Sunday, August 5, 2012

Paul Volcker Warns on Debt of California, Illinois, New Jersey,New York and Other States

This is big. Paul Volcker is the Rockefeller clean up man. He cleans up economic messes.

When the economy is in trouble, the Rockefeller's turn to Volcker. In the 1970s, when inflation was getting out of control, David Rockefeller told then-President Jimmy Carter to put Volcker in as chairman of the Federal Reserve. Carter did as he was told. Volcker immediately came in and shut down the Fed printing presses (for awhile) and killed the hyper-inflation threat of that era.

 As of October 2006, Volcker is the current Chairman of the Board of Trustees of the elitist Washington-based financial advisory body, the Group of Thirty. He is also a member of the Trust Committee of Rockefeller Group, Inc., which he joined in 1987. . He is a founding member of the Trilateral Commission and is a long-time member of the Bilderberg Group.Watch what Volcker is up to and you will know where the Rockefeller's think there is a weak spot in the economy.  At present he is researching debt at the state level, along with Dick Ravitch, he heads the State Budget Crisis Task Force. Ravitch and Volcker are out with a report that correctly says the debt situation at the state level is bad, real bad.WSJ has put out a summary:

Since 2010 the former New York Lieutenant Governor and Federal Reserve Chairman have been scrutinizing the balance sheets of six of the largest states—California, Illinois, New Jersey, New York, Texas and Virginia. Their conclusions make clear that Washington is not the only part of the government headed for the fiscal cliff.
Some of the problems the State Budget Crisis Task Force identifies are familiar: growing health-care spending and unfunded pension liabilities, for example. Others are not. Taking in "the totality of the problems," Messrs. Ravitch and Volcker write, "the storm warnings are very serious" and the "existing trajectory of state spending, taxation and administrative practices cannot be sustained."
• Medicaid. This state-federal program that increasingly pays for middle-class health care is the major albatross. Spending has grown faster than the economy every year since the 1960s, 7.2% annually over the last decade. It is now the largest part of state budgets—24% on average—and "the imbalance (or structural budget gap) can no longer be absorbed without significant cuts to other essential state programs like education or unpopular tax increases or both."
The panel also found that these costs are driven by states choosing to increase enrollment and create new benefits, rather than by rising underlying medical costs. One of four New Yorkers is on Medicaid, and 70% of the coverage is not required by federal law.
Some 29% of California's population is in Medicaid, though it only accounts for 11.8% of the Golden State budget, well below the national average of 15.8%. But that share is so low only because California spends so much on other things too. New York spends more on Medicaid than Florida, Texas and Pennsylvania—combined.
Medicaid costs over the decade are due to jump 8.1% annually, as required by the Affordable Care Act's expansion. Without ObamaCare, the yearly rise would still be 6.6%.
• Pensions. The burgeoning retirement benefits that states owe their public employees are well-known. But the Ravitch-Volcker task force emphasizes that, unlike federal entitlements, state pension obligations are almost always constitutionally protected. In other words, they are non-modifiable contracts, not merely political promises.
California has 62 state and local pension systems, Texas 75, Illinois 457. The 1990s and 2000s saw a reckless benefit build-out—California even increased pensions for people who had already retired. The states are supposed to prefund these liabilities so they are able to pay out once vested, but by and large they don't. States then assume an 8% return on their investments, which means they can stint on their taxpayer contributions and make their pensions look healthier than they really are.
The bad news is that today they already look like they belong on a gurney at Antietam, despite such gaming. Using more conservative assumptions, the task force calculates that the unfunded liabilities in the six states comes to $386.2 billion, or about a quarter of every dollar they will eventually be required to spend.
he task force also does the service of noticing retiree health insurance benefits, which states (unlike corporations) are not required to disclose. At a minimum, the panel figures the six states owe $539 billion, with no plan to defuse this time bomb.
Combining pensions and other special public employee privileges, Illinois's total unfunded liability works out to $15,800 per citizen—the only all-in data the task force could acquire. The true number may be far higher in the other five states.
• Budget gimmicks. The other novel Ravitch-Volcker observation is that no one knows for sure how deep these problems run, because the states are running bookkeeping cons that disguise the fiscal realities. The task force uncovered "chronic dependence" on gambits like assets sales, "temporary" raids on rainy-day funds, and shifting current spending to future years "as an ongoing budget strategy."
New York created an Albany-guaranteed "local government assistance corporation" to hide spending that would have run through the general fund. Illinois is borrowing short term for cash flow to make unpaid bills.
California, Illinois, New Jersey and New York are even securitizing their future tax revenue—that is, not merely borrowing with bonds that must be serviced but selling their projected tax collections to investors. So to "balance" their budgets today, they're making it far harder to correct them in the future and locking in higher tax rates. Even Greece doesn't do that.

