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Guest Post: Snapback - Stockton, Calif. And All The Cities To Follow
Submitted by Charles Hugh Smith from Of Two Minds
Snapback: Stockton, Calif. and All the Cities to Follow
Government promises to public employees have created "zero-risk" Wonderlands protected from the market forces of risk and consequence. These islands of privilege are snapping back to join the real economy.
Every government entity that reckoned it was moated from the market economy will be snapped back to "discover" risk and consequence. Let's lay out the dynamic:
1. Every government can only spend what its economy generates in surplus.
2. Every government transfers risk and consequence from itself, its employees and its favored vested interests to the citizenry and taxpayers.
3. Every government collects and distributes the surplus of its private sector to its employees, favored constituencies and vested interests.
4. Since the government (State) promises guaranteed salaries, benefits and entitlements to its employees and favored constituencies, these individuals believe they are living in a risk-free Wonderland that is completely protected from the market economy.
5. Risk cannot be repealed or eliminated, it can only be masked or transferred to others.
6. The Federal government and the Federal Reserve have pursued a policy of inflating serial speculative credit-based bubbles.
7. These bubbles inflated assets, profits and taxes, creating the illusion that blow-off speculative tops were "the new normal."
8. Speculative credit-based bubbles misallocate capital and incentivize malinvestment on a spectacular scale.
9. Once the bubble deflates, the capital is lost or trapped in illiquid malinvestments.
10. As a direct result of the dot-com bubble, Stockton's tax revenues (general fund) leaped to $139 million in 2001. As a direct consequence of the housing bubble, it jumped to $186 million in 2007.
11. This "new normal" encouraged the belief that the stock market would double or triple every decade into the future, generating 8%+ annual returns for public union employee pension funds.
12. The city government granted employees open-ended guarantees of lifetime healthcare coverage.
13. This meant that there was no limit on the cost of each employee's benefits.
14. As noted here many times, healthcare costs rise by 7%-10% every year, even as the economy which supports healthcare grows by 2% on average.
15. Healthcare alone will bankrupt the nation, and the bankruptcy of entities that promised open-ended healthcare is merely one manifestation of the coming bankruptcy of the entire sickcare/entitlement Status Quo.
16. Once the stock market reverts to the mean and is revalued to the "new normal" of global recession and low earnings growth, it will decline by 40% or more and yields will remain around 2%.
17. Pension funds earning 2% at best based on expectations of permanent 8% returns cannot sustainably pay the benefits promised.
18. If the city attempts to make up the shortfall annually, the services provided to the citizenry will be gutted. The risk and consequence of malinvestment and favoritism has been offloaded onto the citizens while those protected by the government moat live "risk-free" lives of guaranteed pensions and benefits.
19. The public-employee pension and healthcare benefits were separated from the market economy with this government guarantee: regardless of what happens in the real economy, you will be paid pensions and benefits that have zero exposure to the market economy and private-sector pensions/benefits.
20. In effect, the government has placed its employees and vested interests in a moated "risk-free" zone outside the market economy. The risk that is distributed to all participants in an open market (i.e. a democracy) is transferred to the citizens and taxpayers.
21. Any government that siphons off an increasing share of its taxpayers' disposable income (to distribute to the privileged few) in return for declining services will eventually be overthrown by the citizenry and taxpayers who must bear the full consequences of the city's mismanagement of their capital and income.
22. Every city, county and state in the U.S. which has secured a risk-free wonderland for its favored few will "snap back" into the real economy and face the discipline of the credit market and the "discovery" of price and value.
23. Risk cannot be eliminated by government mandate, it can only be transferred to others. No government entity can maintain a "risk-free" fortress outside the market forever. The moat around Wonderland will be drained or filled, regardless of what promises were made.
24. Government has no mechanism to transparently price risk, value and return on investment. The market will "discover" all these and re-set government services and salaries accordingly.
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A decent level of public health care and retirement is "unaffordable".
But trillions spent on wasteful militarism and financial tycoons is ignored inasmuch as it is "private".
Health care and retirement is the problem because "the market" says it is unaffordable.
ZIRP, the upward transfer of wealth, and the misdirected war and urban sprawl economy need not be mentioned as bankruptcy causes.
