THE REAL FISCAL CRISIS

The fake fiscal cliff crisis will not impact you directly until the economic system grinds to a halt at some point in the future when confidence in the USD dissolves. In the meantime, the Federal government can keep generating $1.4 trillion annual deficits and the Federal Reserve will buy all the newly issued debt. The Federal government can get away with deficit spending because the Federal Reserve can debase our currency.

States must balance their budgets every year. The unfunded pension liability for state government union workers is real and the contributions to fund these liabilites must be made every year. As I’ve pointed out previously, the 8% return assumption for these pension plans is complete and utter bullshit. They will be lucky to generate 4% returns over the long haul. There will be a showdown between the taxpayers and government unions in the next few years. The only way to balance state budgets will be to massively increase taxes on the citizens or to drastically cut the pensions of of government union drones.

Ed Easterling lays out all the ugly data in this excellent article.

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