Tag Archives: economics

An Implication

Posted on by
Reply

One of the aspects of the Detroit bankruptcy is this:

…shrinking…[Detroit]’s work force to the point where employee contributions can’t keep pace with the needs of current pension recipients.  The city has just 9,700 workers but 21,000 retirees drawing benefits.

That has meant larger and larger payments by the city to keep the funds solvent.

This is the future of Social Security and Medicare, absent privatization of each and serious immigration reform (which the Senate bill is not).  The outcome nationally, since we don’t get to declare bankruptcy (we can only welch on our debts by repudiating them or by repaying with debased money), is higher taxes and more debt.  And national failure.

Economic Performance

Posted on by
Reply

The Wall Street Journal‘s Benn Casselman noted the stagnant condition of our economy.

Note that the graph indicates lowering expectations for our GDP’s performance for the second quarter (just completed): last month, the expectation was for a miserly 1.9% growth; economists’ July forecast is for an even more miserable 1.5% growth.  We’ll know in a few days, when the first official government guess is published.

Casselman also wrote that

There also are signs that consumers—whose spending has helped prop up the economy for much of the past year—are beginning to tighten their belts.  Retail sales grew a paltry 0.4% in June, Commerce Department figures showed, and would have been even worse if higher gasoline prices hadn’t forced drivers to spend more at the pump.

Read that carefully: even this limited consumer spending growth was more about paying higher prices (good for the immediate seller) than it was about buying more stuff (good for actual economic growth).

Things aren’t expected to get any better soon, but, then, neither are this administration’s policies.

Some prognosticators are more optimistic, though, noting for instance that a rebounding housing market remains present.  But I have to ask, against the backdrop of this failed recovery and stagnating economy: a “rebounding housing market” means lots of new mortgages as families buy these expensive assets.  How stable, really, is the families’ income; how certain is their ability to continue paying their mortgages were the present economy, so close to a tipping point into a new recession, actually to tip over?

Detroit and the Nation

Posted on by
Reply

In Detroit’s bankruptcy filing, Michigan Governor Rick Snyder (R) included a letter outlining his reasons for his approval of the filing.  Here are some of them [emphasis added].

  • The City’s unemployment rate has nearly tripled since 2000 and is more than double the national average.
  • Its citizens wait an average of 58 minutes for the police to respond to their calls, compared to a national average of 11 minutes.
  • The City’s police cars, fire trucks, and ambulances are so old that breakdowns make it impossible to keep up the fleet or properly carry out their roles.
  • The City has more than $18 billion in accrued obligations.
  • Detroit tax rates are at their current legal limits, and that even if the City was legally able to raise taxes, its residents cannot afford to pay additional taxes. Detroit simply cannot raise enough revenue to meet its current obligations….
  • The City’s population has declined 63% from its peak, including a 28% decline since 2000.
  • A decreasing tax base has made meeting obligations to creditors impossible.

Horribly high expenditures against a tax system that’s already very expensive for the citizens has driven Detroit into the ground and forced restructuring through bankruptcy.

What are the implications for the nation as a whole?

On the one hand, bankruptcy—legal bankruptcy—is not an option for the US.  Nations have no bankruptcy system available to them; all a bankrupt nation can do is to repudiate its debts or debase its currency, repaying with devalued (dollars)—to repudiate its debts through subterfuge.

Here lies the United States: we have horribly high expenditures (see Obamacare, Medicare, Medicaid transfer payments, Social Security, Federal public service union pensions, Stimulus spending, etc) against a tax system that is hammering the paying population into the ground while, by design, excluding half the tax base from tax obligations.   This combines to create on the national level massive annual deficits, exploding national debt, and increasing costs to borrow (presently low, Bernanke’s artificially suppressed interest rates will not be able to stop the market’s assessments of our national creditworthiness).

Detroit is the future of the United States under our current policies.  In that light, notice the loss of population as Detroiters fled the disaster—28% of its people just since 2000.  As our national disaster unfolds—unless we move to terminate our Federal government’s destructive policies and put aside our own disdain for work and responsibility—where will Americans go?

Greed and Bankruptcy

Posted on by
Reply

Detroit filed for Chapter 9 bankruptcy last week when

…Emergency Manager Kevyn Orr’s attempt to reach out-of-court settlements could not overcome opposition from unions, retirees and a long list of lenders….”

Orr’s spokesman Bill Nowling had much of it right:

Pension boards, insurers, it’s clear that if you’re suing us, your response is “no.”  We still have other creditors we continue to have meetings with, other stakeholders….

But that’s only part of it.  The pensions and unions are owed the largest amount out of Detroit’s total $18 billion debt, but they’re not the only ones who were intransigent.  Bank of America and UBS AG agreed to a restructuring of the debt Detroit owed them (chump change alterations on less than $500 million of that debt), but they were nearly the only ones actually willing to deal.  Nearly all the remaining creditors each insisted, regardless of the city’s ability to pay, on holding out for their full cut, or as much of it as they could squeeze, and to hell with the rest of the creditors.

More on our “Recovery”

Posted on by
Reply

A study done by the National Employment Law Project has some troubling results on wages.

  • Americans’ after-inflation wages have dropped by almost 3% since President Barack Obama’s inauguration
  • people who earn between $10.61 and $14.21—in the minimum wage range—have seen their incomes drop by more than 4%
  • restaurant cooks, food preparation workers, home health aides, personal care aides, and maids and housekeepers lost 5%

Hmm….