Friday, October 22, 2010

Your next crisis

This century has began with a series of crisis on the economic front. From the dot com bust to the housing bubble to financial crisis and to sovereign defaults.  I think the US Govt debt - as bad as it is now - is dwarfed by the political and economic crisis that will be brought upon us by the financial disaster waiting to happen at state levels.

This is NOT something that will happen in distant future. It's going to happen soon. See this story on Bloomberg ...(emphasis mine)
California, which has the largest U.S. public-pension fund, faces liabilities that may exceed its annual state-tax revenue fivefold within two years unless lawmakers rein in benefits, according to a study.
To keep their promises to retirees, the California Public Employees Retirement System, the biggest plan, the California State Teachers Retirement System, the second-largest, and the University of California Retirement System may have combined liabilities of more than 5.5 times the state’s annual tax revenue by fiscal 2012, according to the study released today by the Milken Institute. Levies are forecast to reach about $89 billion in the year that began July 1. 
This will not be just a financial problem for the pension funds. This will be an economic issue due to tax implications and a polarizing political issue with potential social unrest. Why ? Because every California resident - is either paying for these pensions or receiving these pensions. A neutral stance is unlikely to be available :-(

California is not the only state in this situation. And this hasn't even started catching the attention of the masses. I have no idea how this is going to play out, but I suspect, it won't be pretty.

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