Commentary and Criticism about the National Education Association
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“When people have nothing left to lose, and they’ve lost everything, they lose it. Gerald Celente, Author of the Trends Journal THE PENSION CRISIS: Nicaragua or the United States – it’s the same issue The problems facing the Nicaraguan pension system are similar to those found in many U.S. states today. It all boils down to one of two possible characterizations:
So how bad is it exactly? Eight years ago the International Monetary Fund (IMF) had this to say: “The IMF is demanding reform because it has calculated that without it, the State will have to assume huge costs within 10 to 15 years that will destabilize the economy.” In other words, the system is severely underfunded. As for the generosity of the benefits, consider that most citizens … “… are now able to retire at 60 years of age, though teachers may retire after working to age 55.” NICARAGUA TRIES TO FIX THE PROBLEM The Nicaraguan government recently made an attempt to reform its troubled social security system by implementing the following three rule changes:
CITIZENS PROTEST – VICTORY IS WON? The citizens were having none of this - they took to the streets in violent protest (Molotov cocktails, stone-throwing, etc.). After 25 people were killed, President Daniel Ortega … “… decided to cancel planned changes to the Central American country's pension system that have triggered violent protests.” Victory for the workers! Ortega scrapped his plans to cut benefits saying … “… that the government would examine other ways to reform the pension system and improve its financial outlook.” FORGET PENSION REFORM, WE’LL JUST PRINT MONEY But what “other ways” are there? Consider recent Nicaraguan monetary history for some clues as to how the financial outlook of the pension system might be “improved.” “The Central Bank of Nicaragua, established in 1961, has the sole right of issue of the national currency, the córdoba. “ Let me translate the underlined/bolded section of the above quote: The bank can print up as much money as it wants to pay its pension bills – after all, it has the “sole right of issue of the national currency.” So, problem solved, it seems. Nicaragua doesn’t have to reform its pension system. If it needs money to pay retirees, all it has to do is issue more cash whenever it wants. BACK TO REALITY Of course, the more money printed, the less each unit is worth. Take a look at the following chart of the exchange rate of the U.S. dollar and the Nicaraguan cordoba since 1998: As of April 23, 2018 you needed 31.12 cordoba to buy 1 dollar. Back in September of 1994 you only needed 6.73.
That is what happens when you just print money out of nothing and issue it – its value declines. By the way, another name for this is inflation. The decline was even worse if you go back to 1991: “Inflation has seriously eroded the value of the nation's money, the córdoba. In 1991, inflation reached 750 percent which made the currency relatively worthless since what had previously cost 1 córdoba cost 750 córdobas.” CONCLUSION – There’s that predicament again … The poor condition of many U.S. state pension funds is widely acknowledged. But, unlike Nicaragua, they can’t print money to “solve” the problem. Instead, states have only three basic choices:
Like a broken record, here we go again - the pension crisis is not a problem, it’s a predicament. Quoting Chris Martensen of Peak Prosperity: “A problem can be solved to avoid a certain outcome. A predicament has no solution, only an outcome.”
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October 2018
AuthorJonathan Smith - A New Jersey Public School Teacher who disagrees with the National Education Association. |