Pensions - An example of government promising more than it can deliver.

This story points out the problems facing Detroit, including unfunded pension promises, are on the horizon for other cities and states.

Looks like another example of government and politicians promising more than they can deliver, failing to live within their means.

Detroit, you're not alone.

Across the nation, cities and states are watching Detroit's largest-ever municipal bankruptcy filing with great trepidation. Years of underfunded retirement promises to public sector workers, which helped lay Detroit low, could plunge them into a similar and terrifying financial hole.

A CNBC.com analysis of more than 120 of the nation's largest state and local pension plans finds they face a wide range of burdens as their aging workforces near retirement.

Thanks to a patchwork of accounting practices and rosy investment assumptions, it's not even clear just how big a financial hole many states and cities have dug for themselves. That may soon change, thanks to a new set of government accounting standards that could serve as a nasty wake-up call to states and cities relying on rosy scenarios and head-in-the-sand accounting.

 Minnesotans at 78% is slightly the level of 80% the story says is a well funded pension program.

We're headed for big, big problems financially.

In a story from Politico, the head of the Congressional Budget Office says our current financial course is "unsustainable." In other words, we're headed for disaster if we continue on our current course. It seems as those we're on a financial Titanic. Only difference is we know what we're heading towards trouble but still aren't making any course corrections.

The nation’s fiscal path is “unsustainable,” and the problem “cannot be solved through minor tinkering,” the head of the Congressional Budget Office said Thursday morning.

Doug Elmendorf, best known for arbitrating the costs of various health care proposals, added his voice to a growing chorus of economic experts who predict dire consequences if political leaders don’t scale back spending, increase taxes or both — and soon.

Elmendorf noted a recent CBO report that pegged an increase in the public debt from $7.5 trillion at the end of 2009 to $20.3 trillion at the end of 2020 if President Barack Obama’s fiscal 2011 budget were to be implemented as written. As a percentage of gross domestic product, the debt would rise from 53 percent to 90 percent, CBO forecasted. The last time the percentage was that high was right after World War II.

Elmendorf’s remarks to reporters at a breakfast sponsored by the Christian Science Monitor echo the recent sentiments of a pair of Federal Reserve chiefs — the current head, Ben Bernanke, and former Chairman Paul Volcker.

Volcker said earlier this week that the U.S. should consider adopting a value-added tax, an idea he described as being less toxic than it has been in the past.

“If at the end of the day we need to raise taxes, we should raise taxes,” Volcker said.

On Wednesday, Bernanke said in a speech in Dallas that the government must cut entitlements or raise taxes.

“These choices are difficult, and it always seems easier to put them off — until the day they cannot be put off anymore,” Bernanke said.

There’s little apparent political appetite to do either.

While the president created a fiscal reform commission earlier this year, his budget calls for an extension of most of President George W. Bush’s 2001 and 2003 tax cuts and no major restructuring of the popular entitlement programs that constitute the lion’s share of the federal budget.

Elmendorf also defended his agency’s role in the health care debate, saying the back and forth between CBO and members of Congress over scoring different policy proposals is typical fare.

“I don’t think we were gamed,” Elmendorf said, describing the process on the health care law as “very similar” to that of other major pieces of legislation.

Heading for a crash -- Congress, Obama and out of control spending

At a time of incredible financial and economic uncertainty, President Obama presented to Congress and the American people a very bold plan for the future of America -- finding a cure for cancer, universal health care, free education and a host of other things. Of course the question is how to pay for it all. Well, raise taxes and continue to pile up debt through more government spending. Of course, recent Republican presidents and republican Congresses were guilty of deficit spending, but it's breathtaking what President Obama and the democrat Congress are proposing and doing, especially at a time of great instability.

My take is their policies will only make a bad situation worse and result in even greater financial and economic distress.I think we're seeing the confluence of at least two things which will create the perfect economic storm. One, is the economic and financial crisis brought on by greed, corrupt and people living beyond their means. People, corporations and the government have been living beyond their means, on borrowed money, and that's merely coming home to roost.

And two, faulty ideas and understanding of what to do about the financial and economic problem. Instead of seeing part of what's happening as a necessary correction to living beyond our means and cleaning up bad debt, economic and financial policy makers think all that they need to do is pump more money into the economy to keep the good times rolling. Thus, we see a very loose money supply and very low interest rates in hopes of warding off a collapse and keep things rolling along.

