Wednesday, December 1, 2010

The Bankrupt Euro


Previously, we have opined about Hawaii's bankrupt Employee Retirement System and the equally bankrupt Healthcare System that Hawaii's civil service retirees are covered under. These are problems that have been created 45 years ago by the political philosophies we've adopted.

Europe is where Hawaii will be in 5 years or so. You see riots in Greece, Germany, France, and all the other countries with very liberal public pensions offered to the public sector employees. There is no money to pay the promised entitlements. They are also raising the cost of higher education. So people riot.

In the U.S., California, New York and all of the very liberal union-controlled states will be facing what Europe is now experiencing. It's no secret as to why these States have re-elected the very liberal politicians who got us into this mess. States cannot print money. The Federal government can. So these states expect the rest of the fiscally responsible states to bail them out. Based upon the recent election results where the Taxed Enough Already group taking over Congress, that's not likely to happen.

So the Fed tried another tactic. Cheapen the dollar by issuing $600 billion (printing) in debt so that companies in the U.S. can sell goods abroad. Har! The dollar got stronger. The Euro practically melted down and may crash in the next few months if something isn't done to stabilize the currency. Remember, a currency only has value if people trust the government issuing that currency. And right now, they trust the Euro less than they do the American dollar.

I received some very vile and angry emails when I opined that since Hawaii won't face their pension problems in a responsible way, taxes will go up. To shelter yourself, you must choose not to be a Hawaii taxpayer. People called me selfish, traitor and many things I cannot print. I invited those people to voluntarily pay more taxes to show how much they care for the people of Hawaii. We must choose to control our individual destinies. Giving the government control over your life is foolish.

I'll give two illustrations of my point. When the government passed laws about fuel standards and required gas to have a 15% ethanol mix, prices went up. Creating ethanol uses more fuel to plant, grow, harvest and convert the corn into fuel. Further, the corn is taken out of consumption so the cost of corn as well as beef and pork goes up because it costs more to feed these animals. The ones who gain are the government employees who are added to the payroll to oversee the program.

The second thing the government does is they lie to the citizens. When they declare that all federal pay will be frozen for two years, it doesn't mean that Federal employees won't get pay raises. It is the pay scale that is frozen. Employees will still be able to move up in pay by moving up in the GS pay system.

For those who don't understand how serious this problem is, consider that if the Hawaii ERS has $6.2 billion in unfunded pension liability, then the taxpayer must not only deposit the yearly normal cost of ongoing pension funding, but somehow amortize this $6.2 billion. If an acceptable amortization schedule is 10 years, then the taxpayer must cough up $620 million each year for 10 years just to retire this shortage. Let me repeat that. $620 million additional taxes that the State of Hawaii must collect each year to retire that liability. Add the $10 billion of unfunded healthcare liability and we're talking an additional $1 billion a year to that $620 million.

This is a huge problem. And it was never debated during the past election cycle. Not to find fault, but to find solutions. It's also noteworthy that the unions in California are pressuring their elected officials to continue paying the entitlements that they're legally entitled to. Like the people of Hawaii, they want benefits but don't want to pay for them.

Our kupunas end up as the big losers. Most will not move to another state so they have to continue to pay Hawaii taxes. The government will be pressured to increase social services, financial aid and it appears that our elected officials will readily comply. Private investments will leave Hawaii and businesses will be called upon to pay more in taxes. When unemployment insurance costs go from $65 to $1,000, companies would be less inclined to hire more people. When health insurance costs go from $900 a month to $1,300 a month per employee, companies not only will curtail hiring, but may lay off employees.

Theoretically, this means there will be more people who have free time to volunteer. Hopefully it'll be in the area of assisting our kupunas. Thus far, this has not happened. Volunteering presents the volunteer with opportunities to show others his/her work ethics, discipline, talent and abilities. This could convert into fulltime employment.

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