Working for the government was always pitched as somehow being better guaranteed than risky corporations. However, he who makes the laws never goes to jail for breaking them – a plain fact of life. The problem with government pensions has been they promised whatever sounded nice, with zero accountability. The presumption that tax revenue was an endless pit is one of those fallacies that nobody ever investigates.
It was the city of Mainz where the Gutenberg printing press was invented. This created an economic boom and everyone wanted to be in Mainz. The politicians saw the boom and presumed the potential tax revenue was linear and would be endless – judging tomorrow by today’s trend. They began to borrow against what they anticipated would be there forever. As they needed interest to pay for borrowing and they became addicted to debt, they raised taxes. The taxes kept rising so they killed the economic boom and people began to leave. Mainz followed the typical path as we are doing today. They were no longer paying off debt, they entered the Ponzi scheme – issued new debt to pay off the old in a revolving bond auction. Taxes kept rising and people migrated. The printing press was no longer unique to Mainz. The rich left town taking their capital and entrepreneurship with them. When Mainz lost confidence of the bond buyers and could no longer sell new debt to pay for the old, the collapse unfolded. Mainz, like Detroit, defaulted. The creditors sacked the city and it was burned to the ground.
The same precise pattern unfolds every time – WITHOUT EXCEPTION. Why? Human nature never changes. Create career politicians and they will always seek to expand government for that is their power-base. I do not know who is more brain-dead be it the government workers who believed this pensions were endless, or the really insane insurance companies who insured any government debt. For now, the companies that insure Detroit bonds and stand to lose millions will have to pay out on insurance to bond-holders who will get less as government tried to pay its workers over the pension crisis that will not possibly work anyhow.
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