The state of
our Nation
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“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
1
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KEY FEDERAL
ECONOMIC DATA
www.VermontersForEconomicHealth.org
2
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.
www.VermontersForEconomicHealth.org
3
The U.S. Federal Debt
(% of GDP)
140
120
100
80
60
40
20
0
World War II
122%
2009 80%
% GDP
19
00
re
at
W
D
ep W
I
re
ss
io
n
W
W
II
19
65
19
75
19
85
19
95
20
09
20
25
G
ar
G.D. 44%
W
C
iv
il
Grow The Pie!
www.VermontersForEconomicHealth.org
4
The state of
Indebtedness
100
90
80
70
60
50
40
30
20
10
0
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Unfunded liab. primarily
Medicare, Medicaid, SS,
State & Municipal
Pensions/Health
benefits.
Over $100 trillion in
unfunded liabilities
In $Trillions
Unfunded U.S. Debt U.S. Guar.
liabilities
10 year
deficits
www.VermontersForEconomicHealth.org
10 year projected
deficits of about 6%
of GDP vs. economic
growth of about 2.5%
of GDP spell disaster.
5
Life cycle of a Superpower
Share of world GDP
1820
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1950
5%
U.S. = 2%
33%
China
65%
27%
Other
2009
8% 24%
68%
U.S.
68%
Other
China = 5%
2014
China = 8%
U.S.
12% 23%
65%
Other
*China is expected to
surpass U.S. GDP in
about 15 years.
U.S.
China =
12%
Other
www.VermontersForEconomicHealth.org
6
The state of our
Monetary System
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• "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
7
Changes in the Price of Oil,
in Dollars, Euros & Gold
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$100/Barrel Oil
4
3.5
Had the dollar remained “as good as gold” since
2001, Oil today would be selling at $30 a Barrel,
not $100.
Dollars
Euros
3 Had the dollar remained as strong as the Euro since
Gold
2.5 2001, Oil today would be selling at $57 a Barrel,
not $100.
$57/Barrel Oil
2
1.5
1
$30/Barrel Oil
0.5
0
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
8
The state of our Monetary
System-Part 1 of 4
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• “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
9
The state of our Monetary
System-Part 2 of 4
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• 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
10
The state of our Monetary
System-Part 3 of 4
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• 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
11
China’s & U.S.’s Mutually
Assured Destruction-4 of 4
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• 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
12
Foreign Holdings of
U.S. Debt to the Public
1990
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2009
19%
Foreign
Domestic
51%
49%
Foreign
Domestic
81%
China, Japan, South Korea &
Singapore account for 47% of
foreign holdings
www.VermontersForEconomicHealth.org
13
Composition of Federal
Spending (% of Total Spending)
1968
4%
All Else
6%
Defense
46%
2008
Med.
All Else
13%
31%
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Medicare
&
Medicaid
Social
Security
Net
Interest
Defense
20%
30%
SS
Defense
21%
21%
8%
All Else
www.VermontersForEconomicHealth.org
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Mandatory vs. Discretionary
Spending (% of Total Spending)
1965- 5.1 Workers per SS
34%
1975
Mandatory = Lt. Blue
Discretionary= Dk Blue
47%
66%
1985
44%
56%
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53%
2008- 3.3 Workers per SS
50% = Portion of
budget spent on
S.S., Medicare,
Medicaid & net
interest in 2008;
all mandatory.
38%
www.VermontersForEconomicHealth.org
62%
15
The state of our
States & Municipalities
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• 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
16
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 19962006
• 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 antiforeclosure plan come off lender’s books.
www.VermontersForEconomicHealth.org
17
The state of Fannie Mae,
Freddie, FHA & the FDIC
1400
1200
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$1.25 trillion in monetized Fan/Fred debt
by the Federal Reserve Bank
(the printing of money to purchase debt)
1000
800
600
400
Congress has appropriated $400 billion
in Fan/Fred total projected losses
$112 billion in realized
Fan/Fred losses
200
0
$100 billion thru 2013 FDIC
18% of FHA loans are 30 days
total projected bank losses
or more past duewww.VermontersForEconomicHealth.org
18
The state of
Commercial Real Estate
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• $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
19
The state of the Consumer
(70% of our GDP)
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• 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
20
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%
www.VermontersForEconomicHealth.org
21
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. 30 years
from now, it’s estimated to be 2.1
www.VermontersForEconomicHealth.org
22
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.
www.VermontersForEconomicHealth.org
23
The state of
World Economies
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• 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
24
Grow The Pie!
