Mish's Global Economic Trend Analysis |
- Detroit's Emergency Manager Threatens Pension Fund Takeover; Blame the Unions
- Prisoner's Dilemma Game in Greece; Contagion-Spread Eurozone Breakup More Likely Now; How will Greece NOT pay back €320 billion?
- Covered Employment Update: Employment vs. Federal Spending
| Detroit's Emergency Manager Threatens Pension Fund Takeover; Blame the Unions Posted: 09 Dec 2013 04:20 PM PST Detroit's emergency manager Kevyn Orr says a pension fund takeover is a "right, if not an obligation" after Orr learned of extra, unwarranted pension payments. Please consider Emergency Manager Weighs Pension-Fund Takeover. Kevyn Orr said in a recent interview that at the current pace, the city's General Services System pension fund could lose its ability to pay pensions owed to current and future retirees within 12 years. A takeover is a "right, if not an obligation, that I have to consider under the statute, and we're considering that right now," he said.20 Cents on the Dollar Twenty cents on the dollar sounds about right to me. But Orr ought to take over both funds. More importantly, new rules are needed. From my Lesson for Union Dinosaurs post ... I propose the final settlement should include ...
Point number 4 highlighted in red would in theory allow the union to value the pension fund however optimistically it wanted. Unfortunately, that would unfairly benefit those first on the totem pole (the already retired) over everyone else. Mish's Eight-Point "Bold" Plan On April 23, 2012 in Public Unions Bankrupt Illinois I proposed a similar "bold" plan.
Points 4, 7, and 8 are the critical ones. The "bold" plan has considerable merits vs. an across the board 20 cents on the dollar offer of Orr. I am not sure what the cutoff should be in point number 4. Perhaps it's lower or higher. It depends on plan funding. It's the concept that is important. And I strongly suggest unions openly embrace the idea as being more fair. What's Fair? From Yahoo!Finance ... Juanita Sailes-Jackson, 64 years old, a Detroit retiree who worked as a typist and parking enforcement officer, said she opposed the idea of any takeover of the city's pension funds, because she believes the system works well. Ms. Sailes-Jackson, who collects $500 a month in pension, said, "I can't have any cuts because I wouldn't be able to pay most of my bills." I don't know how long Sailes-Jackson worked to accumulate her promised benefit. Thus such quotes only exist to play on emotions. But cuts are coming. And they should come, because the system clearly doesn't work! But how to distribute them? Negotiated Settlements The fairest possible thing to do is sit down at the table and negotiate a settlement, with everything taken under consideration, but with a 100% premise of no taxpayer responsibility. As a starting point, I suggest, those with the least pension benefits get the smallest cuts, and those with the most benefits get the biggest cuts. Indeed, if unions were smart, the majority could come to negotiated terms with a starting point along the lines of
Such a negotiated settlement would be the fairest thing for everyone, pensioners and taxpayers alike. Two Choices to Deal With "Collective Theft" In Two Choices to Deal With "Collective Theft" I outlined the choice unions have to make, whether they like it or not. Two Choices!Blame the Unions Unfortunately, it's highly unlikely unions would ever do what I suggest. So, the most likely consequence is an across the board cut even if it means Sailes-Jackson collects $100 a month instead of $500, regardless of how long she worked. When that happens, don't blame me, and don't blame Orr. Blame the unions (and the crooked politicians who went into bed with the unions). Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Posted: 09 Dec 2013 12:34 PM PST As a result of Troika-imposed austerity, Greece has a current account surplus that widened in September to over a billion euros. This happened because demand for foreign goods collapsed in the wake of 27.3% overall unemployment and a shockingly high 57.9% youth unemployment. The Coming Greek Default In spite of a current account surplus, Greece's overall debt load is unsustainable. Here are a couple of key details: Greece has €320 billion in sovereign debt. Greece's debt-to-GDP ratio is 174%. Recall that the Troika considered anything beyond 120% unsustainable. Also recall that Greek debt was restructured twice to meet those targets. The pertinent question is not "How will Greece pay back €320 billion?" because it can't and won't. Rather, the pertinent question is "How will Greece NOT pay back €320 billion?" Two Possibilities
For political consumption purposes ahead of the last federal election, German chancellor Angela Merkel ruled out more aid to Greece. That blatant lie was probably enough to hold support for the eurosceptic AfD party below the 5% threshold to make German parliament. AfD failed by 0.2 percentage points. Had Merkel admitted the truth, it's hard to say how many more votes AfD would have gotten, but I suspect far more than 0.2 percentage points. With election lies out of the way, the corollary questions for Germany now are quite similar. Questions for Germany
