Sunday, June 13, 2010

Weekend Thoughts...

The appetite for risk seems to be back for the moment and that has pushed up the Euro and lowered the US dollar which is rallying stocks in the futures market right now. BP will probably continue to be the story of the week and while I don't think you can defend BP right now, I think you can appreciate why the British might be a little miffed with our sudden rush of environmental responsibility when you look at a chart like this.... (Energy use per capita)

That little pink line on the bottom should give us all pause.
In general, I've been a supporter of Gov. Paterson's "Tell the Truth" tour even if his lack of political acumen is glaring at times. However, while the news seems to be focused on the prospect of a government shutdown, the pension sleight of hand that the legislature seems to be considering may be the worst example of "kick the can" that I've seen to date.
"Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.

As word of the plan spread, some denounced it as a shell game and a blatant effort by state leaders to avoid making difficult decisions, like cutting government spending or reducing pension benefits.
Pension costs for the state and municipalities are soaring, a result of enhanced retirement benefits for public employees and the decline in the stock market over the past two years. And, given declines in tax revenue and larger budget shortfalls, the governments are struggling to come up with the money to make the contributions.
Under the plan, the state and municipalities would borrow the money to reduce their pension contributions for the next three years, in exchange for higher payments over the following decade. They would begin repaying what they borrowed, with interest, in 2013."
So just to clarify -- Pension costs are soaring because of enhanced benefits, the falling stock market and falling tax revenues. To address this issue we could increase taxes, cut benefits or stick our fingers in our ears and sing la-la-la-la-la. Of course, we have to chose option c.
Let's assume you have $100k in your 401k and you'd like to contribute another $10k this year. However, you're broke and you really, really want to go out to Applebee's for 8th time this month so you devise a clever scheme to have your cake and eat it too.
Hey, you can borrow $10k from your 401k and pay it back with interest over the next 3 years. You can cross your fingers and hope that the stock market roars back to life which will offset the cost of your reckless move. However, the more likely scenario is you're going to be stuck struggling to make your interest payments and wondering why you didn't tighten your belt back when it would have meant a little pain.
These are the sort of decisions that make people reconsider their decision to live in the great state of NY.

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