Terry Corbell, The Biz Coach
By Terry Corbell
Business Consultant

Governments – from Cities to Federal – Dangerously in Debt



July 25, 2016 –

The U.S. economy has been slowly mending.

However, the situation is bleak for governments at all levels. It’s distressing to most business people.

Why?

ID-100353840High debt is dangerous and economic growth is dreadfully slow.

But economic growth is vital. With sluggish economic growth, tax revenue slows but governments are too hesitant to cut expenditures.

Indeed there are permanent scars – forecasts of continued slow economic growth thanks to poor government policies and high government debt ratios.

Government debt under the Obama Administration as a share of the nation’s GDP is close to 76 percent.

That’s nearly double since the president took office in 2008.

The skyrocketing debt is owed to the Federal Reserve, the central bank of the United States, and to countless other nations — from China to England.

The nation’s massive debt increases every split-second and is best illustrated by the U.S. Debt Clock.

Therefore, the administration’s economic policies are not adequately geared to solve the enormous costs as a result of massive debt and increasing economic pressures from aging baby boomers.

State and local government debt

The federal government is not alone. Skyrocketing pension costs pose dangerous threats to most state and local governments.

The Hoover Institution has released a report, Hidden Debt, Hidden Deficits, which shows that practically no state or local government has a balanced budget because of enormous unfunded public-employee pensions.

The Hoover Institution at Stanford University is a public-policy research center devoted to the advanced study of economics, politics, history, and political economy – domestic and foreign, including international affairs.

Covering 564 state and local governments, the study reveals there were $1.91 trillion in unfunded pension liabilities back in 2014.

“The problem of unfunded pension liabilities has become too big to ignore,” says Joshua D. Rauh, a senior fellow at the Hoover Institution and the Ormond Family Professor of Finance at the Stanford Graduate School of Business.

“State and local governments promise guaranteed pensions based on targeted returns that are far from certain,” he explains.

 

“Last year we said, ‘Things can’t go on like this’, and they didn’t, they got worse.”

-Will Rogers

 

“In reality, assets in the pension systems will be insufficient to pay for these promises to retirees, resulting in a heavy burden being placed on taxpayers to make up the difference,” adds the researcher.

Professor Rauh says the new Governmental Accounting Standard Board guidelines aren’t likely to help.

By way of explanation, he indicates the majority of public pension systems in the United States still calculate their pension costs and liabilities using the assumption that their contributed assets will achieve returns of 7 to 8 percent a year, ignoring the extent of public sector liabilities.

To target these investment returns, Professor Rauh warns systems have taken increased positions in the stock market and other risky assets, including private equity, hedge funds, and real estate.

The targeted returns may or may not be achieved, but public sector accounting and budgeting proceed as though they will be achieved with certainty.

“This study shows that unfunded pension liabilities are devastatingly widespread and only getting worse,” asserts Professor Rauh.

“With hundreds of state and local governments drowning in retiree benefit debt, the need for bold structural reform has never been so pertinent,” he warns.

We need to bring local and state governments’ retiree benefits back to solvency before we see this vast epidemic limit the ability of state and local governments to provide adequate services in areas such as public safety and education,” concludes the professor.

Amen.

By the way, if you share the concern about the U.S. debt you can get involved by clicking here.

From the Coach’s Corner, editor’s picks:

Why a 1960s’ Beatles Protest Song is Still Relevant — Have you ever wondered why British groups like The Rolling Stones, The Who and The Beatles spent so much time touring abroad? To sell music for sure, but there’s another reason: Abusive taxes.

Why Uncertainty Continues for U.S. Business and Workers, Alike — Developments indicate the U.S. has lost its way. There’s no hope for beleaguered businesses and workers unless effective measures are implemented now.

FDA Inefficiency Costs ‘Thousands of Lives and Billions of Dollars’ in Healthcare – Book –ObamaCare is one of the biggest financial headaches suffered by businesspeople. But there’s more bad news for business. Now, a book indicts the Food and Drug Administration (FDA) for massive problems that annually lead to the deaths of nearly a quarter of a million Americans and cost an unnecessary $200 billion+ in healthcare expenses.

Memo to Candidates, Voters and Media: Think CandidateVerification — For a transparent political process to benefit America –candidates, voters and the news media should investigate a nonprofit – CandidateVerification. The Seattle-area nonprofit – a nonpartisan organization – invites all candidates to participate in a free background check.

For astute commentaries, see the economic analysis by Peter Morici, Ph.d, economist and professor at the Smith School of Business, University of Maryland, former chief economist at the U.S. International Trade Commission, and five-time winner of the MarketWatch best forecaster award.

For authoritative reports about policies concerning the state of Washington, visit the Op-Ed page for the Washington Policy Center.

“Last year we said, ‘Things can’t go on like this’, and they didn’t, they got worse.”

-Will Rogers

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management servicesFor a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

 

Photo of man courtesy patrisyu at www.freedigitalphotos.net 


Seattle business consultant Terry Corbell provides high-performance management services and strategies.