The state of our Nation Grow The Pie! “Arguably the biggest threat [even terrorism] facing the U.S.
Download ReportTranscript The state of our Nation Grow The Pie! “Arguably the biggest threat [even terrorism] facing the U.S.
The state of our Nation
Grow The Pie!
“Arguably the biggest threat [even terrorism] facing the U.S. today is our own Fiscal Irresponsibility, and very few people are willing to State the Facts and Speak the Truth .” “Continuing on this Unsustainable Path will gradually erode, if not suddenly damage, our Economy, our Standard of Living, and ultimately our Domestic Tranquility and National Security .”
-
David Walker, Comptroller General of the U.S, 2006 , President of the Peter G. Peterson Foundation
www.VermontersForEconomicHealth.org
“ Fiscal Wake up Tour”: http://www.youtube.com/watch?v=OS2fI2p9iVs
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KEY FEDERAL ECONOMIC DATA
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The state of Indebtedness
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•
U.S. Public & Private Debt to GDP reached 358% in 2008.
•
The all-time high of 300% was reached in 1933, during the Great Depression.
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The U.S. Federal Debt (% of GDP) 140 120 100 80 60 40 20 0 World War II 122% G.D. 44% C iv il W ar 19 G 00 re at W D W ep I re ss io n W W II 19 65 19 75 19 85 2009 80% 19 95 20 09 20 25
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% GDP
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The state of Indebtedness
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100 90 80 70 60 50 40 30 20 10 0 Over $100 trillion in unfunded liabilities Unfunded liabilities U.S. Debt U.S. Guar.
10 year deficits Unfunded liab. primarily Medicare, Medicaid, SS, State & Municipal Pensions/Health benefits.
In $Trillions 10 year projected deficits of about 6% of GDP vs. economic growth of about 2.5% of GDP spell disaster.
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Life cycle of a Superpower Share of world GDP 1820 33% China 65% Other U.S. = 2% 1950 5% 27% 68% Other U.S.
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China = 5% 68% 2009 8% 24% U.S.
Other 2014 China = 8% 12% 23% 65% *China is expected to Other surpass U.S. GDP in about 15 years.
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U.S.
China = 12%
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The state of our Monetary System Grow The Pie!
• "The President will continue to be clear that one of the lessons of the economic crisis is that
growth driven by U.S. consumers is not sustainable in the 21st century
," said Ben Rhodes, a senior official in the White House National Security Council and Mr. Obama's lead foreign policy speech writer. 11/13/09.
• The Reserve Bank of India joined central banks of China, Russia, Mexico and the Philippines in choosing to
boost its reserves of gold
(some $150B) in preference to dollar-denominated securities;
declaring that the reserve currency role of the dollar is unsustainable
.
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Changes in the Price of Oil, in Dollars, Euros & Gold Grow The Pie!
4 3.5
3 2.5
$100/Barrel Oil Had the dollar remained “as good as gold” since 2001, Oil today would be selling at $30 a Barrel, not $100.
Had the dollar remained as strong as the Euro since 2001, Oil today would be selling at $57 a Barrel, not $100.
$57/Barrel Oil 2 1.5
1 0.5
0 $30/Barrel Oil Dollars Euros Gold 2000 2001 2002 2003 2004 2005 2006 2007 The value of the dollar is the market’s measure of its confidence that our government will preserve the purchasing power of its debt, almost half of which is held Overseas.
Bloomberg/WSJ 1/4/08 www.VermontersForEconomicHealth.org
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The state of our Monetary System-Part 1 of 4 Grow The Pie!
• “Triffin’s dilemma,” by Yale economist Robert Triffin, in 1960, “argued that a global monetary system based on the dollar had a flaw; the increased liquidity the world sought would
require current account deficits in the U.S.
• But, sooner or later, the overhang of monetary liabilities would
undermine confidence in the key currency
.”
• This loss of confidence in the U.S. dollar is what we’re witnessing today, as the value of our dollar has been in a free-fall.
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The state of our Monetary System-Part 2 of 4 Grow The Pie!
• Triffin’s dilemma is led by China’s exports & America’s over consumption.
• Through China’s recycling of its dollars into U.S. Gov’t Treasuries, our “time preferences” for saving vs. consumption are distorted.