Bottom line: Things are real bad. We are a few years behind Greece, but when the crisis hits the U.S., it is going to be massive money printing by the Federal Reserve or major defaults on state debt. It won't be pretty.


  1. Well it's all so simple really. Everybody is happily looting. Everyone in government and anybody over 60 or on public assistance. It's in their collective interest to kick the can.
    The real victims, the young are so thoroughly brainwashed and clueless, that they're completely unaware of the debt that's piling up for THEM.
    They should be out in the streets and stringing up politicians and bureaucrats.
    Boy are THEY in for a surprise!

    1. The elderly are going to be hurt the most when the price inflation comes. They're on fixed (fiat) incomes that will eventually have little to no purchasing power. Plus they're far less able-bodied to get back to work and earn a livable wage. And it's probably not as easy to move out of the country. Basically, it's going to be a gigantic disaster in this country.

    2. "...anybody over 60"? What, should 20-somethings start beating up on gray beards? Your comment alerts the young to who the real enemy is, "anybody over 60 or on public assistance." Unite, "real victims, the young!" beat gray beard, beat grandma with her public-assistance check, our real and monstrous enemy! And if you think that "the young are so thoroughly brainwashed and clueless," how are they going to discriminate who a businessman is, a bureaucrat, or a politician? Okay, what practical solutions do you have for teens and young adults to ameliorate their situation? Instead of gravedigging, as Peter does below, "they will be the ones wiping the arses of the baby boomers," posting solutions maybe for their situation would serve them better.

    3. Well, there's always moving offshore, black market, etc etc. just like back in the sixties. And by the way, Granma is stealing the food from young couple's babies!

      Oh, and BTW, I DIDN'T say beat up Granma. I specifically said "politicians and bureaucrats".

      And perhaps you've never heard of figurative language.

      Opt out is the only true solution. Everything else is pointless.

      BTW, I am a geezer myself.

    4. My apologies, Capn Mike. You're right on all counts. Older people get mistreated all the time. Most young people don't hang out with sexagenarians, septuagenarians, octogenarians, or nonagenarians. It may be natural for a young-adult imagination to have a natural prejudice against older folks, who for the most part are symbols for loss of ability, health, or wealth. Fortunately for sexagenarians and others, we can make that prejudice work for us. Uh, and I have heard of figurative language--used it once to fix a washer. ;-)

  2. There are young people seeing the debt, wars, bad government and unemployment and they are getting angry. They see they will be the ones wiping the arses of the baby boomers. They know they are paying the tab for something they did not create.

    And when they are angry enough watch out the baby boomers and the people responsible for the mess. Its coming!

  3. Volcker to me seems like a very scary statist man. He has two faces, the darth vader face, and the father figure face--Remember Vader was a father. Volcker is like Greenspan's father to me. He was an adamant Keynesian money printer. He only seemed to target interest rates, not shut down the printing presses. He wanted to target interest rates at 0% but actually still caused a money-supply inflation which Rothbard was very critical of. Rothbard even bashed the man for being a Keynesian. I'm not sure Volcker is a good man, he seems just like the rest of 'em. If anything, he was a man that tried really hard to mask the inflation tax on the people. Let us not forget he loved the fisher equation, even if he did spike interest rates during Reagan's era. Volcker indeed did this to stabilize the dollar, but let us not forget he dropped inflation to 3% which is still a tax and enough to find banks pyramiding off of their reserves. Remember, the inflation rate targeting of the Fed now is 2%, much lower than that of Volcker. Volcker is a statist, he still admires not only FRB, but the Fed. Nowhere has he offered alternatives to the present system. He just want to coercively control from the top, hence, he wants the damn Fed to be in charge of money like Darth Vader wanted to control the Galaxy.....he just another statist.