Updated June 16, 2019 –

The U.S. economy has been mending.

However, the debt situation is bleak for governments at all levels. It’s distressing to most business people.

Why? High debt is dangerous.

Economic growth is vital. Tax revenues are up but governments are too hesitant to cut expenditures.

Indeed there are permanent scars thanks to poor government policies and high government debt ratios.

Government debt greatly accelerated under the Obama Administration as a share of the nation’s GDP was close to 76 percent. That was nearly doubled after the president took office in 2008.

The skyrocketing debt is owed to the Federal Reserve, the central bank of the United States, and to countless other nations — from China to England.

The nation’s massive debt increases every split-second and is best illustrated by the U.S. Debt Clock.

Calculating debt…


Therefore, the Obama Administration’s economic policies were not adequately geared to solve the enormous costs as a result of massive debt and increasing economic pressures from aging baby boomers.

It’s worth noting that the nation’s debt has increased during the Trump tenure, as well. Despite the president dramatically growing the economy and gross domestic product, Congress continues to spend and adding wasteful earmarks to spending bills.

State and local government debt

The federal government is not alone. Skyrocketing pension costs pose dangerous threats to most state and local governments.

The Hoover Institution has released a report, Hidden Debt, Hidden Deficits, which shows that practically no state or local government has a balanced budget because of enormous unfunded public-employee pensions.

The Hoover Institution at Stanford University is a public-policy research center devoted to the advanced study of economics, politics, history, and political economy – domestic and foreign, including international affairs.

Covering 564 state and local governments, the study reveals there were $1.91 trillion in unfunded pension liabilities.

“The problem of unfunded pension liabilities has become too big to ignore,” says Joshua D. Rauh, a senior fellow at the Hoover Institution and the Ormond Family Professor of Finance at the Stanford Graduate School of Business.

“State and local governments promise guaranteed pensions based on targeted returns that are far from certain,” he explains.

 

“Last year we said, ‘Things can’t go on like this’, and they didn’t, they got worse.”

-Will Rogers

 

“In reality, assets in the pension systems will be insufficient to pay for these promises to retirees, resulting in a heavy burden being placed on taxpayers to make up the difference,” adds the researcher.

Professor Rauh says the new Governmental Accounting Standard Board guidelines aren’t likely to help.

By way of explanation, he indicates the majority of public pension systems in the United States still calculate their pension costs and liabilities using the assumption that their contributed assets will achieve returns of 7 to 8 percent a year, ignoring the extent of public sector liabilities.

To target these investment returns, Professor Rauh warns systems have taken increased positions in the stock market and other risky assets, including private equity, hedge funds, and real estate.

The targeted returns may or may not be achieved, but public sector accounting and budgeting proceed as though they will be achieved with certainty.

“This study shows that unfunded pension liabilities are devastatingly widespread and only getting worse,” asserts Professor Rauh.

“With hundreds of state and local governments drowning in retiree benefit debt, the need for bold structural reform has never been so pertinent,” he warns.

We need to bring local and state governments’ retiree benefits back to solvency before we see this vast epidemic limit the ability of state and local governments to provide adequate services in areas such as public safety and education,” concludes the professor.

Amen.

P.S. Here at The Biz Coach, you can see authoritative economic forecasts and Op-Ed analyses by Peter Morici, Ph.D, economist and professor at the Smith School of Business, University of Maryland, former chief economist at the U.S. International Trade Commission, and multiple winner of the MarketWatch best forecaster award.

From the Coach’s Corner, editor’s picks:

Why a 1960s’ Beatles Protest Song is Still Relevant — Have you ever wondered why British groups like The Rolling Stones, The Who and The Beatles spent so much time touring abroad? To sell music for sure, but there’s another reason: Abusive taxes.

Memo to Candidates, Voters and Media: Think CandidateVerification — For a transparent political process to benefit America –candidates, voters and the news media should investigate a nonprofit – CandidateVerification. The Seattle-area nonprofit – a nonpartisan organization – invites all candidates to participate in a free background check.

“Last year we said, ‘Things can’t go on like this’, and they didn’t, they got worse.”

-Will Rogers

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.