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The state of our Nation

The state of our Nation. “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 .”

ronan-mcintosh
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The state of our Nation

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  1. The state of our Nation • “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 • “Fiscal Wake-up Tour”: http://www.youtube.com/watch?v=OS2fI2p9iVs www.VermontersForEconomicHealth.org

  2. KEY FEDERAL ECONOMIC DATA www.VermontersForEconomicHealth.org

  3. The state ofIndebtedness • 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. www.VermontersForEconomicHealth.org

  4. The U.S. Federal Debt(% of GDP) World War II 122% 2009 80% G.D. 44% www.VermontersForEconomicHealth.org

  5. The state of Indebtedness Unfunded liab. primarily Medicare, Medicaid, SS, State & Municipal Pensions/Health benefits. Over $100 trillion in unfunded liabilities 10 year projected deficits of about 6% of GDP vs. economic growth of about 2.5% of GDP spell disaster. www.VermontersForEconomicHealth.org

  6. Life cycle of a SuperpowerShare of world GDP 1820 1950 5% U.S. = 2% 27% U.S. China = 5% 33% China 65% Other 68% Other 2009 2014 8% 24% U.S. 12% 23% U.S. China = 8% China = 12% 68% Other 65% Other *China is expected to surpass U.S. GDP in about 15 years. www.VermontersForEconomicHealth.org

  7. The state of our Monetary System • "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. www.VermontersForEconomicHealth.org

  8. Changes in the Price of Oil,in Dollars, Euros & Gold $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 $30/Barrel Oil 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

  9. The state of our Monetary System-Part 1 of 4 • “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. www.VermontersForEconomicHealth.org

  10. The state of our Monetary System-Part 2 of 4 • 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. www.VermontersForEconomicHealth.org

  11. The state of our Monetary System-Part 3 of 4 • 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. www.VermontersForEconomicHealth.org

  12. China’s & U.S.’s Mutually Assured Destruction-4 of 4 • 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

  13. Foreign Holdings of U.S. Debt to the Public 1990 2009 19% 51% 49% 81% China, Japan, South Korea & Singapore account for 47% of foreign holdings www.VermontersForEconomicHealth.org

  14. Composition of Federal Spending (% of Total Spending) 2008 1968 4% Med. 20% 13% All Else 30% All Else 31% 6% SS 21% Defense 21% Defense 46% 8% www.VermontersForEconomicHealth.org

  15. Mandatory vs. DiscretionarySpending (% of Total Spending) 1965- 5.1 Workers per SS 1975 Mandatory = Lt. Blue Discretionary= Dk Blue 34% 47% 53% 66% 1985 2008- 3.3 Workers per SS 50% = Portion of budget spent on S.S., Medicare, Medicaid & net interest in 2008; all mandatory. 44% 38% 56% 62% www.VermontersForEconomicHealth.org

  16. The stateof ourStates & Municipalities • 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. www.VermontersForEconomicHealth.org

  17. The state of Housing • 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. www.VermontersForEconomicHealth.org

  18. The state of Fannie Mae, Freddie, FHA & the FDIC $1.25 trillion in monetized Fan/Fred debt by the Federal Reserve Bank (the printing of money to purchase debt) Congress has appropriated $400 billion in Fan/Fred total projected losses $112 billion in realized Fan/Fred losses $100 billion thru 2013 FDIC total projected bank losses 18% of FHA loans are 30 days or more past due www.VermontersForEconomicHealth.org

  19. The state of Commercial Real Estate • $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 “2nd 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. www.VermontersForEconomicHealth.org

  20. The state of the Consumer (70% of our GDP) • 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

  21. The state of Jobs • 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% www.VermontersForEconomicHealth.org

  22. The state of our Demographics • 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. 30 years from now, it’s estimated to be 2.1 www.VermontersForEconomicHealth.org

  23. The state of Energy Demand • 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. www.VermontersForEconomicHealth.org

  24. The state of World Economies • 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. www.VermontersForEconomicHealth.org

