Warning: The (Federal) Debt, Deficits Are HERE!

[macrockett]

online.wsj.com/article/SB10001424052702304830104575172250422355156.html?mod=WSJ_economy_LeftTopHighlights

APRIL 9, 2010

Los Angeles Faces Threat of Insolvency
Dispute Between Municipal Utility and City Council Over Electricity Rates Deepens Fiscal Crisis; Bond Rating Cut
By PETER SANDERS
[LABUD] Associated Press

LOS ANGELES—A bitter political dispute between this city's elected leaders and its powerful municipal utility threatens to push the city into insolvency as early as next month.

Los Angeles City Controller Wendy Greuel warned this week that the city's general fund could run out of money and fall $10 million into the red by May 5 unless the Los Angeles Department of Water & Power transfers a planned $73.5 million payment it has so far said it would withhold. Without the payment, the city would need to dip into its reserve fund, leaving that contingency dangerously low in the event of other emergencies.

The Los Angeles utility, the nation's largest municipal utility, said it wasn't making the payment because the city council earlier this month failed to approve substantial increases in electricity rates.
WSJ Professional

Utility officials say they need those higher rates to help cover the costs of investing in renewable energy, such as wind and solar, that are mandated by state and municipal laws.

The utility is an influential entity in its own right, with an annual budget of $4.2 billion, 8,600 employees and massive landholdings throughout Southern California. It makes periodic payments to the city in lieu of taxes and franchise fees.

The utility's move has kicked off a fight that already has had negative repercussions for the city. On Wednesday, rating firm Moody's Corp. cut its ratings on some $3.2 billion of Los Angeles general obligation bonds by one notch, reflecting "continued erosion of the city's historically better-than-average willingness and ability to quickly rebalance its budget mid-year."

The ratings firm warned that by the end of Los Angeles' fiscal year on June 30, general fund reserves "could be materially weaker than we had previously expected" because of the squabble with the utility.

On Monday, David Freeman, the utility's acting general manager, went further than earlier statements that it would withhold the money, telling the controller in a letter, "There is no surplus money to transfer at this time." That prompted Ms. Greuel to order an immediate audit of the agency to confirm that the funds weren't available, a move the utility said it welcomes.

The dispute follows a failure by Mayor Antonio Villaraigosa to push through a deal. He supported the steep rate increases, but was overruled by the city council. When the utility threatened to withhold the funds, Mr. Villaraigosa said the city's fiscal situation was so dire that he proposed shuttering most nonemergency city services two days a week. That threat fell flat when it became clear he lacked the authority to enact such a sweeping move.

On Wednesday, City Councilman Greig Smith moved to put a measure on next March's ballot that would ask voters to allow it to shift control of the utility—and its massive budget—under the auspices of the council.

The mayor and the city council have been fighting for months over how to tame a budget that already is $212 million in the red this fiscal year. That figure is expected to approach $500 million in the next fiscal year, which begins July 1.

The city's reserve fund, typically 5% of the overall budget, should normally be in the range of $220 million, but may fall as low as $25 to $30 million by the end of the fiscal year on June 30, Ms. Greuel said. That leaves the city exposed should it be hit with a major disaster, lawsuit or other unexpected expense.

Already the mayor and city council have enacted furloughs and limited layoffs among the 48,500 city workers. Mr. Villaraigosa would like to pare about 4,500 workers from the city payroll to save additional money.

Ms. Greuel said the city needs to examine a more fundamental structural change.

"The sooner you take action," she said, "the less draconian the cuts need to be and you don't find yourself at the edge of a cliff, peeking over."
—Stan Rosenberg and Cassandra Sweet contributed to this article.

Write to Peter Sanders at [e-mail]

[macrockett]

I admit it. I read far too much. But admitting that, I came across an article while reading the comments section to an article in the NYT (how convoluted is that?) that appeared in TheAustrailian. This article discusses, in part, the growing disparity between public and private sector compensation and benefits. While a little wordy (verbose for the intellectuals out there) here it is:

www.theaustralian.com.au/news/opinion/pedalling-ever-faster-to-keep-reality-at-bay/story-e6frg6zo-1225849035709


----------------------------------------------------------------------------------
The original NYT article I was reading was this one:

krugman.blogs.nytimes.com/2010/04/08/fiscal-fantasies/

April 8, 2010, 4:58 pm
Fiscal Fantasies by Paul Krugman--

David Frum is startled by Larry Kudlow’s ignorance about the federal budget; Kudlow imagines that a pay cut for federal employees could have a huge impact on the deficit, when in fact it would be trivial.

Two things: it should have been obvious on general principles that Kudlow was talking nonsense. The basic picture of the federal government you should have in mind is that it’s essentially a huge insurance company with an army; Social Security, Medicare, Medicaid — all of which spend the great bulk of their funds on making payments, not on administration — plus defense are the big items. Salaries aren’t.

But the Kudlow picture is nonetheless a key part of conservative imagery; the idea of vast rooms full of government employees doing nothing productive is central to their vision of painless spending cuts. The fact that it’s not remotely true is irrelevant; they want it to be true, and that’s enough.
------------------------------------------------------------------------
Which referred to this one:

www.frumforum.com/kudlows-math

Kudlow’s Math
April 8th, 2010 at 9:15 am by David Frum | 69 Comments |
Share

I appeared on Larry Kudlow’s show last night and we had a bit of a tussle about how much deficit reduction could be achieved by cutting federal salaries.

Larry argued that a 5-10% pay cut for federal civilian employees like that imposed by Ireland could have a major impact on the federal budget deficit. (Larry was greatly influenced by this WSJ oped.)

I had come prepared to talk about a different subject, and so didn’t have the relevant figures at hand, but I suggested that his math sounded incredible. Looking it up this morning, it IS incredible.

While I could find no single source for the total budgetary cost of federal civilian pay, I did find this sophisticated calculation at this academic website.

The total annual cost of all federal civilian pay and benefits can be estimated at about $260 billion.

A 5% across the board pay cut would save no more than $13 billion , and in fact much less: remember, federal pay is unusually benefits-heavy.

To put it another way: even if we fired every single federal civil servant and shuttered the entire non-defense federal government, three-fourths of the budget deficit would still be with us.

Does this really come as news to Larry Kudlow, a very smart man and a former deputy to David Stockman at the Office of Management and Budget?

--------------------------------------------------------------------
And then there was this:

universityandstate.wordpress.com/2010/03/05/the-annual-cost-of-us-federal-government-civilian-employees/

(I won't include the entire text)

-----------------------------------------
But along the way I say another article by Paul Krugman (Which I tend to agree with, if you want to be fair)

krugman.blogs.nytimes.com/2010/04/08/lucky-ducky-redux/

April 8, 2010, 5:09 pm
Lucky Ducky Redux

So the right is now apparently outraged at the fact that many Americans pay no income taxes — a true observation that is elided into the utterly untrue assertion that many Americans pay no taxes. (Almost everyone pays payroll taxes, everyone pays state and local sales taxes, etc.)

This isn’t new; remember the famous WSJ editorial about the lucky duckies who have the great good fortune to not pay income taxes because they’re, um, too poor to be above the minimum. I guess luck is in the eye of the beholder.

The thing to bear in mind is that overall, the US tax system isn’t actually that progressive: the payroll tax is regressive, as are most state and local taxes, which largely offsets the progressivity of the income tax.

So the right likes to pretend that the income tax is the only tax; it isn’t.
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I apologize for the convoluted nature of this, but what does it all have to do with anything?
Two points:

First, while you can totally eliminate all federal employees salary and benefits and it wouldn't create a surplus in our budget, you could also tax all of the top income earners (say the top five %- 100% of their incomes), and it wouldn't create a surplus either.

www.taxfoundation.org/news/show/250.html (2007 tax data, which was a banner year! See Table one.

See also the recent tax foundation article www.taxfoundation.org/publications/printer/25962.html

My second point is this: when you include all taxes paid by all citizens, income, sales, property tax, excise taxes I think it is fair to say that our entire tax system is more regressive than most think. But will that solve anything?

Two sub points:

First, our biggest costs are medicare and social security. There isn't enough coming in to pay for those programs and all other expenses of federal, state and local government, let alone the deferred cost of our aging infrastructure, even if you took the entire income of every person in the United States. That is why were are drowning in debt and it continues to grow.

Second sub point: Beyond social security, medicare and the defense budget, there is state and local budgets. In this later group, the largest cost is public employee costs, which are spiraling out of control when you include benefits packages. Who bears the disproportionate cost of these expenses? Private sector employees. The ones who are making the average of $40000.00 per year with no pension and limited health care benefits.

The irony of it all.

[macrockett]

Bankrupting America:

Watch the video at www.bankruptingamerica.org/2010/04/21/new-video-is-washington-bankrupting-america/

[macrockett]

www.washingtonpost.com/wp-dyn/content/article/2010/05/05/AR2010050505227_pf.html

Freddie Mac asks U.S. for $10 billion as losses deepen

By Jia Lynn Yang
Washington Post Staff Writer
Thursday, May 6, 2010; A16

Freddie Mac, the bailed-out mortgage-finance giant, reported Wednesday that it continues to lose money and needs an additional $10.6 billion in assistance from U.S. taxpayers.

The most recent earnings report follows three straight quarters in which the McLean-based company did not need infusions from the Treasury. Still, the firm is struggling to recover from the mortgage-market meltdown; it reported a net loss of $6.7 billion in the first quarter of 2010, compared with a loss of $9.9 billion a year ago.

Freddie Mac is turning to the Treasury again mostly because of a change in accounting. Revised rules that took effect this year require companies such as Freddie to move all mortgages they guarantee -- but don't own -- onto their books. This shift alone caused the company's equity to drop by $11.7 billion, helping to plunge its net worth into the red.

Under the terms of Freddie's September 2008 bailout, taxpayers make up the shortfall in any quarter when the firm's net worth is negative. The accounting change, along with the firm's loss and a $1.3 billion dividend payment to the Treasury, pushed Freddie's net worth to a negative $10.5 billion, down from a positive $4.4 billion last year.

Freddie's quarterly report triggered renewed calls from some lawmakers to reform the company and its larger sister, District-based Fannie Mae. These government-sponsored enterprises, or GSEs, contributed to the financial crisis but are not addressed in the regulatory overhaul legislation now before the Senate.

"Without real GSE reform, the bailout of Fannie and Freddie will not stop, taxpayers will be forced to continue to dump hundreds of billions of dollars into the companies, and Fannie and Freddie will continue business as usual," said Rep. Spencer Bachus (Ala.), ranking Republican on the House Financial Services Committee, in a statement released after Freddie's earnings. Obama administration officials have said reform on that issue is more likely to come next year.

Even though the accounting change explains most of the company's negative net worth, Freddie is still a long way from independence, and a new infusion of Treasury funds could put the company deeper in the hole.

"It's significant because it does draw from the taxpayer, and the more taxpayer funds in Fannie and Freddie, the harder it will be ultimately to bring them out of conservatorship," says Karen Shaw Petrou, managing partner of Federal Financial Analytics, a research firm in Washington.

Since taking over Freddie, the government has provided $50.7 billion in help to the company. This new request for funds from the Federal Housing Finance Agency, which regulates Freddie and Fannie, would push that total to $61.3 billion.

The Congressional Budget Office estimates that the total drain on taxpayers from bailing out Freddie Mac and Fannie Mae will be $389 billion over the next 10 years.

In its report, Freddie acknowledges "significant uncertainty" as to whether it will ever wean itself off the government.

Much depends on whether the housing market can make a full recovery and on the performance of the government's loan-modification programs. "We're basically bumping along at the bottom and it'll take some time for things to settle down," said Mahesh Swaminathan, a senior mortgage analyst at Credit Suisse.

www.freddiemac.com/investors/er/pdf/2010er-1q10_printversion.pdf

[macrockett]

The red ink just keeps running at Fannie and Freddie. A testament to this "social experiment" that is piling up losses so fast it's total combined losses now exceeds the AIG debacle.

MAY 6, 2010

Freddie Asks for $10.6 Billion


By NICK TIMIRAOS

Freddie Mac says it will need an injection of $10.6 billion from the U.S. Treasury after posting a $6.7 billion loss for the first quarter, as the weak housing market continued to burn a hole in the company's balance sheet.

Freddie, which had a loss of $9.8 billion a year earlier, said that the brunt of its losses resulted from accounting changes that took effect Jan. 1 and brought some $1.5 trillion in mortgage guarantees onto its balance sheet.

Freddie Mac and its larger sibling, Fannie Mae, were taken over by the government in 2008 through a legal process known as conservatorship. The government has said it would put unlimited amounts of capital into the companies to keep them afloat over the next three years. Freddie's request for more aid, its first in three quarters, will bring the government's tab for both companies to $136.5 billion.

Freddie has lost $82 billion over 10 of the past 11 quarters, or nearly twice the amount it earned in the previous 30 years.

But there are some early signs that a more stable economy could stanch losses. The number of loans that were 90 days or more delinquent at the end of March fell to 4.13% from 4.20% in February, the first monthly decline in over three years.

