Hidden behind accounting fictions, the politically unspeakable reality is that public employee pension systems are under-funded by more than $2 trillion. Add more than $1 trillion in unfunded health-care benefits for retired public employees, and state governments face protracted structural deficits ranging from challenging to insurmountable.
First, there is a correlation in government between the creation of long-term liabilities and the propensity to rely on fantasy math.
Second, the parties to the arrangement suffer to the extent they fail to understand the math.
Third, there is an inverse correlation between the magnitude of a shortfall and the visibility of the issue. Precisely because the size of the problem precludes easy answers, it lies beneath the surface of the public dialogue.
Deny, deny, deny until a scandal breaks. Then the public is horrified, the printing press heats up, and the debt burden grows larger. Throw away your insurance (gold) in the face of the paper tiger if you like, but denial has a limited half life. When denial turns to scandal, real insurance, not paper will be difficult to secure.
Source: bloomberg.com
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