Once again, the question of future inflation is boggling the minds of many a financial forecaster. Are we headed for a rise in prices that will carry the Dow up and away, hopefully carrying the rest of us with it, or are we going to suffer the second leg of the W Recession as commercial property and/or the inevitable rise in interest rates hits the skids?
The questions I would pose are quite different. We are already engulfed in a sea of inflated purchasing media that is constantly roosting, taking off, and realighting in its search for new quick profits. Unfortunately, given the current labor market, it won’t even be dipping a little toe in the ordinary person’s paycheck on its way by, at least not anytime soon.
So where is it now, and what is going on? It is where it has gone for the last two years, to wit ten years or more: into speculative investment, biding its time. In America, at least, it isn’t going into production, and it isn’t going into salaries. It’s going into profits and speculative investments, instruments like Greek bonds and credit default swaps so popular with the hedge fund crowd.
This means that the answer to the introductory question is yes, inflation, but be careful how you define it. As I have harangued before, the word is used flippantly to mean at least two things: on the one hand, price increases represented supposedly by the CPI; and on the other: excess purchasing media, the kind that used to cause price increases before the market got savvy, but that now finds itself blowing bubbles while maintaining general prices that should be falling so that the ordinary consumer gets a break. This definition we could differentiate by naming the process “inflating.”
By now, you may have heard about Stephen Lerner has his supposed blame to derail capitalism as a whole. Much has been made of his plan, and much has been made of the kind of person who would actually try to essentially overthrow capitalism with what he called “direct action”. However, it’s worth mentioning that Lerner wouldn’t be able to pull it off.
Lerner’s plan calls for people simply refusing to make their payments to the bank which he figures would eventually force them to negotiate terms more “favorable”. He also figures that it may well crash the stock market in the process.
The flaw in Lerner’s plan is that first of all, it isn’t going to be easy to get enough people to risk their possessions to make a political point. My wife gives me a lot of leeway when it comes to politics, but if it came down to risking our home, that just ain’t going to fly. There are a lot of people like that in this world. They might like the principle, but they’re not going to go for it.
Even more, there are a lot more folks who won’t even think of taking part in this crap. They don’t agree with the idea that destroying their own 401K’s to make a point that they are, at best, only somewhat sympathetic to. Remember that millions of Americans are invested in the stock market for their retirements, not a cushy union pension plan.
Lerner’s plan is to bankrupt not just Wall Street, who he views as the real villain here, but it will also hurt tens of millions of Americans who are just starting to enter retirement. That’s right boys and girls, Lerner wants to screw over the Baby Boomers. That’s not all though.
Today has been a crazy busy day for me, but the events in Wisconsin have caught my eye. In case you haven’t heard, Gov. Scott Walker (R-WI) is looking for a way to fix the state’s budget by asking state employees (ie. taxpayer-funded jobs) to pay more for their health insurance benefits and pensions.
From the release from Gov. Walker’s office:
The state of Wisconsin is facing an immediate deficit of $137 million for the current fiscal year which ends July 1. In addition, bill collectors are waiting to collect over $225 million for a prior raid of the Patients’ Compensation Fund.
The budget repair bill will balance the budget and lay the foundation for a long-term sustainable budget through several measures without raising taxes, raiding segregated funds, or using accounting gimmicks.
First, it will require state employees to pay about 5.8% toward their pension (about the private sector national average) and about 12% of their healthcare benefits (about half the private sector national average). These changes will help the state save $30 million in the last three months of the current fiscal year.
While some 10,000 workers are throwing a collective fit at the state capitol in Madison, the Wall Street Journal notes that if these if these measures are rejected by the state legislature, a cut of some 6,000 state jobs would be necessary to fill the budget gap. Given those circumstances, it would seem that the measures propsed by Gov. Walker are entirely reasonable.
State pensions represent the next big fiscal obstacle:
Pension plans helped bring down the auto makers and the airlines. They are budgetary bombs on timers, set to go off on somebody else’s watch.
At the end of last year, 92 percent of corporate pension funds were underfunded. And the federal insurer of pension funds was $22 billion in the red.
This is why these pensions are vanishing from corporate America, replaced by savings accounts in which employees take responsibility for their retirement.
But government is slow to change, which is why government is becoming the last bastion of union employees and defined pensions.
The result: California. The Florida Legislature needs to dump our state pension system while there’s still time. Government workers can do what the rest of us do: Contribute to a 401(k).
There have been a few people talking about this, Glenn Reynolds being one of them. Not many understand that governments are going to have to raise taxes or significantly cut spending in order to meet the burden of these pensions, specifically in states that require a balanced budget, unless they modify these pension plans or privatize them.