Monday, March 19, 2012

The US economy gave a good account of itself for the fourth quarter 2011 and the stats from that period are reflected in the current stock market. In the first quarter of 2012 the economy has clearly slowed or flattened out. The rising oil price based on uncertainty in the Middle East is causing the economic pause. I think this is a good thing. The longer and slower the economic recovery is the better we will be in the long run. We have structural problems and these need to be addressed. I believe the current administration was right to push a large stimulus bill early in 2009, without which we would not have an economy to discuss. I believe the opposition is right to resist further federal spending because it is not needed and the private sector needs time to work. Clearly the stimulus spending exacerbated the deficit and now that the economy is recovering we should address the deficit issue. I believe and have said many times both sides of the issue must be used to solve the problem i.e. lower spending and higher taxes. Anyone not willing to use both options is not serious about solving the deficit problem.

The above issues are coming together at the state and local level. Since 2007-2008 we have a blue print for financial institutions and what to do if they are insolvent. We do not have a similar plan for state and local governments if they become insolvent. The benefits promised to public employees are too large and are accruing at too rapid a pace. I believe before the final chapter is written the public will realize that not only should new employees not be under the same system but we cannot afford to pay the benefits already promised to retirees.  I don't think the math points any other way. As the public begins to realize just how much funding is necessary to get even with the benefits already promised I expect a rancorous public debate. We can't chase our tail forever on this issue. We, as a country need to think of broad solutions and ask the big questions. Why do public employees have pensions and not 401(k)'s and IRAs? If your life expectancy is longer should your retirement age be raised? If the state of NY pays for your medical insurance shouldn't you be required to be treated in NY?

It is going to be an interesting process, stayed tuned.

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