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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive


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June 24, 2013

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By Charles Hugh-Smith

The rising stock and bond markets generated huge profits for the public-employee pension funds, enabling them to grow without taxpayer contributions.  The effortlessness and persistence of this growth encouraged the mindset that pensions would be paid for via the magic of ever-rising markets; if tax revenues weren’t even needed to fund the pension plans, then no hard political choices would ever have to be made.

Alas, the 8% annual growth rate of the boom era is now structurally unrealistic.  The new normal is bond yields of 2% or 3% at best, and equities markets that are increasingly at risk of significant sell-offs.

The illusion that the pension funds can pay the promised benefits is maintained by plugging wildly unrealistic 7% or 8% returns into projections of future pension fund earnings.  Now those unrealistic projections are being questioned.  This means tax revenues will have to be diverted from other government expenses to fund the pension plans.

Raising taxes is the default solution to state/local government shortfalls, but there’s a structural problem with raising taxes:
1. Fulltime jobs – the kind that pay the bulk of state/local taxes – are stagnant.
2. Real income is down for the vast majority of workers.

The percentage of the population with a job is back to the levels of the 1970s.  Real (adjusted for inflation) household income has declined by almost 8%; exactly how are households supposed to pay higher state and local taxes as their income steadily declines?

The endgame of promises made in an era of illusory, financialized abundance will be hurried along by a collapse in the equities and bond markets.  If yields rise, mortgage rates rise and that sinks the housing market.  Rising yields also sink stocks, as higher yields pull money out of risky equities.  And rising yields also collapse the value of existing bonds, wiping out much of the wealth that is currently considered safe.

In sum: there is no way the pensions and benefits promised in an era of financialized abundance can be paid once the wheels of financialization fall off.