It's no secret, the great US locomotive is working at full speed.
After 10 years of uninterrupted growth, the North American economy is enjoying a wonderful
moment:
the unemployment rate lies below 4% - its lowest level since 2000; every month more
than 100,000 new jobs are created, salaries are growing, and in the last 3 years alone,
almost 8 million jobs were created.
In addition, industrial production and exports are at historically high levels.
Even, in spite of their last stumble, the SP 500 has exploded in recent years.
The locomotive is soaring ahead.
But hold on for just a second, because the US economy has another face...
Of which we’ve already spoken here on VisualPolitik.
Dear viewers, the American economy – especially the government – is addicted to credit and
debt.
You heard that right.
See, September 30th, 2018 marked the end of the federal government's budget year.
Well, here’s a question: can you tell me how much the federal debt increased by, this
year alone?
The answer is, no less than 1.3 trillion dollars.
1.3 trillion dollars!
This amount surpasses the entire Mexican GDP.
And, we’re only talking about the federal government.
The economy is growing, but public deficit is out of control.
By the way, just in the last year, with Donald Trump in the White House, government spending
grew by 7%
And it looks like things are going to get worse, much worse...
Congress’s budget office estimates that, if they stay on this path, in less than 10
years interest payments alone will cost the federal government more than 900 billion dollars
per year.
However, the federal government isn’t the only debt junkie.
Listen up.
(THE STATES: THE HIDDEN DEBT)
The economy grows and incomes grow.
In 2017, 39 of the 50 states that make up the United States had surpluses.
That is, they made more money than they spent.
After years of adjusting, now the question that many governors ask themselves is...
What’s the best way of spending all this money?
And, on top of that, since 2010 every states’ collection has increased by 40%, so... we’re
not talking about a few cents, not at all.
Finally, states have resources to invest in infrastructure, education, social services,
etc.
Sounds good, right?
Sadly, the truth is a little different... well... a lot different.
See, in principle, every state except for Vermont has to have a balanced budget.
However despite this and all the apparent announced surpluses, the truth is that all
of the states won’t stop accumulating debt, obligations and liabilities of all kinds.
In fact, nowadays every state drags, according to the Think Tank Truth in Accounting estimates,
a heavy load of more than 1.5 trillion in unfunded debt.
The result is that the vast majority, no less than 40 of the 50 states, don’t have the
resources to face all the commitments they’ve gotten themselves into.
But... just a second.
How the hell can states accumulate debt while their budgets are balanced?
Well... basically by doing all kinds of accounting tricks.
After all, politicians and elected officials are the most interested in masking their figures
and spending every penny…
- Come on, haven’t you heard?
There are elections to be won.
To do so, they use many tricks… from inflating income assumptions to delaying bill payments,
but… the most important trick of all is the one that has to do with pensions and benefits
for public employees who retire.
Allow me to explain.
In order to gain votes and get along with unions, state governments tend to promise
public employees very good pensions as well as lots of additional benefits upon their
retirement.
Well, given how the pension system works in the United States, it’s assumed that each
month state governments have to contribute the amounts they committed to, to a pension
fund, so that tomorrow all those public workers can collect the pensions they were promised
However, just for a second, let’s put ourselves in the place of the politicians in charge
of the state government.
- What if instead of depositing all that money into a pension fund, we invest it in all kinds
of public spending programs?
That way we can finance a lot of projects, which will make us win more votes.
Okay, some of you may be thinking...
And what will happen when all those employees start retiring and claim their pensions and
benefits?
How are they going to be paid?
- It doesn’t matter.
You’re a politician… that’ll be someone else’s problem…
You just need to worry about winning elections.
Well, folks, according to the data it looks like that’s the thought many state politicians
had.
(State and local governments made big commitments, particularly on pensions and retiree health
care, but didn’t adequately fund those liabilities,” Mr. Bronin, a Democrat and Mayor of Hartford)
In total, only regarding unfunded pensions, the state debts already exceed 800 billion
dollars.
The big question is knowing how the hell they’re going to be able to cope with this huge amount
of debt.
Of course, not every state is in the same situation.
Listen up.
(THE BEST AND THE WORST)
If we think about it for a moment, folks, it’s easy to understand: politicians have
a gigantic incentive to spend every last penny, after all... their entire future depends on
the next election cycle.
That’s why it’s so important, absolutely essential, to not only have counterweights,
but also for civil society to be attentive and very demanding.
But, let's go back to the case of the US.
As we’ve seen, in addition to the official data, that they are dragging a colossal, unfunded
debt of 1.5 trillion dollars.
However, not every state is in the same situation.
Out of the country’s 50 states, at least 40 don’t have enough assets today to face
all of their obligations.
Of course some states are better off than others.
And, in any case, there are 10 states whose politicians have been responsible enough to
guarantee their state’s future and keep their accounts in order.
Well, these are the 10 states that did their homework:
- Yes, no doubt, they’ve earned at least the right to be mentioned, don’t you think?
Alaska, North Dakota, Wyoming, Utah, South Dakota, Idaho, Tennessee, Nebraska, Oregon
and Iowa.
As you can see, almost all of them, with the exception of Oregon and Iowa, are strongly
Republican states.
Democrats should start looking at this.
The fact is that all the other states, currently have a negative balance.
Of course, to get a better idea of what we’re talking about, let’s take a look at the
following graph, which shows the top 5 and bottom 5 states.
The data is expressed in dollars per taxpayer.
And yes, you read that right.
While states such as North Dakota, Wyoming and Iowa have been responsible and have accumulated
enough savings to meet all their obligations – and even have surpluses to invest and
benefit each state – Illinois, Connecticut and New Jersey are dragging a terrifying load
of more than $ 50,000 per taxpayer.
But of course, at this point the question is: How on earth are all these states going
to be able to cover their obligations?
The answer isn’t simple... because the situation of some states, as we saw in the case of Illinois,
Connecticut and New Jersey, is so bad that finding a solution might be really hard.
Check this out, in New Jersey’s case, the worst-off of all the states, the fiscal hole
amounts to almost 200 billion dollars.
That is to say, this hole, which belongs to a state that has a little over 9 million inhabitants,
is larger than the economy of Qatar and almost as big as the economies of countries like
New Zealand or Peru.
Crazy!
In any case, what we can say is that ultimately there are only two possible ways to solve
this: either they raise taxes or cut spending.
The problem is that raising taxes... may not even be an option insofar as it can damage
the state’s economic potential and drive away taxpayers, especially those that hold
large fortunes.
That’s precisely what has happened in Connecticut where in recent years a lot of big businessmen
have fled the state because of their high taxes in comparison to other territories within
the United States.
And it wasn’t only Connecticut.
In 2016, the last year for which we have data, 600,000 people moved from the 25 states with
the highest taxes to the 25 states with the lowest taxes.
And after Donald Trump’s latest fiscal reform, it looks like this process will speed up.
But, folks, we’ll talk about all this in a future video.
So far, you can see that the debt addiction is far from being an exclusive federal government
problem.
The US economy is growing strong, but this is the other side of the coin.
The truth is that for the country’s growth to be sustainable, both the federal government
and the state governments need to finally start taking the whole deficit and public
debt issue very seriously.
It isn’t normal for a country with such a high amount of growth to have so many public
account imbalances...
Don’t you think?
What will happen when things go wrong?
What’s the limit to so much debt?
Because folks, let's not forget: sooner or later, in one way or another, public debt
always has to be paid.
So I really hope you enjoyed this video, please hit like if you did, and don’t forget to
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