Prisoner's Dilemma Game This line of questioning creates a sort of Prisoner's Dilemma Game in which two individuals (in this case countries) might not cooperate, even if it appears that it is in their best interests to do so. Click on the link for prisoner's dilemma examples. One way or another Germany is going to pay. Unless Germany forgives Greek debt, Greece is more likely than ever to default. Why? Because Greece now has a current account surplus. It does not need to borrow money from foreign countries to finance its ongoing deficit (because there is no deficit). Greece Strikes Back The Financial Times reports Greece Strikes Back. Ever since Greece entered its rescue programme in 2010, the relationship between Athens and its international lenders has been fundamentally unequal. Having lost access to the capital markets, the Greek government relied on the bailout funds to pay its bills.Samaras Forced to Act Tough The Financial Times warns Samaras. But what is Samaras to do? Note that Greek opposition leader looks to EU elections for mandate. Alexis Tsipras, Greece's far-left opposition leader, said the Greek government will no longer have a mandate to run the country if his Syriza party finishes first in May's European parliament election.Unless Samaras talks tough, Syriza would likely win the next election and may do so anyway. Tsipras would one of the two major things that Greece needs to do: Tell the Troika "go to hell" then default. Greece also needs a tremendous amount of structural reforms, most of which none of the Greek political parties seems willing to address. The key point is that as long as Greece runs a current account surplus, it can finance its way via taxation, without further Troika meddling. Debt Relief or Debt Restructuring? MacroPolis writer Jens Bastian asks Debt relief or debt restructuring for Greece? The two economic adjustment programmes for Greece from 2010 and 2012 as well as the sovereign debt restructuring from April 2012 and the debt buyback initiative in December of the same year have had a significant impact on the debt profile of Greece as a sovereign debtor. Greece's creditor structure in 2013 compared to the point of departure in 2010 hardly bears any resemblance.Greek Sovereign Debt History  The ECB, EU, IMF, and politicians in various countries managed to transfer 80% of Greek sovereign debt from private hands into public hands. In essence, they bailed out banks and put taxpayers at risk. Calculating taxpayer responsibility percentages of various countries is simple enough. Eurozone Financial Stability Contribution Weights
The above table from European Financial Stability Facility Three Key Facts
Two Key Questions
Countries Responsible if Greece Defaults
Note that Greece can hardly be responsible for 2.81% (7.19 Billion) of its own debt so that amount needs to be distributed accordingly to make the percentages total 100%. Otherwise, unless the IMF is willing to wave its debt, the numbers are approximately as shown. Three More Questions
Should Spain suffer enough at the Troika's hands to also reach a current account surplus, it will be in a similar position to Greece. In other words, the structure of the eurozone is such as to cause a cascade of disorderly breakups as soon as countries eliminate their deficits. Final Bonus Question So Angela Merkel, when are you going to admit this setup, and what are you going to do about it? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Covered Employment Update: Employment vs. Federal Spending Posted: 09 Dec 2013 01:43 AM PST Here's some new charts from reader Tim Wallace on "Covered Employment" (working in a job eligible for unemployment benefits). First a few notes .... Typically, hours worked and wages paid to employees in covered employment are used as a basis in establishing unemployment benefits should an employee becomes unemployed by no fault of their own. Self-employed people are not covered by unemployment insurance but we still have to pay into the system. Covered employees are entitled to unemployment benefits if they earn enough wages and meet eligibility requirements of their state. For example, the State of Washington requires 680 hours of covered employment to be eligible for unemployment benefits. Covered Employment  Covered Employment Notes
Covered Employment vs. Federal Spending  Wallace comments "I divided the budget by 10,000 so both numbers can be graphed in the same chart. It is a slope reference at which I am looking. You can see that the slope of the budget is much steeper, part of which owes to inflation, but since the 1990's the Fed tells us that we have had inflation under control. The slope starts to steepen on spending in the early 2000's, then spiked in 2008 with the financial crisis." Spending Per Covered Employee  Wallace comments "We are closing in on $30,000 spending per person working in covered employment." Mish comments "We cannot discount self-employment because self-employed pay taxes as well. Nonetheless, these charts provide yet another indication of weak hiring as well as visual evidence that something is awry with the budget." Also, when the next recession does hit, there are plenty of people who did not accumulate enough hours of covered employment to be eligible for benefits. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
| Google Inc., 20 West Kinzie, Chicago IL USA 60610 | |
Postări
Niciun comentariu:
Trimiteți un comentariu