"Though more needs to be done, we are seeing some signs of stabilization in the housing market, including house prices and sales in some key geographic areas," said Freddie Mac Chief Executive Charles E. Haldeman Jr.

The ongoing effort by the federal government to help troubled borrowers modify their mortgages has slowed down the foreclosure process, and analysts say that has made it harder to judge whether the worst has passed for the housing-finance giants.

The earnings report came as Republicans introduced a measure that would end within two years the government conservatorship of the companies, placing them into receivership, a form of bankruptcy restructuring, if they weren't viable. While the amendment would appear to face an uphill battle, it could force Democrats to take a politically dicey vote.

Introduced by Sen. John McCain (R., Ariz.) as an amendment to the financial-regulatory bill before the Senate, the measure would sharply reduce the companies' mortgage holdings over the next three years. It would also repeal expanded limits that have allowed the firms to buy larger loans in high-cost markets and would set new down-payment standards for loans the companies can buy.

Republicans have increasingly argued that the financial-regulatory bill isn't addressing one of the key contributors to the housing collapse, but the Obama administration says it would rather deal separately with Fannie and Freddie next year once housing markets are more stable.

Analysts have warned that the longer the companies are used to provide mortgage credit, the harder it will become to wean the country from those subsidies and to revamp the firms. "We need to reform them," says Christopher Mayer, a professor of finance and economics at Columbia Business School. "But if we were to just pull them out ... that would be really dangerous. Swaths of the country would get hammered because there's no credit for housing."

The current financial-regulatory bill "is already fiendishly complicated," says Karen Shaw Petrou, an analyst at Federal Financial Analytics. "There's no denying that Fannie and Freddie need ultimate resolution ... but because markets are so fragile, one needs to be really, really careful."

Write to Nick Timiraos at [e-mail]


MAY 11, 2010

Fannie Mae Needs $8.4 Billion More
Mortgage Investor Posts Another Loss, Seeks Cash Infusion

By NICK TIMIRAOS

Fannie Mae asked the U.S. government for an additional $8.4 billion in aid after posting an $11.5 billion net loss for the first quarter, the latest sign that the bailout of the mortgage investor and its main rival, Freddie Mac, is likely to be the most expensive legacy of the U.S. housing-market bust.

Fannie's losses reflected continuing weakness in the housing market and would have been worse without accounting changes that reduced its deficit. The quarterly loss was an improvement from the $23.5 billion loss for the year-ago quarter and marked the 11th consecutive quarterly loss for the Washington-based firm.

Fannie Mae is asking for an additional $8.4 billion in government aid after reporting an $11.5 billion net loss for the first quarter. WSJ's Nick Timiraos joins the News Hub with more.

The company has now racked up losses of nearly $145 billion, or nearly double its profits for the previous 35 years. While many of the nation's biggest banks have repaid their government loans and some are back to racking up big profits, Fannie and Freddie are still suffering from the housing-market crisis.

In recent weeks, the Treasury pointed out how private-sector banks, insurers and even auto makers have repaid loans under the Troubled Asset Relief Program. But red ink continues to gush from Fannie and Freddie because of their huge exposure to home loans.

"Everyone's trying to sweep it under the rug, but there's a very large embedded loss that hasn't been fully realized yet," says Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. "Someone's going to have to write a check, and it's very large."

The government's tab for Fannie will climb to $84 billion, while Freddie's stands at $61 billion. The government took control of both companies in 2008 through a legal process known as conservatorship as rising losses threatened to wipe out their thin capital reserves.

Fannie's losses have surpassed Freddie's because its $3 trillion book of loan guarantees is nearly one-third larger than Freddie's. Delinquencies are higher at Fannie because the firm more aggressively dialed up its appetite for riskier loans at the peak of the housing boom.

Despite their losses, the firms are helping to stabilize the housing market. Fannie, Freddie and the Federal Housing Administration provided guarantees or insurance for 96.5% of the home mortgages that originated in the first quarter, according to Inside Mortgage Finance, a trade publication. The companies also play a central role in the Obama administration's loan-modification effort designed to avert foreclosures.

Losses at Fannie and Freddie continue to grow because the firms must set aside more capital to cover anticipated losses as mortgage delinquencies rise. The Treasury kicks in more capital every quarter if revenues can't meet those financial needs. Unlike many financial companies, the firms are exposed to a single asset class, holding nearly $5.5 trillion in mortgages and loan guarantees.
WSJ Professional

Fannie's capital hole would have risen by $3.3 billion without new accounting rules that took effect Jan. 1. The firm's losses were driven by deterioration in its $3 trillion book of loan guarantees, which accounted for a $12.5 billion loss.

