Tag Archives: Intergenerational War

Running on Empty, by Robert Gore

They dote on their progeny, then bury them alive.

Across the land, public pension and medical funds teeter on the brink of insolvency. You can ignore pending problems until you can’t. For those who prize clarity and realistic thinking, these impossible to ignore crises should be welcomed. They focus attention on an inescapable fact: the world lacks the unencumbered assets and productive capacity to redeem the promises that have been made against them. Somebody’s going to get stiffed.

With war on everyone’s minds, public pension and medical funds delineate inevitable battles lines: governments versus taxpayers, the unproductive versus the productive, the aging versus the young. Those wars are liable to be far more consequential than the ones everyone worries about in places like the Middle East and North Korea.

Nothing calls attention to the absurdity riddling the public pension system quite like the $76,000 monthly pension drawn by Joseph Robertson, an eye surgeon who retired as president of the Oregon Health and Science University last fall.

In the good old days, government employment meant low pay, but job security and a decent pension. Now such sinecures means wages in excess of those paid in the private sector plus pensions that are far more munificent…and job security. For a lucky few like Doctor Robertson, their pensions are a triple 7 jackpot. Oregon calculates pensions based not just on recipients’ government salaries, but what they receive on any non-government gigs they had going on the side. Robertson’s pension is based on his remuneration as university president and what he made operating on eyeballs.

This is what happens when actuarial tables and actual rates of return are discarded in favor of the political power of public employees and their unions, promises that can’t be kept, and taxpayers picking up the tab who have no idea what the final bill will be. Public pension and medical crises bring into sharp relief the writing on the wall: Governments Can’t Deliver.

As Charles Hugh Smith recently noted, public retirement and medical liabilities are increasing so fast that no amount of tax increases can keep up. Long before a 100 percent tax rate turns taxpayers into slaves, raising tax rates becomes counterproductive, yielding less, not more, revenues. One of the nifty things about the public pension and medical crisis is that it’s local. As such, it’s offering real world demonstrations that when local jurisdictions raise rates to fund their pensions, productive people leave.

The poster child is Illinois. The state on down to its smallest political subdivisions—like the town of Harvey—are buried beneath underfunded pensions. Illinois’ courts have ruled pensions are inviolable, which leaves governments facing insolvency with only two options: raise taxes and cut spending.

Harvey was ordered by a court to fund its firefighters’ pension fund, which is only 22 percent funded. The town’s property tax rate is six times the average rate in nearby Indiana, and Harvey is still coming up short. The state is garnishing its tax revenues, and the town has announced 40 public safety employees will be laid off. Why would anyone paying taxes in Harvey stick around for a future of ever-increasing taxes and ever-diminishing public services?

Many don’t, and Harvey and other localities in Illinois, including Chicago, are losing people. Out-migration statistics in Illinois, California, New Jersey, Connecticut, New York, and other net-loser states don’t capture the full scope of the problem. If one productive person moves out while one unproductive person moves in and starts living off state largess, there’s been no net out-migration, but the state suffers a loss (obvious to everyone except those fools and charlatans who will plump for an open-arms and open-wallet approach right up until bankruptcy).

Out-migration will get worse for net-loser states as the federal tax limitations on the deductibility of state and local taxes (SALT) kicks in. SALT has been capped at $10,000. After that, the wealthy have to pay the full measure of their high-tax states’ income, property, and sales taxes. The migration is gathering steam. It already costs twice as much to rent self-moving truck services from high-tax Los Angeles to low-tax Dallas as vice versa, and that spread will only widen.

State and local governments, their employees, and those on the dole can’t stop the productive from voting with their feet. The number who leave the US, however, is still a trickle. The federal government’s old age and medical funding problems, orders of magnitude greater than states’ and municipalities’, are no longer looming; they’ve arrived. The government could seal the borders to lock in the productive, but it wouldn’t prevent the slow-motion, but accelerating, catastrophe now underway.

The federal government’s ability to issue virtually unlimited debt and the Federal Reserve debt monetization machine mask the rot, but only create problems far larger than the ones they putatively solve. Low interest rates have destroyed state and local funds’ ability to achieve fairly safe returns, forcing them out on the risk curve to meet their rate of return targets, which are way too high. Underfunded as they are now, bear markets in stocks and bonds would obliterate them.

Encouraged by central bank debt promotion policies, individual, corporate, local, state, and federal debt has reached new records. While low interest rates have ameliorated the debt service burden, even they can’t stymie the toll debt is taking on the economy. Look no farther than real annual GDP growth, which hasn’t hit 3 percent since Bush Jr. was in office. Less growth means less tax revenues, which only exacerbates funding problems.

The older generation is pinning its retirement hopes on a younger generation confronted with huge debt, perpetually rising taxes, a shrinking economy, and dwindling opportunity. That’s not like hoping you can draw to an inside straight, it’s going all in, exchanging your hand for five new cards, and hoping you draw four aces. Good luck with that.

Oldsters like to complain that the youngsters are too preoccupied with gadgets and social media. They wish that were true. The youngsters are already questioning their impending debt servitude. The more perceptive are homing in on their parents’ generation’s self-granted benefits and unrivaled profligacy. You don’t have to search too far on the internet and social media to see the awakening.