• From 2000-2008, the U.S. outspent its national income. We’ve lived beyond our means.
• In 2000, China’s reserves were $165 billion; today, they are $2.3 trillion, of which nearly $2 trillion are dollar-denominated.
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The state of our Monetary System-Part 3 of 4 Grow The Pie!
• Triffin’s dilemma caused a distortion in the cost of capital and its misallocation. • Significantly reducing long-term interest rates and helping to inflate the real estate bubble in the U.S.
• Americans were able to save nothing while consume much on the backs of inflated real estate asset prices.
• The era of cheap money & easy credit are gone.
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China’s & U.S.’s Mutually Assured Destruction-4 of 4 Grow The Pie!
• 2009’s U.S. trade deficit with China is expected to roughly equal last years’, just over $200 billion • With projected $1 trillion U.S. deficits for each of the next 10 years, foreign capital is essential • If China & others do not purchase U.S. debt, their dollar holdings will lose significant value • A weaker U.S. currency aids U.S exports but can lead to higher interest rates & a flight of capital. 40% of China’s GDP are exports.
• A Monetary System rebalancing is required www.VermontersForEconomicHealth.org
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Foreign Holdings of U.S. Debt to the Public Grow The Pie!
1990 19% 81% Foreign Domestic 2009 51% 49% Foreign Domestic China, Japan, South Korea & Singapore account for 47% of foreign holdings
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All Else 31% 1968 4% 13% 6% Defense 46% Composition of Federal Spending (% of Total Spending) Medicare & Medicaid Social Security Net Interest Defense 2008 All Else 30% Med.
20% Defense 21% 8% SS 21% Grow The Pie!
All Else
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Mandatory vs. Discretionary Spending (% of Total Spending) 1965- 5.1 Workers per SS 34% Mandatory = Lt. Blue Discretionary= Dk Blue 47% 1975 66% 53% Grow The Pie!
1985 2008- 3.3 Workers per SS 44% 56% 50% = Portion of budget spent on S.S., Medicare, Medicaid & net interest in 2008; all mandatory.
38%
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62%
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The state of our States & Municipalities Grow The Pie!
• Net of stimulus funds, the Center on Budget & Policy Priorities estimates
total state deficits of $255 billion
through fiscal 2011. An average of $5 billion per state.
• Without more federal aid, state budget cuts will
shave nearly 1% point off U.S. GDP; eliminating almost 1 million jobs through 2011.
• Of the $787 billion stimulus package,
states were allotted about $250 billion
of this total.
• Municipalities & state’s
tax-capacities & debt levels
have hit or nearly hit saturation while safety net, infrastructure, and unfunded pension
costs rise.
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The state of Housing
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• In 2010, conservative estimates show
another 2.4 million U.S. homes lost to foreclosures
, while
prices drop another 10%
(NYT).
• • The Census Dept. reports 14.5% of housing units were vacant in 3Q 2009 &
average household formation of about 1.2 million per year is overwhelmed by the average housing starts of 1.7 million between 1996 2006 3Q 2009 delinquent & foreclosed homes hit an all time record of 14.4%. Foreclosures are expected to surge
as those not eligible for the President’s anti foreclosure plan come off lender’s books.
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The state of Fannie Mae, Freddie, FHA & the FDIC Grow The Pie!
1400 1200 1000 $1.25 trillion in monetized Fan/Fred debt by the Federal Reserve Bank (the printing of money to purchase debt) 800 600 400 200 Congress has appropriated $400 billion in Fan/Fred total projected losses $112 billion in realized Fan/Fred losses 0 18% of FHA loans are 30 days $100 billion thru 2013 FDIC or more past due total projected bank losses
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The state of Commercial Real Estate Grow The Pie!
•
$534 billion
of the $800 billion in commercial real-estate loans held by banks maturing between now and 2014 are “underwater,” meaning loans exceed property value.
• Roughly
$800 billion
in real estate refinancing is needed between now and 2014. There is not enough U.S. capital for this. Foreign countries & sovereign wealth funds will be required.
• • Lefrak Associates estimates we’re only in the
“2 nd inning”
of this Commercial Real Estate “storm,” & it faces “
hundreds of billions of dollars in losses
.”