One possible signal that losses will slow in the coming months: Fannie said 5.47% of its loans were 90 days or more past due at the end of March, down from 5.59% in February and the first monthly decline in nearly three years. That has stemmed in part from efforts to modify loans and from an uptick in liquidating delinquent loans through foreclosure. The company said Monday that credit losses could decline this year from record highs last year as delinquencies begin to level out.

The company's loan-loss reserves fell to $61 billion from $64 billion three months ago, even as its pool of nonperforming loans grew to $224 billion from $217 billion. "If I was the government, I would plead with Fannie or Freddie to reserve far more than they are right now," given the prospect of future home-price declines, said Anthony Sanders, a real-estate finance professor at George Mason University in Fairfax, Va.

But the terms of the government conservatorship, which require Fannie and Freddie to pay an annual 10% dividend on their Treasury draw, could create an incentive to reserve more conservatively. Fannie had to pay the government $1.5 billion in dividends last quarter. "They don't want to raise the reserve levels because in a sense it doesn't matter and it could be perversely damaging to them," says Mr. Sanders.

In its filings Monday, in the coming months Fannie said it wasn't likely to repay that its debt to the Treasury for the "indefinite future."

Write to Nick Timiraos at [e-mail]

[sam2]

Mac, you make solid points which highlight just how dire the situation has become.

Unfortunately, government at all levels seems to be content to ignore the problem. Illinois can't pay its bills or fund its pension and one answer is to borrow even more. Congress, apparently concerned that the balance of power will shift somewhat in the fall elections, seems intent on passing expensive legislation while they still have the votes. I find this behavior both irresponsible and repulsive... They clearly recognize that the people they supposedly represent do not want this programs ( they are afraid of the election results) yet they plunge ahead. What is the motivation? It is a national disgrace -- IMHO.

I expect there will be more discussion of selling public assets to raise cash. How long can this continue? It's akin to you or sell selling our dining room furniture to pay for groceries. It can only go on for so long, until there is nothing left to sell. But, without dramatic change, the expenses will continue -- or grow.

There is much discussion of dissatisfaction with incumbents, yet, I see no candidates that represent a real alternative. It causes anguish and despair.....

[macrockett]

I just try to point out reality sam2. Some times it sucks. :-) Unfortunately politics is infested with people who are in it for the power and control, oh and the money!, and they sustain themselves with "favors" to get the votes. Why are unions, both public and private, firmly in the Democratic camp? Why is big business more prone to go Republican? Both groups want an edge, and will do almost anything to get it. Politicians are just waiting there to provide it, even though that isn't what it is supposed to be about.

Meanwhile, most of the rest of us just want to enjoy freedom and opportunity and don't need a handout or a favor.

You probably aren't aware of this transaction: files.shareholder.com/downloads/ICE/0x0x370606/6aa66178-78d8-4d6f-9b33-667512ed17cb/ICE_News_2010_4_30_General_Releases.pdf

Do some digging and see who all the principals on the sell side of this transaction are.

Remember cap and trade? The legislation dealing with capping carbon emissions, that is currently on the table in Congress?

www.youtube.com/watch?v=py6yay2c0Oo

[macrockett]

MAY 11, 2010

$145 Billion and Counting
Fannie and Freddie lose it all for you.

Fannie Mae yesterday announced its 11th consecutive quarterly loss—$11.5 billion—and asked for another $8.4 billion in taxpayer assistance. When it comes to losing money, nobody does it better than this government-created mortgage investor.

Fannie Mae is the Cal Ripken of bad real-estate deals, reliably pouring taxpayer money into the housing market. Granted, Fannie faces tough competition from its toxic twin, Freddie Mac, which last week announced its own request for another $10.6 billion from taxpayers.

Once the checks from Treasury clear, Fan and Fred will have consumed a combined $145 billion in taxpayer cash, and the end is nowhere in sight. Both companies warned of further losses triggering more government assistance, which is now unlimited after a 2009 Treasury decision.

The losses are unlimited because the companies are now run by the government not to make money, by deliberately subsidizing housing. In yesterday's press release, CEO Mike Williams didn't even pretend that he's running a profit-making business. "In the first quarter we continued to serve as a leading source of liquidity to the mortgage market, and we made solid progress in our ongoing efforts to keep people in their homes," he said. These efforts to support the Obama anti-foreclosure program resulted in a doubling of loan modifications compared to the previous quarter.

