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Basic Arithmetic
The Global Blue Model Crisis

The laws of arithmetic don’t stop at the U.S. border: an explosive new report out from Citigroup shows that public pensions are grossly underfunded. The New York Times:

Twenty countries of the Organization for Economic Cooperation and Development have promised their retirees a total $78 trillion, much of it unfunded, according to the Citigroup report.

That is close to twice the $44 trillion total national debt of those 20 countries, and the pension obligations are “not on government balance sheets,” Citigroup said.

“Total global government debt may be three times as large as people currently think it is,” the researchers warned, after gathering as much information as they could about various government pension plans and adjusting the amounts where necessary, to permit fair comparisons with bond debt.

The report singled out Germany, France, Italy, the UK, Portugal and Spain for having public sector pension liabilities in excess of 300 percent of GDP, while noting that corporate pensions in the United States and the UK are not in particularly good health either.

It’s an unpleasant reality that’s dawning on the Western world: the comfortable 20th century welfare state only appeared sustainable while the baby boomers were in the active workforce. As that venerable cohort ages (and reaps the considerable benefits provided by advances in medicine to live into a ripe old age), the demographics have shifted, and the underlying numbers just don’t add up any more: there are fewer and fewer working people available to support an aging population.

The adjustments the world over are going to be painful and ugly, when people at the end of their working lives realize that the comfortable retirement they were counting on is anything but assured.

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  • slovokia

    It will be interesting to see how responsible savers will be treated when the financial feces hit the fan. Will they be taxed into oblivion? Will they face very high rates of inflation that decimate the real value of their savings? Will governments default on their bonds? If the majority of the electorate are either young (not wanting to be taxed unfairly) or older spendthifts (i.e. those who did not save enough for their retirements), my guess is that responsible savers will be treated pretty badly in the end.

    • Blackbeard

      The “responsible savers” you speak of are, in fact, the undeserving recipients of exorbitant financial privilege. Of course they will be taxed into oblivion. To do anything else would be to exacerbate inequality. Can’t have that.

    • Pete

      Government looks at its liabilities as a societal problem, and it does not distinguish between the good (the savers), the bad (the squanderers) and the ugly (the parasites). So of course savers will be treated unfairly in the end, and the reason for that is becasue savings is where the money is at.

      • Curt A.

        Amazing is it not, in 1965, if a working class couple saved $60-70 thousand dollars across a working lifetime and retired at age 65, the interest on the money would have provided $3000-3,500 in interest per year. Social Security added about $600 per month between husband and wife back then. That gave the retired couple an income of about $10-10,500 per year, not a rich amount but decent enough to live on independently. In 2015, a working class couple who may have saved $250,000 across their working lifetime would receive interest of around $2,000-2,500! Even with Social Security paying the couple say, $36,000 combined, that is only a total retirement income of $38,500. The 1965 income had better purchasing power than the 2015 income.

        • FriendlyGoat

          Now if we could just get people to understand that a race to the bottom on income and estate taxation is the most likely reason for the speculation that caused the crash that caused the engineered low rates, we’d be on our way back to sense. This is a world issue, BTW, not just the USA.

          • ThomasD

            The problem is not that the government is broke. Governments always spend as much as they can, they should be broke. It is the only way to limit their spending to the essential.

            The problem occurs when government grows so large as to break all of us.

          • FriendlyGoat

            I am not against high-end tax cuts because I want the government to have the money. I am against low taxes on high incomes because the effect of that is to kill jobs, not “create them” as you imagine.

          • KountvonNumbacrunch

            Wishful thinking,

          • FriendlyGoat

            Yes, indeed. It is the most important economic wish of our political time. Most people do not understand that high taxation of high income helps society and does not hurt it.

        • KountvonNumbacrunch

          Yes, and let’s go back another 50 years. In 1915, your children usually supported you in old age. Governments successfully replaced some of the functions of families and made people more and more dependent on government . The failure of these governments is now unfolding. Imagine a 50 year old European couple with one (unemployed or underemployed) child and a dubious future government pension promise. It’s the same in the USA, but a little less bleak. Then there is Japan….

    • Jim__L

      Responsible savers are already being treated to interest rates in the fractions of one percent, as politicians try to “stimulate” their chances of re-election.

      • FriendlyGoat

        The biggest means by which politicians are attempting to stimulate their chances of re-election (on your side) is by promising the upper half of the country more tax cuts. People with money in a bank (responsible savers) do not need a tax cut and will not benefit from one on their “fractions of one percent” interest earnings. Seriously, a person who diligently saved a few hundred thousand in a bank does not need a tax cut on his $2000 interest. He needs the financial world re-normalized—-a thing that cannot happen with more GOP tax cuts.

        • nervous122

          Yes, those GOP tax cuts are killing European and Japanese pensions.

          • FriendlyGoat

            The world-wide competition for low taxes on high incomes is not helping Europe, Japan, or any other place.

          • nervous122

            Yes, thats the problem. It couldn’t possibly be the unaffordable promises used to buy votes.

            Its the low taxes in Europe.

          • FriendlyGoat

            Wherever nations are responding to tax competition to lower taxes on high incomes, yes, it is the problem. I don’t normally just copy my own comments, but:

            Now if we could just get people to understand that a race to the bottom on income and estate taxation is the most likely reason for the speculation that caused the crash that caused the engineered low rates, we’d be on our way back to sense. This is a world issue, BTW, not just the USA. Ordinary people going forward cannot somehow expect to live in a world with increasing speed and sophistication of financial trading, and be anything but royally screwed forever if they are stupid enough to give low taxation to the winners of the trading. OF COURSE most of them will be out-traded. OF COURSE the gains from that trading don’t “create jobs”. OF COURSE the wealth divide will widen. OF COURSE the governments will be broke.

          • ThomasD

            You keep saying “race to the bottom” when it is not remotely so. If you want to advocate adjusting rates to maximize total revenue then by all means have at it.

            But that does not seem to be your actual concern

          • FriendlyGoat

            When I hear the GOP griping that our taxes are higher than in other countries—-so we MUST lower them, that’s the race to the bottom.

        • Tom

          Nor will it happen if quantitative easing continues, which is the province of Democrats. As usual, the middle class gets the brown and smelly end of the stick, while the politicians bloviate about helping them.

        • ThomasD

          What a foolish argument, closing the barn door after the horse is gone.

          The saver needs a tax break while saving, but you are to wedded to the blue model to even contemplate such a possibility.

          • FriendlyGoat

            Traders basically killed Americans’ ability to receive interest on deposits in banks. Don’t give the traders a damn tax cut for screwing the whole country.

    • ThomasD

      It is inevitable that governments will seek to inflate away their problems. They always have and always will.

      So by the time it all falls down the savers will have already been destroyed.

  • Rodney

    Off balance sheet obligations. And Ken Lay and Jeffrey Skilling are mere child’s play compared to this.

  • Pete

    Buy gold.

    • Curt A.

      You are assuming you will be allowed to keep it, don’t count on it, the US government has once before forbade Americans to own gold, the Gold Act of 1933. With a stroke of legislative approval, the government could make it illegal to own gold except for ceremonial jewelry, order everyone to turn in their gold and invoke a penalty of 10 years imprisonment and a $100,000 fine for disobeying the law. They will employ agents to monitor transactions and any that are conducted in gold ( silver could be included ) will subject the participants to arrest. It has precedent therefore it can easily be done again.

      • Pete

        No, confiscating gold could not be easily done again. Things today are much different than in the 30s.

        • Curt A.

          I am sure the people of 1933 felt the same way. Surely they felt that Socialized Medicine was impossible, federal witholding tax was impossible ( very few people paid income tax back then ), legal abortion impossible, same sex marriage impossible, confiscation of privateproperty for private enterprise impossibe, etc. etc. The only thing that has changed is the time period. The power of government is always seeking self aggrandizement. Nothing is impossible for them. Resistance? Sure, but if a few examples are made, compliance usually follows. If the economy goes down again don’t rule out anything.

          • Jim__L

            The example at Waco did not result in greater compliance — quite the opposite in fact.

  • f1b0nacc1

    Math always wins

  • D B

    We were told that Europe had high cost social programs because the USA was paying for its defense. Now we see that they were so high cost that even that wasn’t enough – they were also making promises to spend in the future money they didn’t have!

  • emersonushc13

    All you have to do is print money since it’s just paper, right? Only recycled paper because trees. And natural inks from renewable resources. And there better be a disabled transgender person of color on the front!

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