Health care and retirement is the problem because "the market" says it is unaffordable.
Agri-business and feed lots, pesticides and Round-up, fast food profiteering, the diabetes and obesity epidemic, the thousand chemical pollutants we are exposed to daily, debilitating jobs and wars are just "the market" speaking.
Health care and retirement is the problem because "the market" says it is unaffordable.
The TSA, NSA, world's biggest prison industry, and Prohibition II on drugs is all affordable and unrelated to organized crime, corruption, addiction, unemployability. And by the way, let's just dump all the disability costs generated from every source over to the Social Security program.
Yeah, let's just listen to what "the market" directs us to do. If we are to keep "the market" as it is, then health care and retirement looks unaffordable. Probably public education has to be unaffordable as well. "The market" tells us job benefits must be made globally competitive at the lowest common denominator.
To quote my sister-in-law (when I said that I was glad Chris Christie had won the election in New Jersey). "I hate him. He's going to take away my pension."
yet another willing sheeple who uses the govt to take other people's money - bah bah bah
"1. Every government can only spend what its economy generates in surplus."
Not true. it can also steal what other economies have generated. For example, one could retire to Stockton (if one were really stupid) and Stockton would proceed to steal his accumulated savings through a myriad of municipal fees and help from Stockton's criminal community.
Stockton is an example of a dying city, not so different from Detroit. It has serviced the surrounding agricultural industry for over 100 years and now that industry no longer needs the services that the residents of Stockton have to offer (there aren't many valuable services anymore, except a thriving business in stolen auto parts especially the variety valued by the Latinos). Stockton has become a large immigrant labor camp for the surrounding agriculture.
On a brighter note, Stockton has a very nice, nearly new, very large, very expensive welfare office with many busy pawn shops in close proximity.
Modern-day version of the Gods of the Copybook Headers from Kipling:
AS I PASS through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.
We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.
We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.
With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.
When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: "Stick to the Devil you know."
On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: "The Wages of Sin is Death."
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."
Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.
As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;
And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!
Now the terror and slaughter return...
"By robbing selected Peter to pay for collective Paul:"
When you can keep your head when all about you are losing theirs, then you will be a man, my son.
Kipling was a gas.
Wasn't it Hazlitt who said something along the lines --- Every generation needs to relearn the lessons of the past.
I can't help but think that this generation is going to re-learn the things their great grand-parents/grand-parents once knew.
Meanwhile, as Moonbeam clings to senility, Gavein Nukem is trying to push $3 billion for matching book ends on his fast ride to nowhere. This will require matching funds from the suckers, who will be required by "law" to pay to finish destroying their communities.
At least Nukem has plenty of experience with bankruptcy.
Politicians aren't stupid; they just have a focus that's so narrow they can't see the real world. Like many specialist politicians believe that their knowledge of their career translates into reality.
When you tax the US citizen middle class to 75pc, it brings in revenues.
Screwdrivers.
9,111 retired California government workers receive pensions in excess of $100,000 from CalPERS.
5,259 retired teachers and administrators receive pensions in excess of $100,000 from CalSTRS.
1,642 retired University of California employees receive pensions in excess of $100,000 from UC.
They're all listed here.
http://database.californiapensionreform.com/database.asp?vttable=calpers
# 1 on the list is Bruce Malkenhorst (under investigation) taking in $42,472.05/month ($509,664.60/year) from the City of Vernon.
http://articles.latimes.com/2012/may/31/local/la-me-vernon-pensions-2012...
The bigger they are, the harder they fall.
Private enterprise destroyed public sector in what Bill Black would call perfect example of "control fraud."
"21. Any government that siphons off an increasing share of its taxpayers' disposable income (to distribute to the privileged few) in return for declining services will eventually be overthrown by the citizenry and taxpayers who must bear the full consequences of the city's mismanagement of their capital and income."
a laid off cop here, a fireman there, close the library, close the pool, leave the potholes.That's the game.
The "Diversity Director" types never seems to get laid off. Assistant to the assistant Hurt Feelings Co-ordinator's new leather furniture gets delivered the day the cops are fired.
Funny, that.
Stockton, Calif. And All The Cities To Follow ... and all the states, too.