Ramping up modifications makes perfect sense in the upside-down world of Fannie Mae. The company also announced that most of the loans it modified in the first three quarters of 2009 had gone delinquent again within six months. Talk about an exciting business opportunity! In case anyone still hasn't gotten the joke, the company also clarified yesterday that its directors "are not obligated to consider the interests of the company" unless the government tells them to do so.

The real joke is that the Obama Administration and Senator Chris Dodd have collaborated on a financial regulatory-reform bill that includes no reform of Fan or Fred. Senators should rectify this embarrassment as early as today by voting for John McCain's amendment to end this most costly of all bailouts.

[macrockett]

When I go back through this tread and realize that we could have used a fraction of the wasted money to built the particle accelerator it really hits home.

en.wikipedia.org/wiki/Superconducting_Super_Collider

[macrockett]

If anyone is interested in seeing where you money goes at the Federal level, go to this site: www.fms.treas.gov/index.html

Then click on the "Monthly Treasury Statement" in the middle colored section.

April had a deficit of $82 billion. Here is the detail: www.fms.treas.gov/mts/mts0410.pdf

Table 3 is a summary of receipts and expenditures, Tables 4 and 5 are detailed information.

[macrockett]

On May 20, 2010 Barney Frank was asked about his position on encouraging home ownership leading up to the housing crash. The specific question was posed at 9:36 in this video, "Frank on Regulation": www.cnbc.com/id/37258431

The next day, CNBC ran some footage of Frank in 2005 on the House floor. Originally that clip was here "Calling Barney Out" : www.cnbc.com/id/15840232?video=1500421893&play=1
Mysteriously, the video was replaced by another clip that has nothing to do with Frank, but they didn't change the heading. I watched the original exchange live so I know it was changed.

Here is what they originally showed on May 21, the next day, which I found on YouTube, "Barney Frank in 2005: What Housing Bubble?" : www.youtube.com/watch?v=iW5qKYfqALE Listen especially at the last few words he says at the end of the video

[doctorwho]

May 24, 2010 11:58:07 GMT -6 macrockett said:

On May 20, 2010 Barney Frank was asked about his position on encouraging home ownership leading up to the housing crash. The specific question was posed at 9:36 in this video, "Frank on Regulation": www.cnbc.com/id/37258431

The next day, CNBC ran some footage of Frank in 2005 on the House floor. Originally that clip was here "Calling Barney Out" : www.cnbc.com/id/15840232?video=1500421893&play=1
Mysteriously, the video was replaced by another clip that has nothing to do with Frank, but they didn't change the heading. I watched the original exchange live so I know it was changed.

Here is what they originally showed on May 21, the next day, which I found on YouTube, "Barney Frank in 2005: What Housing Bubble?" : www.youtube.com/watch?v=iW5qKYfqALE Listen especially at the last few words he says at the end of the video

glad that they continued to 'push' their agenda even when the facts shoed them clearly otherwise...
Mr Frank has a future on the 204 SB if he eer decides to leave Massachussetts

what firghtens me even more though is the control over media content that the current admin seems to enjoy

[macrockett]

Does this sound like Illinois, i.e., structural deficits? Bingo.

www.usatoday.com/money/economy/income/2010-05-24-income-shifts-from-private-sector_N.htm

Private pay shrinks to historic lows as gov't payouts rise
By Dennis Cauchon, USA TODAY

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.

The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says.

The recession has erased 8 million private jobs. Even before the downturn, private wages were eroding because of the substitution of health and pension benefits for taxable salaries.

The Bureau of Economic Analysis reports that individuals received income from all sources — wages, investments, food stamps, etc. — at a $12.2 trillion annual rate in the first quarter.

Key shifts in income this year:

• Private wages. A record-low 41.9% of the nation's personal income came from private wages and salaries in the first quarter, down from 44.6% when the recession began in December 2007.

•Government benefits. Individuals got 17.9% of their income from government programs in the first quarter, up from 14.2% when the recession started. Programs for the elderly, the poor and the unemployed all grew in cost and importance. An additional 9.8% of personal income was paid as wages to government employees.

The shift in income shows that the federal government's stimulus efforts have been effective, says Paul Van de Water, an economist at the liberal Center on Budget and Policy Priorities.

