial Rubicon of economic growth. It's a point from which it's almost impossible to return.
On July 2nd, we cut both our third quarter 2010 and full year 2011 GDP estimates for the US to 1.7%. At the time, the consensus around US economic growth estimates was about 3%. Now we're starting to see both big brokerage analysts and the Federal Reserve gradually cut their GDP estimates, but not by enough. Even our estimate for 2011 is still too high. . . .
With 40.8 million Americans on food stamps (record high) and 45% of the unemployed having been seeking employment for 27 weeks or more (record high), what's left if (or when) QE2 doesn't kick start GDP growth? Should we start begging for QE3? Should we cancel the bomb of the National Association of Realtors' existing home sales report, scheduled for public release on August 24th? Or should we bite the bullet and accept that current economic policy dictates 0% returns-on-savings, even as Washington continues to lever-up our future to the point of economic collapse?
Before the Fiat Fools -- Hedgeye's name for political actors and bankers who have placed their hopes of economic recovery in printing endless supplies of new cash -- run out campaigning for QE3, maybe they should analyze some real time market results to yesterday's announcement of QE2:
1)The US dollar is battling for resuscitation after 9 consecutive down weeks -- down 9% since June.
2) US Treasury yields are making record lows on the short end of the curve, with 2-year yields striking 0.49%.
3) The yield spread (in this case the difference in return between 10-year and 2-year Treasury bills, which shows a long-term confidence when high) continues to collapse, down another 4 basis point day-over-day to 223 basis points.
4) The S&P 500 is down below its 200-day moving average (a common signpost for the health of a market or stock) of 1115.
5) US Volatility (VIX) is spiking from its recent stability.
6) In Japan, long time quantitative easing specialists found their markets closing down overnight by 2.7%, which makes them down 11.9% for the year to date.
Lest our doom and gloom seem built entirely on technical measurements, what they boil down to is actually quite simple -- an idea about our country which dates back to 1835. Alexis De Tocqueville, author of Democracy in America, which was published that year, seemed to warn of this day when he wrote: "The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money."
And yet Obama, still refusing to admit that his Keynesian policies are now proven failures, continues to mount up our debt at an unheard of pace. This from the WSJ:
The U.S. government spent itself deeper into the red last month, paying nearly $20 billion in interest on debt and an additional $9.8 billion to help unemployed Americans.
Federal spending eclipsed revenue for the 22nd straight time, the Treasury Department said Wednesday. The $165.04 billion deficit, while a bit smaller than the $169.5 billion shortfall expected by economists polled by Dow Jones Newswires, was the second highest for the month on record. . . .
Years of deficit spending by Washington have led to a mounting national debt. Interest payments so far in fiscal 2010 amount to $185.25 billion; by contrast, corporate taxes collected by the government during the same 10 months were $139.71 billion. Interest payments in July alone were $19.9 billion.
And if that wasn't bad enough for you:
The Commerce Department reported Wednesday that the U.S. trade gap had hit its highest level since October 2008. Exports declined and imports increased to a record high as the trade deficit expanded to $49.9 billion, an 18.8 percent increase in June compared to May. Imports grew 3 percent while exports dropped 1.3 percent, the most since April 2009, the Commerce Department reported Wednesday.
We are a nation sinking under the weight of an entitlement system out of control and an utterly profligate administration more incompetent than that of Herbert Hoover.
So what is the administration doing about all of this? The great class warriors of the left, with Obama leading the way, are intent on letting the Bush tax cuts expire, regardless of the effect on the economy:
Republicans accuse Democrats of plotting one of the biggest tax hikes in American history, arguing that raising taxes on wealthy households would punish the very people capable of creating jobs, spurring economic growth and reducing the 9.5 percent unemployment rate. About half of all small-business income is reported on the individual returns of people making over $250,000 a year, according to the taxation committee's data, though those taxpayers represent only about 3 percent of small businesses.
Meanwhile, in the face of all of this, John Kerry, the man who was last seen skipping out on his state taxes, is still pushing to saddle our near dead economy with cap and trade legislation. Well, that really would be the final nail in our economic coffin if they were ever able to get it through. Though, that said, the EPA is already starting to impose carbon regulations - based on the ruling of the Supreme Court, not any action by our legislature. Consider it regulation without representation.
At any rate, there is at least one bright spot in this otherwise day of very depressing economic news. Obama, still on his "recovery summer" promotion tour, announced the other day that the "worst of the recession" is over. Don't you feel better knowing that. Nothing to see here, move on.
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