And now in Washington, DC the politicians in charge, Obama, Reid and Pelosi and their advisers have drunk deeply at the well of Keynesian economic theory which says government spending is what's necessary to jump start the economy and get things flying once again. The result a $1.75 trillion dollar deficit with more to come. And out of a desire to mitigate the deficit, Obama is proposing significant tax increases on the wealthy - those making over $250,000 a year - which will only discourage small business owners from expanding their businesses and creating jobs. In other words, Obama and the Keynesian economists are looking back to FDR as their example both for spending and raising taxes. The actually result then and now will be a prolonged period of economic crisis rather than a shorter one. The Great Depression went on for over a decade. It had a period of seeming recovery but quickly lapsed back into a depression with high unemployment and a dropping stock market. Punitive tax increases were imposed on the wealthy and companies by FDR which only retarded economic growth. So too today. What they didn't have then which we do now is have significant debt issues which will only worsen the wrong moves by policy makers and give us much less room for maneuvering.

Moving towards an universal health care system will be costly and mean rationing of health care and diminution of quality of care. Climate legislation will be costly to business and do little or nothing for the environment. I sense the liberals are seeking to pass all their agenda and spending items now as quickly as possible, "while the gittin's good."

I think Keynesian ideas about government stimulus have given Congressional liberals the justification for indulging themselves at precisely the time when we can least afford to be indulging ourselves. All it means is the economic problems we see now are only a foretaste of things to come.

Things may recover briefly in terms of a stock market run up but we will be "paying later" in a big way.

Liberal columnist says throwing money at our financial crisis isn't the answer to our problem.

Michael Kinsley, liberal columnist for the Washington Post, hit the nail on the head when he questioned the focus on more spending and more debt as the answer to our current financial and economic problems.

In his recent article, he says:

It sounds too good to be true, but it is true. By now we all know about the "paradox of thrift": If everyone stops spending because times are bad, times get even worse. An economist writing in the New York Times the other day addressed the wonderfully inverted problem of people who feel guilty about not spending enough. His advice: Don't feel guilty about saving money, because it's the government's job, not yours, to make sure that we spend enough. But what if you don't feel guilty about reckless borrowing and spending? What if you actually enjoy it? This has been a more common attitude in recent years. Is it still okay? Or does the medicine have to taste bad to be any good?

And can we rely on the government to spend enough? This also seems like a wonderfully upside-down problem. The answer is, apparently not. We're going to need a second stimulus package, probably a third chapter of the bank bailout, more for the auto industry and others. It's all going to cost at least two or three trillion. If it works, it will be money well spent. If it doesn't work, that means we should have spent more.

Trouble is, money well spent is still money spent. The reasons that made it a bad idea to run up all that debt haven't disappeared just because something even worse came along. Almost no one in Washington is talking about this. Since 1981, Republicans have run up massive deficits and Democrats have discovered fiscal responsibility. Now they're all having too much fun reverting to type. Republicans reject the Keynesian premise that the money is being well spent because it is being spent. Too zen for them, or something. For some Democrats, meanwhile, the very fact that a program is costly has magically become an argument in its favor.

But even if the stimulus is a magnificent success, the money still has to be paid back. The plan of record apparently is that we keep borrowing, spending and stimulating, faster and faster, until suddenly, on some signal from heaven or Timothy Geithner, we all stop spending and start saving in recordbreaking amounts. Oh sure, that will work.

There is another way. If it's not the actual, secret plan, it will be an overwhelming temptation: Don't pay the money back. So far, even as one piggy bank after another astounds us with its emptiness, there have been only the faintest whispers about the possibility of an actual default by the U.S. government. Somewhat louder whispers can be heard, though, about the gradual default known as inflation. Just three or four years of currency erosion at, say, 10 percent a year would slice the real value of our debt -- public and private, U.S. bonds and jumbo mortgages -- in half.

Anyone who regards the prospect of double-digit inflation with insouciance is either too young to have lived through it the last time (the late 1970s) or too old to remember. Among other problems, inflation works only as a surprise or betrayal. It can never be part of any public, official plan. Plan for 10 percent inflation, and you'll get 20. Plan for 20 and you'll need a wheelbarrow to pay for your morning Starbucks. But if that's not the plan, what is?

In summary, he's saying we're trying to spend our way out of a problem which resulted from irresponsible spending. It sounds like the way to made a bad situation worse. It's not a question of government doing something or nothing, but government doing the right thing.

Delaying the day of reckoning means it will only be much worse.

Many years ago there was a car commercial which ended with the line, "You can pay now or you can pay later." Applied to our nation's economy we are choosing the latter.