"It's the system working as it should," Van de Water says. Government is stimulating growth and helping people in need, he says. As the economy recovers, private wages will rebound, he says.

Economist Veronique de Rugy of the free-market Mercatus Center at George Mason University says the riots in Greece over cutting benefits to close a huge budget deficit are a warning about unsustainable income programs.

Economist David Henderson of the conservative Hoover Institution says a shift from private wages to government benefits saps the economy of dynamism. "People are paid for being rather than for producing," he says.

[macrockett]

While I understand these are difficult subjects, they must be addressed. I have understood for a long time that this day was coming, many of us did.

For me, the decision is easy. Do I want to fight for something that will be detrimental to my children and future generations or do I accept the fact that I played a part in it, that I didn't do enough to stop it in the first place and that I will benefit at the expense of others.

Social Security and Medicare/aid have been the largest con games in our nations history. Many of us know that. Quite simply, the money paid into these programs through withholding has been dwarfed by the past and present expenses to pay for the promises made.

That leaves the future expenses that will paid out for most of us, the baby boom generation. We owe it to our kids and future generations to stop the madness.

I believe the same holds true of the new health care bill and the state, local and federal pension and benefit promises.

Finally, I believe that our political structure needs to be changed so that politicians, who that have no understanding of the open ended cost of the promises they make, never put us in this position again.

www.chicagotribune.com/news/opinion/os-ed-congress-medicare-medicaid-052920100528,0,5199042.story

chicagotribune.com
High time for candor
Candidates owe voters answers on Social Security and Medicare reform.

May 29, 2010

For Florida politicians, talking about Social Security and Medicare reform is like venturing into a rip current: very risky. These two entitlement programs, which now account for about a third of federal spending, are popular with the millions of state residents who benefit from them.

But if the federal budget is to be saved from drowning in red ink, entitlement reform is unavoidable. As the trustees for the two programs wrote a year ago, "The financial challenges facing Social Security and especially Medicare need to be addressed soon."

Both programs are on unsustainable courses. The payroll taxes meant to finance them aren't raising enough to cover their benefits this year, and the ratio of the workers paying the taxes to the retirees collecting them as benefits continues to decline.

In future years, the shortfalls will grow, running into the trillions of dollars. Congress will have to make up the gaps through spending cuts, tax hikes or — most likely — piling on more debt.

Is more government borrowing a wise option? Ask Greece.

So for candidates running this year for the U.S. Senate and House, a good measure of their sincerity is whether they are willing to acknowledge the problem with entitlements and offer solutions.

Republican Marco Rubio deserves credit for provoking a discussion about Social Security in Florida's Senate race. He has called for gradually raising the program's retirement age and reducing cost of living increases for wealthier retirees.

There are pros and cons to these approaches. But rather than subject them to the honest critique they deserve, Mr. Rubio's two main rivals, independent Charlie Crist and Democrat Kendrick Meek, are trying to turn his candor on Social Security against him. They are downplaying or ignoring his pledge to spare workers over age 55 from any changes.

Mr. Crist has rejected raising the retirement age under Social Security. Instead, he has suggested targeting waste and fraud in the program, and giving citizenship to illegal immigrants so they can pay into the program.

Both ideas are as realistic as the proverbial free lunch. Waste and fraud aren't big problems in Social Security. And many illegal immigrants already pay into the system because they use phony paperwork to get jobs.

Mr. Meek has said he would support a bipartisan commission on Social Security reform, but also pointed out that the program's trust fund isn't projected to go broke until 2037. "Social Security doesn't face a crisis, it just faces challenges," he said.

Bad news, Mr. Meek. The Social Security trust fund isn't a pot of money somewhere that can be tapped to cover benefits. Its assets exist only on paper; they've been spent on other programs. Congress will still need to find money to fill the annual gap between Social Security taxes and benefits. By 2030, that gap will have grown to $250 billion.

Mr. Rubio has also endorsed a plan to eliminate Medicare's funding shortfall by privatizing the program. That approach would face huge practical and political challenges. But at least it's a plan — more than either Mr. Crist or Mr. Meek has offered.

Some of the U.S. House hopefuls in Central Florida who have come for interviews with the Sentinel editorial board have acknowledged Social Security and Medicare's problems, and proposed solutions. Good for them. Most, however, have not.

Long before voters in Florida go to the polls this year, they should insist on hearing much more from candidates on how they would stop Social Security and Medicare from sinking the federal budget.

