Monday, August 12, 2013

We Are All Detroit

Unfortunately if you think Detroit is an aberration, Eric Sprott is out to prove you wrong. A recent survey found that state and municipal pension plans were underfunded to the tune of one trillion dollars. Makes Detroit seem rather insignificant when you start throwing around the word trillion.

Sprott focuses on a report done by Boston University Professor Laurence Kotlikoff. He says to fix the funding shortfall in Social Security alone, the US would have to raise the FICA tax by 32% to 16.4% or slash benefits by 22%. Good luck getting either of those through Congress.

As for the Federal Budget as a whole, the professor says we are operating at a $222 trillion shortfall according to Sprott. To wipe it out, we would have to increase taxes by 64% or slash all expenditures by 40%.

Sprott concludes with the simple statement. We live in an age of a demographic time bomb. Every level government has promised too much and is now faced with the dilemma of how to walk back those promises.

What remains at the heart of the issue for Eric Sprott, is how much pain we will have to endure? Eventually the system will have to be fixed. Either we can endure a short term pain now, are a long hard slog later. Sprott concludes with this: “Over time, politicians from all stripes have proven adept at cognitive dissonance, but these increases in taxes and cuts to benefits will have to happen, one way or another; it is just a matter of time.”

- Source, Trade the News Room: