A great technology solves a problem that we didn’t know we had. It makes us aware of deprivations we didn’t know existed until we discover the new thing. Once discovered, we can’t go back.People in the 1950s, for example, never missed the smart phone. They were pleased to have a phone at all. But today, […]
In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]
When you type a website address into a browser, you might have noticed that the letters “http” appear at the front. “HTTP” stands for Hypertext Transfer Protocol. In typing a Web address, you are actually sending an HTTP command to transmit that website to you. Hypertext Transfer Protocol is the means by which information is […]
In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]
Here’s a fun fact: Although we all hate the U.S. dollar, as it continues to hemorrhage wealth, its foothold as the world’s reserve currency isn’t going to disappear overnight.A Russian gas deal with China won’t change that — as we’ll highlight below.But before we get to the nitty-gritty, let’s dive into a story that’s right […]
Franklin Delano Roosevelt famously used the term “forgotten man” in a 1932 speech to describe those at the bottom of the economic pyramid who, he felt, government should aid.But the originator of the phrase “forgotten man” had a whole different meaning in mind. He aimed to expose the seeming good intentions of government to reveal […]
“As the nation’s central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding […]
The Keynesian disaster recovery plan has been to lower rates, force people to take more risk in search of yield, and entice others to borrow and spend and, magically, more jobs will be created. If people won’t buy stocks, central banks will.Back in 2011, Ben Bernanke, when asked if QE2 was driving up stock prices, […]
According to the Bureau of Labor Statistics, consumer prices are rising at a 2.1% annual rate. This suggests to us that the current stock market boom will die with a bang, rather than a whimper.Fed economists say they don’t think inflation rates are rising. They think the most recent reading is a fluke. But why […]
Real progress happens through real people, ideas, and innovations. Not by legislation argued and debated in Congress. Right now, one of the most influential technologies is changing the way people do business. And reinventing the future in the process.
As the world gets more digital, people forget about the benefits of transacting in cash. And government officials know that.
The experts will tell you the recession is over, but they’re only torturing the data to hide the truth. The economy never recovered from the downturn it experienced. But the downturn happened in 2000, not 2008. The country’s been in the middle of a 14 year recession and hardly anyone knows the truth.
Every time Bitcoin crashes, it winds up at a price greater than it’s previous high. Yet the experts still call it a currency fad that will fade away. But a little over a year since it really took up, the digital currency is still going strong, and is once again seeing its price rise. But is there another reason why people are buying Bitcoins.
All paper currency has a shelf life. It could be 5 years or 500 years, but at some point, the value of any paper currency eventually reaches zero. That's why, for centuries, people have turned to one shiny metal to safeguard their personal store of wealth. And, as Jim Rickards explains, you still have that option. Read on...
Edward Snowden’s one year visa in Russia expires at the end of next month. With only a few weeks left before he finds himself without a safe country to live in, he sat down to give an exclusive interview. Here are the most important things he wants you to remember from his recent sacrifice.
It’s a destructive cycle that comes around everytime your politicians ask you to take to the polls. The government’s meddling creates unexpected problems that eventually overshadow the planners’ original intentions. But that only leads the way for even more interventions.
Politicians love inflation. It’s a way to pay for the government’s debts without upsetting the public by raising taxes, or their special interests by cutting government. So they’ll flood the economy with easy money and eat away at your savings. But that’s only part of the story...
Obama recently claimed this was the “Decade of the Brain”. But it not the first time the government made that promise. The last time they did it, they wasted millions of your tax dollars. Now they’re back for round two. But this time, their failure could mean more than squandered money. It could mean making Alzheimer’s even worse for those who suffer from it.
“So we have, indeed, had a disappointingly slow recovery, and our consistent expectations for a pickup in growth have been dashed over a number of years… And the labor market is behaving in some perplexing ways and showing patterns that are novel.”–Federal Reserve Chairperson Janet Yellen in a speech to the Economic Club of New […]
Politicians who love Big Government love talking about the minimum wage. It’s one of the few policy where they don’t have to ask their constituents to pony up the extra tax dollars to pay the higher costs. Instead, they pass the buck to business owners. They can’t print money, nor can they can force you to pay more. So they cut back hours and fire the very workers politicians tried to help. But that’s how things go when you mess with the economy.
Economists aren’t physicists. But they sure do like to act like they are sometimes. When scientists reach a consensus about something, it usually means they’re breaking new ground on a theory based on hard facts and proven evidence. When economists agree on something, it shows the limitations of a field that tries to model how humans are supposed to behave. And that’s where the danger lies. Especially when it comes to things like U.S. Treasurys.
Ask a D.C. insider what’s the best way to solve the debt crisis. Nine times out of ten, they’ll recommend taking on more debt. That’s how things operate in the Potomac swamp. Up is down, right is left, digging yourself into more debt is the best way to get out of it. But it wasn’t always like this. In fact, there used to be common sense when it came to the economy. So where did it all go wrong?
Just because you’re retired doesn’t mean you have to stop working. Especially now that you have all the time in the world to do what you really want. Entrepreneurs don’t only come out of Silicon Valley. They come from all walks of life, from all different ages. If you’re retired and want to stay active while you relax, then find out the steps you need to take in order to start, manage, and grow your next small business.
Austrian economics does more than tell you what happens when the government disturbs market forces. In the hands of knowledgeable investors and entrepreneurs, it can tell you exactly what to expect from the market. Market behavior depends on how people behave. And how people behave is central to the Austrian perspective.