Minnesota's state government is facing a projected $4.8 billion budget deficit which could easily grow to $6 to 7 billion when the March forecast comes out. The $780 billion federal economic stimulus bill could send up to $2 to 3 billion to the state to plug the gap. Along with it will be strings attached on how the money should be spent.

All of this is an exercise in economic foolishness. The federal government is merely allowing state governments to put off the day of reckoning. They are enabling, tempting state's to not make the tough decisions now. In addition policymakers assume that the national debt will not impact us here in Minnesota. It's as though the federal government and economy are free from the laws of economics. The trillions of dollars in new debt won't come back to haunt us some day.

Earlier this week Obama's Treasury Secretary Timothy Geithner suggested the Treasury Department and the Fed will spend another $2 trillion to keep things afloat.

Together, the stimulus plan in Congress and the financial rescue plan being overseen by Treasury and the Fed could end up marshaling nearly $3 trillion toward revitalizing the economy, and the enormity of the task is contributing to anxiety among policymakers, corporate America and individual investors and consumers.

"We're really operating in uncharted waters. The stimulus package and the financial-institutions rescue package are really crap shoots. We really don't have any sense of how they're going to work out," said Ross Baker, a Rutgers University politics professor. "We're really talking about remaking the American economy and the banking system."

At the heart of the problem is the unwillingness of us as a society to live within our means. It's a radical "live for the moment", me-centered mentality. There's no thought of the long range implications of what we're doing.

All indications are the wake up call of our economic problems from the last several months hasn't woken up a lot of people.

Maybe the economic stimulus bill isn't such a good idea after all.

With all the haggling in Washington DC over the $800 to 900 billion stimulus bill, there isn't much discussion if any about whether it should be done at all. The debate is only over size and contents.

The Congressional Budget Office has now come out with a report suggesting the long run benefits may well not be there. A Washington Times news story notes:

CBO, the official scorekeepers for legislation, said the House and Senate bills will help in the short term but result in so much government debt that within a few years they would crowd out private investment, actually leading to a lower Gross Domestic Product over the next 10 years than if the government had done nothing.

CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net. [The House bill] would have similar long-run effects, CBO said in a letter to Sen. Judd Gregg, New Hampshire Republican, who was tapped by Mr. Obama on Tuesday to be Commerce Secretary.

The House last week passed a bill totaling about $820 billion while the Senate is working on a proposal reaching about $900 billion in spending increases and tax cuts.

But Republicans and some moderate Democrats have balked at the size of the bill and at some of the spending items included in it, arguing they won't produce immediate jobs, which is the stated goal of the bill.

The budget office had previously estimated service the debt due to the new spending could add hundreds of millions of dollars to the cost of the bill -- forcing the crowd-out.

CBOs basic assumption is that, in the long run, each dollar of additional debt crowds out about a third of a dollars worth of private domestic capital, CBO said in its letter.

CBO said there is no crowding out in the short term, so the plan would succeed in boosting growth in 2009 and 2010.

The agency projected the Senate bill would produce between 1.4 percent and 4.1 percent higher growth in 2009 than if there was no action. For 2010, the plan would boost growth by 1.2 percent to 3.6 percent.

CBO did project the bill would create jobs, though by 2011 the effects would be minuscule.

I've wondered whether in the long run the bill is a good idea because of the debt burden we'll adding and it's government generating the activity rather than the wealth creating private sector.

The stimulus bill debate seems to me to point out the current mentality of living for the now. Rather than planning for the future we're driven by quick fixes. That's what got us into this mess, e.g. enormous debt, making a quick buck and so forth. Trying to avoid the inevitable correction by pouring billions of new money generated by more debt seems to me to be going exactly the wrong direction. Eventually, somebody will have to pay the bill whether now or later. Ultimately, there's no such thing as a free lunch even when the government is involved.

Pride comes before the fall?

Today the Dow Jones dropped over 500 today. Largest drop in half dozen years. The bankruptcy of a 150 year old investment house. Should the Fed and Congress come in and bail them out? Will this start a domino effect among other firms? The underlying issue though was touched on by a Reuter's new story entitled, "Lehman CEO Fuld's hubris contributed to meltdown." It all comes back to the fatal flaw found in the human race -- pride. Thinking we can have it our way. We aren't accountable to the laws of nature and nature's God. We're a law unto ourselves.

Some say years of living beyond our means is catching up to us. Government and personal debt is going beyond reasonable limits. Instead of thinking we need to live within our means and work responsibly, we can have it all now. It sounds like the lesson of Lehmann Brothers is they thought they could do whatever they wanted and they wouldn't need to face the consequences. The impact of their actions look like they might well reverberate on to others.