Copyright © 2010, Orlando Sentinel

[doctorwho]

May 29, 2010 6:44:48 GMT -6 macrockett said:

While I understand these are difficult subjects, they must be addressed. I have understood for a long time that this day was coming, many of us did.

For me, the decision is easy. Do I want to fight for something that will be detrimental to my children and future generations or do I accept the fact that I played a part in it, that I didn't do enough to stop it in the first place and that I will benefit at the expense of others.

Social Security and Medicare/aid have been the largest con games in our nations history. Many of us know that. Quite simply, the money paid into these programs through withholding has been dwarfed by the past and present expenses to pay for the promises made.

That leaves the future expenses that will paid out for most of us, the baby boom generation. We owe it to our kids and future generations to stop the madness.

I believe the same holds true of the new health care bill and the state, local and federal pension and benefit promises.

Finally, I believe that our political structure needs to be changed so that politicians, who that have no understanding of the open ended cost of the promises they make, never put us in this position again.

www.chicagotribune.com/news/opinion/os-ed-congress-medicare-medicaid-052920100528,0,5199042.story

chicagotribune.com
High time for candor
Candidates owe voters answers on Social Security and Medicare reform.

May 29, 2010

For Florida politicians, talking about Social Security and Medicare reform is like venturing into a rip current: very risky. These two entitlement programs, which now account for about a third of federal spending, are popular with the millions of state residents who benefit from them.

But if the federal budget is to be saved from drowning in red ink, entitlement reform is unavoidable. As the trustees for the two programs wrote a year ago, "The financial challenges facing Social Security and especially Medicare need to be addressed soon."

Both programs are on unsustainable courses. The payroll taxes meant to finance them aren't raising enough to cover their benefits this year, and the ratio of the workers paying the taxes to the retirees collecting them as benefits continues to decline.

In future years, the shortfalls will grow, running into the trillions of dollars. Congress will have to make up the gaps through spending cuts, tax hikes or — most likely — piling on more debt.

Is more government borrowing a wise option? Ask Greece.

So for candidates running this year for the U.S. Senate and House, a good measure of their sincerity is whether they are willing to acknowledge the problem with entitlements and offer solutions.

Republican Marco Rubio deserves credit for provoking a discussion about Social Security in Florida's Senate race. He has called for gradually raising the program's retirement age and reducing cost of living increases for wealthier retirees.

There are pros and cons to these approaches. But rather than subject them to the honest critique they deserve, Mr. Rubio's two main rivals, independent Charlie Crist and Democrat Kendrick Meek, are trying to turn his candor on Social Security against him. They are downplaying or ignoring his pledge to spare workers over age 55 from any changes.

Mr. Crist has rejected raising the retirement age under Social Security. Instead, he has suggested targeting waste and fraud in the program, and giving citizenship to illegal immigrants so they can pay into the program.

Both ideas are as realistic as the proverbial free lunch. Waste and fraud aren't big problems in Social Security. And many illegal immigrants already pay into the system because they use phony paperwork to get jobs.

Mr. Meek has said he would support a bipartisan commission on Social Security reform, but also pointed out that the program's trust fund isn't projected to go broke until 2037. "Social Security doesn't face a crisis, it just faces challenges," he said.

Bad news, Mr. Meek. The Social Security trust fund isn't a pot of money somewhere that can be tapped to cover benefits. Its assets exist only on paper; they've been spent on other programs. Congress will still need to find money to fill the annual gap between Social Security taxes and benefits. By 2030, that gap will have grown to $250 billion.

Mr. Rubio has also endorsed a plan to eliminate Medicare's funding shortfall by privatizing the program. That approach would face huge practical and political challenges. But at least it's a plan — more than either Mr. Crist or Mr. Meek has offered.

Some of the U.S. House hopefuls in Central Florida who have come for interviews with the Sentinel editorial board have acknowledged Social Security and Medicare's problems, and proposed solutions. Good for them. Most, however, have not.

Long before voters in Florida go to the polls this year, they should insist on hearing much more from candidates on how they would stop Social Security and Medicare from sinking the federal budget.

Copyright © 2010, Orlando Sentinel

agreed - these are tough subjects. I educated myself in 1998-99 when I lost my pension ( as did others I knew at other companies ) and I investigated to see why companies were doing that - and the math behind both the previous pension plans as well as PPA's--cash accounts etc.. Then I wanted to know why public employees werenot going through this likw the private sector - what protected them and not us. also learned the value ( or lack of ) for verbal agreements.