US Government Jobs and Pensions As a Solution to the Debt Problem

October 3, 2011

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Since no one is mentioning the government’s bloated payroll and pension system in the deficit reduction proposals, I had almost thought they were not big enough to be a pre-crises solution to the US debt problems, as this 37 year study of countries that successfully reduced their debt loads show is necessary. Fortunately, a USA today article entitled “Federal retirement plans almost as costly as Social Security” show that reducing government payrolls is indeed a partial solution.

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A previous USA today study showed that total compensation for government jobs is double equivalent jobs in the private sector. While some like to play with the numbers, this should not come as a huge surprise. Unless you’re the beneficiary of the union bailouts, I mean auto bailouts, what private sector job still gets a pension?

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Pensions used to be common in the private sector, until it bankrupted those industries and pushed jobs overseas. Likewise, lavish government spending on jobs is bankrupting Greece, with something like 30% of jobs tied to the public sector. You simply cannot employ people for 20-30 years, then pay them for another 40.

One of the more troubling aspects of the way both sides of the isle are proposing “handling” the US debt situation is that while everyone else has been forced to tighten their belts, reduce waste and excess, the government has put itself above such measures.

Some have this ridiculous notion that the government is operated like some efficient machine. There is ample waste and redundancy that could be eliminated before even getting to the hard questions.

In addition to pensions, the government has some 800,000 on the official payroll, with still more beltway bandits leaching onto the government tit. Simply bringing compensation levels down to the private sector would be a huge help in filling the trillion dollar deficit.

Unfortunately, politicians have a way at looking at policies that will get them through the next election cycle and alas, it often takes a crises to force a change.

So from an investor perspective, one has to put a credit event in the cards for the US , until government payrolls and transfer payments are shown to make up the bulk of the solution. If tax hikes are more than 15% of the solution, history suggests the deficit reduction plan will fail.

Shorting treasury bonds following capitulatory selling on the European/China crises will remain the next big trade until policies that reduce government payrolls and transfer payments are passed.

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