The results are ominous for government finances, the bond markets, and pretty much everything else:
A new study shows that benefits are rising faster than GDP in most states.
Pension costs are soaring across the country, and government unions blame politicians for “under-funding” benefits. Lo, if only taxes were higher, state budgets would be peachy. The real problem, as a new study shows, is that politicians have promised over-generous benefits.
In a novel analysis, the Illinois-based policy outfit Wirepoints compared the growth of state pension liabilities relative to state GDP and fund assets. Most studies have examined “unfunded” pension liabilities, which is the difference between current assets and the present value of owed benefits. But this obfuscates the excessive pension promises that politicians have made.
According to the study, accrued liabilities–how much states are on the hook for–between 2003 and 2016 grew more than 50% faster than the economies in 28 states and more than twice as fast as GDP in 12 states. Leading the list are the usual suspects of New Jersey (4.3 times faster than GDP), Illinois (3.23) and Connecticut (3.18), as well as New Hampshire (3.46) and Kentucky (3.08).
A case can be made – and was made a long time ago by F.D.R among many others – that the whole idea of public sector unions is misguided. As F.D.R said, “It is impossible to bargain collectively with the government,” because when government unions strike they strike against taxpayers, which he considered “unthinkable and intolerable.”
We’re seeing the truth of this now, as public sector unions use their growing clout to convince politicians to write checks that taxpayers can’t cover.
The inevitable result of a parasite that grows faster than its host is the death of the host. In this case that means municipal bankruptcies on a vast scale in the next recession, default on hundreds of billions of municipal bonds necessitating a government bailout – culminating in a system-wide crisis that pops the Everything Bubble here and around the world.
Unless something else blows up first. These days it’s not if, but when and in what order the world’s unsustainable imbalances tip over.
The iShares National Muni Bond ETF (MUB) was unchanged in premarket trading Monday. Year-to-date, MUB has declined -0.60%, versus a 5.22% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of DollarCollapse.com.