Monday, May 10, 2010

Greece = California = The U.S.A. (soon)

Tim Cavanaugh had a great post on Hit and Run last night titled "California: The American Greece" in which he notes that it's hard to run a government when you set up a hostile business environment:

The insidious thing about an unfriendly business climate is that it takes a long time for the effects to show up in the government's inability to pay its bills. So long, in fact, that when the sovereign bankruptcy comes, it's easy to draw the conclusion that tax rates are too low. Both California and Greece are going through a variety of this type of denial right now. But with the governor of California and the prime minister of Greece both promising to turn over a new leaf, this is a good time to remember that you can't take people's money if you prevent them from making money in the first place.
As the EU tries to prop up Greece with a new round of loans, Robert Samuelson says "Sic semper welfarious" or "Thus always to welfare states"

What we're seeing in Greece is the death spiral of the welfare state. This isn't Greece's problem alone, and that's why its crisis has rattled global stock markets and threatens economic recovery. Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven't fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.
And, as I've noted before, America's reckoning is on the near horizon.

In this graph, "HI" is Medicare's Hospital Fund and "OASI" is the funds available for Social Security. The Trustees Report estimates that these trust funds for these programs will be exhausted in 2017 and 2039, respectively. At that time, either crushing taxes will need to be imposed or these programs will be limited to payments based on incoming FICA revenues. By then, we'll be begging China for more cash to avoid our own riots.

Extra – Not so outlandish: "Are the Feds Trying to Nationalize Your Retirement Savings?" They're gonna need some money and your fat 401(k) is just sitting there, and well...

More - From Memeorandum.


Anonymous said...

Two thoughts -

1) Argentina got away with nationalizing their citizens' pension savings (back around 2001 maybe?) And look what happened to them.

2) The Social Security news is actually much, much worse than that. It's not so much about when the "trust fund" will get depleted, it's the fact that for many years excess Social Security collections have been used to purchase T-bonds. No more. Now who's going to buy them all, especially when we're looking at trillion dollar deficits as far as the eye can see.

Ya know, a trillion here, a trillion there, pretty soon we're talking about real money...

Eric said...

Yes, an excellent point. The SS Trust Fund has been used to mask the true size of the deficit and now it's turned from a plus to a minus.