State Budget Crisis

Good 60 Minutes episode on the State Budget Crisis. I'm not a Meredith Whitney fan and am not convinced of her doomsday prediction, but there is no doubt times are very tough for States. Poor financial management among the States cannot be hidden any longer. The fact is the US has an appetite for benefits and entitlements that exceeds its appetite to pay taxes. Either taxes go up or entitlements go down (or both). I continue to hear more about State's moving to more of a 401k style retirement system rather than the traditional pension system, which I think makes a lot of sense. The burden of the pension system is just too expensive for the State's to bear and mismanagement of the system ends up costing everyone more in the longrun.

I think because each State is required to balance its budget every year the defaults will not be as severe as some believe. According to Moody's, only 0.09% of Munibonds have defaulted in 40 years, which is 54 issues out of 18,400. This compares to about 2.5% of investment grade corporate defaults over the same time horizon.

From WikiChina

Tom Friedman has given up trying to speak rationally to people about the problems America faces. Since no one appears to be listening he has moved to writing in satire. It might be funny if it wasn't so true.

http://www.nytimes.com/2010/12/01/opinion/01friedman.html?src=me&ref=general

I Want My Salesforce.com

Thank You Uncle Sam: Warren Buffett

Great letter from Warren Buffett. Good perspective. While many things in the government are very frustrating I think it is worth taking a step back to acknowledge the situation could have been much, much worse if the government had not acted as they did. No, it was not perfect. We are left with many unintentional consequences and difficult long-term challenges, but I believe history will show that by making the tough choices to restore confidence the Government was able to avert an even greater crisis.

http://www.nytimes.com/2010/11/17/opinion/17buffett.html?_r=1

Getting Serious about the Deficit

I'm encouraged to see this commission discussing the right issues about lowering the deficit. It drives me crazy hearing all these politicians and protesters talk about lowering the deficit with absolutely no suggestions on how to do it. When pressed these people talk about 'wasteful government spending and unnessary projects'. Okay..fine. I agree, but when we are talking about a potential $20 trillion deficit, focusing on a few $20-100 million programs will amount to nothing in making a dent in the real issue.

Unless, politicians and/or the public are talking about cutting Defense, Medicare/Medicaid, and Social Security spending then they are not seriously talking about cutting the deficit. Let's hope this commission makes progress in moving the discussion forward to address the real structural problems.

http://www.bloomberg.com/news/2010-11-10/deficit-reduction-panel-s-plan-would-seek-to-cut-social-security-medicare.html

Deficits: Taxing The Rich

Great segment on 60 Minutes, interviewing David Stockman, former budget director for Reagan. Worth watching.

Dysfunction Junction

A couple of links to some articles I recommend reading. Both refer to the complete dysfunction going on in our political system. It's hard to have much faith in the system when its constant finger pointing and no one, but Jon Stewart seems capable of rationally discussing the issues.

Great Op-Ed from Tom Friedman
http://www.nytimes.com/2010/10/27/opinion/27friedman.html?hp

The November Investment Outlook from Bill Gross
http://www.pimco.com/Pages/RunTurkeyRun.aspx