  25. KEY VERMONT ECONOMIC DATA www.VermontersForEconomicHealth.org

  26. The state of Vermont Indebtedness-2009 data $70 million ($40M to stimulus) $300 mill. $400 million $1.6 billion (Teacher & state employees) (Net of Stimulus) $470 million $466 million (Champlain Bridge & VT State Hosp. costs not included) *General Fund revenues at 2004 levels www.VermontersForEconomicHealth.org

  27. VT Taxpayer’s Looming *$3.5 Liabilities-2007 data $90M $75M $45M $43M $38M $18M $1.3B $451M $161M $438M $300M $200M $300M $1.3B $200M $300M $161M $90M $300M $75M $45M $451M $438M $43M $451M $38M $18M New Highway Const. Projects include the Circ, Bennington & Morrisville Bypass. See Web Site for details on all projects. *Excludes $1.6B pension liab. $3.5B www.VermontersForEconomicHealth.org

  28. Unsustainable spending: Vermont Fiscal Year 2005-2009 Growth Rates (Approx. 300% increase over income growth) 23% (Over 200% increase over inflation) 13% 10% (VT gov’t payroll & employee benefit costs grew 70% between 2000-2007 vs. inflation of approx. 20%) www.VermontersForEconomicHealth.org

  29. Student Growth = -9.1%; Teacher and Staff Growth = +20.8% 108,000 20,000 106,341 19,069 106,000 19,000 104,000 Students 18,000 Teachers and Staff 102,000 100,000 17,000 98,000 16,000 15,783 96,636 96,000 94,000 15,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Student Enrollment Down - Employment and Costs Up 1997: Act 60 Implementation Source: Summary of the Annual Statistical Report of Schools (SASR) FY 1997 - 2006 www.VermontersForEconomicHealth.org

  30. Where Vermont Generates Its Tax Revenues 3% 8% 30% 12% 12% 20% 15% Source: Vermont Comprehensive Annual Financial Report. Fiscal year ending 6/30/06. Total Revenues were approximately $3.8 billion www.VermontersForEconomicHealth.org

  31. Cumulative % of Income Taxes Paid: By Income Level & Number of Filers $75,000 & up pay 60% of Taxes 100% 304,254; 100% 98% 185,534; 61% Start here, move clockwise… 26% of Taxes Paid, 2,113 Tax Filers; 0.69% of Filers 91% Paid 121,827; 40.04% 38% Paid, 6,970 Filers; 2.29% 75% Paid 58,415; 19.20% 49% 15,200; 4.99% 60% 27,632; 9.08% www.VermontersForEconomicHealth.org Top 5% pays about 50% Source: Vt. Comprehensive Annual Financial Report, 2007

  32. How Does Vermont Spend its Revenues? 75% of Revenues Go Towards Education and Human Services 5% 6% 39% 7.5% 36% 75% Source: Vermont Comprehensive Annual Financial Report. Fiscal year ending 6/30/06. www.VermontersForEconomicHealth.org

  33. VT’s Private Sector Job Growth From 2000-2007: 0% (Pre-Recession) (In thousands) Since 2001’s recession, private sector job growth in Vermont has essentially been 0%. Source: Public Assets Institute www.VermontersForEconomicHealth.org

  34. What Kinds Of Jobs Are Being Created? www.VermontersForEconomicHealth.org

  35. VT Retirees Double In 25 Years While The Work Force Shrinks Over 65, (Retirees) Age 20-65, (working age) Total Population Age 6-18, (school age) Source: Center for Research on Vermont, Art Woolf. (Indexed to 2000 = 100) www.VermontersForEconomicHealth.org

  36. Vermont Summary 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 www.VermontersForEconomicHealth.org

  37. VERMONT SOLUTIONS “A society cannot consume and not produce.” www.VermontersForEconomicHealth.org

  38. No more “Tinkering” • “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 www.VermontersForEconomicHealth.org

  39. Wanted: A Plan • 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

  40. 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: tomlicata2@comcast.net www.VermontersForEconomicHealth.org

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