$1.4 trillion
in (weaker) corporate companies bonds & loans come due between now and 2015, putting further
pressure on capital markets & interest rates.
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The state of the Consumer (70% of our GDP) Grow The Pie!
• U.S. household debt service as a % of disposable income reached
130% in 2008
, compared to
83% in 1995
•
$13 trillion lost
in household wealth since 2007 • Credit card companies have
slashed credit lines
and have
tightened restrictions
• A University of Connecticut study showed a
40% pay cut
by those returning to work after a layoff & taking up to 6 years before earning 80% of their prior paychecks www.VermontersForEconomicHealth.org
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The state of Jobs
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• America has added no private sector jobs for past 10 yrs • There are
6 applicants
for every
1 job available
• The reported 10.2% unemployment rate jumps to
17.5%
when including “discouraged workers” and those working part-time in lieu of full-time • Between 2001-2007,
40% of jobs created
were tied to the housing sector (WSJ) • Approx.
125,000 monthly new jobs
are required just to meet new entrants into the workforce • Manufacturing capacity utilization is at a low of
67%
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The state of our Demographics
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• • The first of
80 million baby boomers
began retirement on January 1, 2008.
10,000
of these baby boomers turn 50 years old every day; and you think medical costs are high today?
• In 1960, there were
5.1
workers for every Social Security beneficiary, today it is
3.3.
from now, it’s estimated to be
2.1
30 years www.VermontersForEconomicHealth.org
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The state of Energy Demand
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• The U.S. Energy Information Agency (EIA) estimates U.S. energy demand to grow
21%
over the next
20 years
.
• The EIA estimates
80%
of that demand will be derived from fossil fuels, even with subsidization of renewables.
• World energy demand is estimated to grow some
50%
over the coming
25 years
.
• Of the worlds
439 nuclear reactors
, more than half are expected to be
retired in 20 years
.
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The state of World Economies Grow The Pie!
• Harvard Bus. Review reported “in 1980, the total value of global financial assets was
equal to world GDP.
• • In 2007, these same financial assets increased to
356% of world GDP
; most of the increase from private & public debt.
Competitive currency devaluation
, the devaluation of a currency to make a country's exports more competitive, is occurring through monetization, or the
printing of money
.
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KEY VERMONT ECONOMIC DATA
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The state of Vermont Indebtedness-2009 data Grow The Pie!
$70 million ($40M to stimulus) (Net of Stimulus) $400 million $470 million $300 mill.
$466 million $1.6 billion (Teacher & state employees) Unfunded medical liabilities 6/30/08 Unfunded pension liabilities 6/30/08 General fund shortfall 2011-2014 Unemployment fund shortfall by 2013 Unemployment fund reserve shortfall Education fund shortfall FY2011 (Champlain Bridge & VT State Hosp. costs not included) *General Fund revenues at 2004 levels
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VT Taxpayer’s Looming *$3.5 Liabilities-2007 data Grow The Pie!
$90M $75M $45M $43M $38M $18M
$161M $200M $300M $300M $438M $ $1.3B
451 M $451M Road/Bridge Repair Water Systems Bonded Debt Est. Medicaid Other Expenses Chit. County Landfill New Highway Const.
School Construction New Mental Hospital State Parks Repair Repairs to Dams Collidge Connector Catamount Health
New Highway Const. Projects include the Circ, Bennington & Morrisville Bypass. See Web Site for details on all projects.
*Excludes $1.6B pension liab.
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$1.3B
$451M $438M $300M $300M $200M $161M $90M $75M $45M $43M $38M $18M $3.5B
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Unsustainable spending: Vermont Fiscal Year 2005-2009 Growth Rates Grow The Pie!
35% 30% 25% (Approx. 300% increase over income growth) 23% (Over 200% increase over inflation) 20% 15% 10% 13% 10% 5% 0% Edu Prop Taxes K-12 Spding Income Growth Inflation (VT gov’t payroll & employee benefit costs grew 70% between
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2000-2007 vs. inflation of approx. 20%)
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Student Enrollment Down Employment and Costs Up Student Growth = -9.1%; Teacher and Staff Growth = +20.8%
108,000 106,000 104,000 102,000 100,000 106,341 19,069 98,000 15,783 96,636 96,000 94,000
1997: Act 60 Implementation
20,000 19,000 18,000 17,000 16,000 15,000 Students Teachers and Staff
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Source: Summary of the Annual Statistical Report of Schools (SASR) FY 1997 - 2006 www.VermontersForEconomicHealth.org
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Where Vermont Generates Its Tax Revenues Grow The Pie!