KEY VERMONT
ECONOMIC DATA
www.VermontersForEconomicHealth.org
25
The state of Vermont
Indebtedness-2009 data
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$70 million ($40M to stimulus)
$300
mill.
$400
million
(Net of
Stimulus)
$1.6 billion
(Teacher &
state employees)
$470
million
$466
million
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
www.VermontersForEconomicHealth.org
26
VT Taxpayer’s Looming
*$3.5 Liabilities-2007 data
$90M $75M $45M $43M $38M $18M
$161M
$200M
$1.3B
$300M
$300M
$438M
$451M
$451M
New Highway Const. Projects include the Circ, Bennington &
Morrisville Bypass. See Web Site for details on all projects.
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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
$1.3B
$451M
$438M
$300M
$300M
$200M
$161M
$90M
$75M
$45M
$43M
$38M
$18M
*Excludes $1.6B pension liab. $3.5B
www.VermontersForEconomicHealth.org
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Unsustainable spending:
Vermont Fiscal Year
2005-2009 Growth Rates
35%
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(Approx. 300% increase over income growth)
30%
23%
25%
(Over 200% increase over inflation)
20%
13%
15%
10%
10%
5%
0%
Edu Prop
Taxes
K-12
Spding
Income
Growth
Inflation
(VT gov’t payroll & employee benefit costs grew 70% between
www.VermontersForEconomicHealth.org
2000-2007 vs. inflation of approx. 20%)
28
Student Enrollment Down Employment and Costs Up
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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
102,000
100,000
Teachers and Staff
17,000
98,000
96,000
15,783
96,636
16,000
1997: Act 60 Implementation
94,000
15,000
Source: Summary of the Annual Statistical Report of Schools (SASR) FY 1997 - 2006
www.VermontersForEconomicHealth.org
29
Where Vermont Generates
Its Tax Revenues
3%
Federal Revenues-30%
8%
12%
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Education Tax-20%
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
www.VermontersForEconomicHealth.org
30
Cumulative % of Income
Taxes Paid: By Income
Level & Number of Filers
100%
304,254;
100%
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$75,000 & up pay 60% of Taxes
98%
185,534;
61%
91% Paid
121,827;
40.04%
Start here,
move clockwise…
26% of Taxes Paid,
2,113 Tax Filers;
0.69% of Filers
$300K & higher
$150K - $300K
$100K - $150K
$75K - $100K
38% Paid,
6,970 Filers;
2.29%
75% Paid
49%
58,415;
15,200;
19.20% 60%
27,632; 4.99%
9.08%
$50K - $75K
$25K - $50K
$10 - $25K
$10K & lower
www.VermontersForEconomicHealth.org
Source: Vt. Comprehensive Annual Financial Report, 2007
Top 5% pays about 50%
31
How Does Vermont Spend
its Revenues?
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75% of Revenues Go Towards Education and Human Services
Education
5%
6%
Human Services
Transportation
39%
7.5%
People & Prop Protection
Business Type
General Government
Natural Resources
36%
Commerce & Community
Employ. & Training
75%
Debt Interest
Source: Vermont Comprehensive Annual Financial Report. Fiscal year ending 6/30/06.
www.VermontersForEconomicHealth.org
32
VT’s Private Sector Job
Growth From 2000-2007:
0% (Pre-Recession)
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(In thousands)
270
Total VT
Private
Sector
Jobs
250
230
210
Since 2001’s
recession,
private sector
job growth in
Vermont has
essentially
been 0%.
190
170
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
150
Source: Public Assets Institute
www.VermontersForEconomicHealth.org
33
What Kinds Of Jobs Are
Being Created?
www.VermontersForEconomicHealth.org
Grow The Pie!
34
VT Retirees Double In 25
Years While The Work
Force Shrinks
250
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Over 65,
(Retirees)
200
Age 20-65,
(working age)
150
Total Population
100
Age 6-18,
(school age)
50
'3
0
'2
8
'2
4
'2
6
'2
2
'1
8
'2
0
'1
6
'1
4
'1
0
'1
2
'0
8
'0
4
'0
6
20
00
'0
2
0
Source: Center for Research on Vermont, Art Woolf. (Indexed to 2000 = 100)
www.VermontersForEconomicHealth.org
35
Vermont
Summary
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• 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
36
Grow The Pie!
VERMONT SOLUTIONS
“A society cannot consume and not
produce.”
www.VermontersForEconomicHealth.org
37
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
www.VermontersForEconomicHealth.org
38
Wanted: A Plan
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• 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
39
Grow The Pie!
• 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
40