The U.S. dollar has been the world's reserve currency for almost a century, and already there are signs it may be in decline. But that doesn't mean it's not still valuable. On the contrary... As Chris Mayer explains, there are many reasons the U.S. dollar will remain relevant on the world stage for years to come. Read on...
The government will do whatever it takes to make sure it has enough of your money to fund itself. On the surface you might think that means enduring a grueling audit. But the IRS and the government is more than willing to ignore your privacy in the cold relentless pursuit of the money they think they deserve. As they get bigger and bigger every year, the smaller and smaller your paycheck becomes as they leach off it.
World War II might have dragged the country out of the Great Depression, but it did so at a great price. Central planning took center stage, and politicans and bureaucrats suddenly knew what was best for America, the economy, and your life. On top of that, they replaced the free market with a new economic system… Creditism.
A new assessment of state pension obligations suggests the problem is even worse than it already appears.
How much worse?
Using a more conservative method of accounting for financial gains in the marketplace, there is a $4.1 trillion gap between assets and liabilities — known as the “unfunded liability” — of all state-level pension systems in the United States, according to State Budget Solutions, a fiscally conservative think tank that deals with tax and spending issues at the state level.
On a per-capita basis, each American would have to fork over about $13,100 to fill that gap and fulfill the promises made to current and retired state workers.
The new survey makes the pension crisis look worse than in other reports because of the way State Budget Solutions calculates the plans’ unfunded liabilities.
The group uses a measure called “market value liability,” which assumes that pension funds will earn about 3.22% annually — in line with what long-term U.S. Treasury bonds pay. That measure is more accurate than often bloated assumptions that underpin most state pension plans.
“They are able to make the unfunded liability seem lower, and that means they have to put less money into the pension systems each year,” said Cory Eucalitto, who authored the State Budget Solutions report.
Many states use an assumed return of 7% or 8%, though some are beginning to adjust those expectations downward. But every time the investments miss that mark, it widens the gap between the pension fund’s assets and liabilities.
For example, in Pennsylvania, the official unfunded liability reported by the state’s two major pension systems is a combined $49 billion. That assumes pension funds will grow at a rate of 7.5% every year in perpetuity.
Using the lower, safer growth rate of 3.22%, the unfunded liability in Pennsylvania’s two pension plans grows to a combined $156 billion.
This different form of measuring liabilities produces some truly scary results. In five states, State Budget Solutions calculates pension liabilities represent more than 40% of the entire state economy. In two states — Ohio and Mississippi — the pension costs are equal to more than half the state’s gross production.
On a per-capita basis, it’s equally worrisome. There are five states where the unfunded pension liability would represent a per capita cost of more than $20,000, with Alaska leading the way, at more than $32,000 per person.
Even Tennessee, on the low end of spectrum, would have to ask each and every resident to pay $5,676 to cover the full cost of its state pension liabilities.
Many states are struggling to find the political will to deal with the tsunami of pension costs poised to wreck budgets for decades to come.
In Illinois, where the state is dealing with the nation’s highest official unfunded liability, of $100 billion — State Budget Solutions says it’s really more like $287 billion — Gov. Pat Quinn made an effort at reform this year.
The plan landed with a thud in the state legislature.
A similar effort by Pennsylvania Gov. Tom Corbett went nowhere during the spring session. He wanted to move all new state workers into a 401(k)-style pension system, but lawmakers expressed little interest in the face of surefire union opposition.
Conservative groups and state finance experts point to Wisconsin as an example of where pension reform is paying dividends. Changes to public employee benefits that were pushed by Gov. Scott Walker — resulting in massive union-led protests and an unsuccessful recall effort — have saved the state $110 million this year, according to one measure.
Kansas and Alaska have recently reformed their pension systems to include a 401(k)-style plan for new hires, helping to ease the burden of long-term pension costs.
Eucalitto said that should be the end goal, because it saves taxpayers’ money and makes the system easier for states to manage without the risk of underfunding plans.
It’s also better for employees, he said, because they have individual accounts, and if they are getting shortchanged by the state, it will be readily apparent to them.
“For public employees, they are given greater control over their own retirement and it makes it harder for states to break their promises to their retirees,” Eucalitto said.
Using a different method of accounting for unfunded state pension liabilities, a recent report from Pew Charitable Trusts estimated the gap between states’ assets and obligations at around $750 billion.
Add to that an additional $620 billion in unfunded liabilities for retiree health care coverage, which many states promise to provide to their retired workers in a separate system from traditional pensions.
“Though states have enough cash to cover retiree benefits in the short term, many of them — even with strong market returns — will not be able to keep up in the long term without some combination of higher contributions from taxpayers and employees, deep benefit cuts, and, in some cases, changes in how retirement plans are structured and benefits are distributed,” concluded researchers at Pew.
While both Pew and State Budget Solutions express concerns over higher taxes and cuts to workers’ benefits, states could have other unseen consequences from running up high levels of pension debt.
Earlier this year, Moody’s Investors Service, a bond rating agency, warned that high levels of pension debt could hurt states’ credit ratings and make it more expensive to borrow money via the bond market.
“Pension underfunding has been driven by weaker-than-expected investment results, previous benefit enhancements, and, in some states, failure to pay the annual required contribution to the pension fund,” said Moody’s analyst Ted Hampton.
Moody’s is now assessing states’ pension liabilities and their overall debt levels, he said.
Of the 50 states, those with the highest debt and pension funding needs include Connecticut, Hawaii, Massachusetts and Illinois.