3% Federal Revenues-30%
8%
Education Tax-20%
12% 30%
Income Tax-15% Service Charges-12%
12%
Other/Misc Taxes-12%
15% 20%
Sales & Use Tax-8% Meals & Rooms Tax-3% Source: Vermont Comprehensive Annual Financial Report. Fiscal year ending 6/30/06.
Total Revenues were approximately $3.8 billion
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100% 304,254; 100% 98% 185,534; 61% Cumulative % of Income Taxes Paid: By Income Grow The Pie!
Level & Number of Filers $75,000 & up pay 60% of Taxes Start here, move clockwise … $300K & higher $150K - $300K 91% Paid 26% of Taxes Paid, 2,113 Tax Filers; 0.69% of Filers 121,827; 40.04% 75% Paid 58,415; 19.20% 49% 38% Paid, 6,970 Filers; 60% 27,632; 9.08% 15,200; 4.99% 2.29% $100K - $150K $75K - $100K $50K - $75K $25K - $50K $10 - $25K $10K & lower
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Source: Vt. Comprehensive Annual Financial Report, 2007 Top 5% pays about 50%
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How Does Vermont Spend its Revenues?
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75% of Revenues Go Towards Education and Human Services 6% 7.5% 5% 36% 39%
75% Education Human Services Transportation People & Prop Protection Business Type General Government Natural Resources Commerce & Community Employ. & Training Debt Interest
Source: Vermont Comprehensive Annual Financial Report. Fiscal year ending 6/30/06. www.VermontersForEconomicHealth.org
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VT’s Private Sector Job Growth From 2000-2007: 0% (Pre-Recession) (In thousands) 270 250 230 210 190 170 150 19 90 19 92 19 94 19 96 19 98 20 00 20 02
Source: Public Assets Institute
20 04 20 06
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Total VT Private Sector Jobs Since 2001’s recession, private sector job growth in Vermont has essentially been 0%.
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What Kinds Of Jobs Are Being Created?
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VT Retirees Double In 25 Years While The Work Force Shrinks Grow The Pie!
250 200 Over 65, (Retirees) 150 100 50 Age 20-65, (working age) Total Population Age 6-18, (school age) 0 20 00 '0 2 '0 4 '0 6 '0 8 '1 0 '1 2 '1 4 '1 6 '1 8 '2 0 '2 2 '2 4 '2 6 Source: Center for Research on Vermont, Art Woolf. (Indexed to 2000 = 100) '2 8
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'3 0
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Vermont Summary Grow The Pie!
• •
We Have Lived Beyond Our Means For Far Too Long Among the highest taxed & regulated in the nation
•
Spending at roughly 3X the rate of inflation
•
0% Private-Sector Job growth – 2000-2007
•
Vermont faces billions in unfunded liabilities
•
Losing our young people at 4X the national average
•
With the Medicare and Social Security crisis, VT cannot expect continued Federal assistance to bail us out
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VERMONT SOLUTIONS “ A society cannot consume and not produce .”
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No more “Tinkering”
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•
“ Fiscal policy is on an unsustainable path to an extent that cannot be solved by minor tinkering .”
- Douglas Elmendorf President Obama’s Director of the Congressional Budget Office, November, 2009
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Wanted
: A Plan Grow The Pie!
• The Pew Center on the States released its 2008 Report Card on state management.
• “Pew strongly agrees that the state [Vermont] needs to do a better job of
looking at the big picture
when it comes to managing, not just people, but everything.” • “
Poor strategic planning
is the theme running through Pew’s report card for [Vermont].” - Rutland Herald 4/7/08 www.VermontersForEconomicHealth.org
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•
If you would like a copy of this Presentation or,
•
If you would like this Presentation presented to your Town…
•
E-mail Tom Licata at:
[email protected]
Grow The Pie!
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