Doting parents and grandparents who post their darlings’ every precocious moment and wouldn’t dream of letting them walk a block to school by themselves have no compunction about burying them alive under welfare and warfare state IOUs. In a world riven with conflict, the easiest war to predict is the intergenerational one.

It’s not strictly accurate to say that the state and local public pension and medical funds’ crisis is the canary in the coal mine. It is but one in an aviary of canaries. The fund canary is in extremis and may well be the first to expire; the others will certainly follow. Picture the horror as the adult canaries and their fledglings wage mortal combat for those last few molecules of oxygen.

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Debt and Taxes and Perdition, by Andrew P. Napolitano

Loading up future generations with debt is immoral. Fortunately, future generations won’t pay it. From Andrew P. Napolitano at lewrockwell.com:

Should the government borrow against the future? Should it guarantee higher taxes for your children and grandchildren in return for lower taxes for you?

If government’s moral legitimacy depends on the consent of the governed, as Thomas Jefferson argued in the Declaration of Independence, can the federal government morally compel those who haven’t consented to its financial profligacy — because they are not yet born — to pay higher taxes?

These questions are at the base of the debate — such as it is — in Congress these days over the so-called Republican tax reform plan. But you will not hear these questions even asked, much less answered, on Capitol Hill because the Republican leadership of the House and Senate is afraid that the answers might drive them from power. The same can be said for Democratic leaders when their party controls Congress.

In fact, with the exception of a few courageous senators, such as Rand Paul of Kentucky, and representatives, such as Justin Amash of Michigan and Thomas Massie of Kentucky, most in Congress in both parties think the only limit on the government‘s taxing power is what it can politically get away with at any given moment.

And it gets away with a great deal because vast majorities in both major political parties recognize no moral limits to the government’s sordid pattern of tax, borrow and spend.

The numbers are chilling.

The federal government collects about $2.5 trillion in revenue and spends about $4 trillion, annually. The difference between what it collects and what it spends is made up in borrowing. But it doesn’t borrow money as you or I do or any business does — with a planned schedule to pay back the principal it owes plus interest. Rather, it goes deeper into debt to pay its debts.

To continue reading: Debt and Taxes and Perdition

Has there ever been a more selfish generation? by David Haggith

From David Haggith at thegreatrecession.info/blog:

It’s a good question to ask on the day after Christmas, when we have all used our credit cards to buy gifts for others. In spite of this seasonal gift buying, I think there has never been a more selfish generation. (Regular readers of this blog are excepted because you wouldn’t be reading this contrarian blog if you were content with what I am about to describe … as others seem to be. So, I am preaching to the choir but can only hope this strengthens the choir’s resolve to stand against corruption and greed.)
What is so selfish about this generation?

What other generation has been so amenable toward letting future generations pay for their lavish lifestyles? Many live in MacMansions purchased with thirty-year loans they won’t live to repay. With minds at peace, they leave those mortgages to their children and grandchildren. Even those in the US who do not live in veneered mansions enjoy a lifestyle made possible only by compounding the greatest mountains of rotting, stinking national debt mankind has ever heaped. This rubbish is their gift to posterity as, again, they have no thought whatsoever of attempting to pay off this debt.

It is not just politicians who are responsible for creating this debt. The average citizen slavishly votes for either Democrats or Republicans, knowing full well both parties have done their share to pile up debt. They either vote for the party that makes them feel generous to the poor or the party that makes them feel strong in defending our country; but the fact is they are not putting their own financial strength into either of those noble goals.

Our generation has decided the next generation can pay the bill for all of our generosity. We create welfare programs that we finance far into the future. We do this so that we can feel like we take care of our poor, but we hand the actual burden of paying for our largess off to our children and grandchildren! We would never undertake these programs if we had to pay for them fully as we go. We also let the next generation pay for our security. We are not bravely defending ourselves by our own strength. We are sapping the strength of our grandchildren to defend ourselves now.

We are generous with other people’s money — people who are not even alive today and who have no say in these decisions that they shall pay for. The majority remain committed to government that finances its love and war far into the future with piles of debt that no one can repay.

To continue reading: Has there ever been a more selfish generation?

Bubble Finance And Boomer Benefits: The Fed Has Declared A Winner In The Generational War, by Charles Hugh Smith

From Charles Hugh Smith, from davidstockmanscontracorner.com

The policy of safeguarding Boomer benefits with asset bubbles will lead to the destruction of the unprepared, the unwary and those who foolishly trusted our “leadership” and central bank to tell them the truth.
Though it is exceedingly politically incorrect to mention it publicly, a financial war between the generations is being fought in the U.S. and every other developed nation that has promised social welfare benefits to its burgeoning class of retirees.

The war is being fought on multiple fronts: political promises, interest rates, housing, central bank policies and official rates of inflation, to name a few of the top battlefields.

Though no one in power will state this publicly, the Federal Reserve has already declared the winner of the generational war: the Baby Boomers won and Gen-X and Gen-Y lost. Fed policies insure the Boomers will benefit from financial bubbles inflated by the Fed, and the following generations will lose–not just this year or next year, but for decades to come.

http://davidstockmanscontracorner.com/bubble-finance-and-boomer-benefits-the-fed-has-declared-a-winner-in-the-generational-war/

To continue reading: Bubble Finance And Boomer Benefits