"The Elephant in the Room"

This week Stockton, a California city of 300,000, will most likely declare bankruptcy. After reducing their budget $90 million the past few years through drastic cuts, the city is still facing a budget deficit for the coming year of $26 million. The situation is hopeless...they are simply out of money. This is after they have eliminated one-fourth of the city's police officers, one-third of the fire staff, and 40 percent of all other employees. And they also cut wages as much as 22%, along with cuts in medical benefits for city workers. The economy, especially the housing crash has had a significant effect, but the major problem is pension and medical commitments for retired workers - in Stockton for every policeman on the beat, there are two receiving large pensions for life.

Stockton is a microcosm of what is happening in the state of California; in many other states; in the USA; and in many countries around the world. This week Spain and the island of Cyprus became the fourth and fifth countries to ask for a bailout from the Euro zone and many believe Italy may be next and then France.  If that happens the European Union will collapse because there simply will not be enough money for bailouts and there will be no buyers for these country's bonds.   

Political leaders around the world blame this massive debt on the economy, which is only partially true.  The "elephant in the room" throughout this debt carnage is the massive entitlements promised by politicians - promises to get votes, but promises that cannot be kept. Incredibly, the new socialist Prime Minister of France was elected because he promised MORE entitlements including reducing the retirement age to 60.

It is frustrating that most people, here and around the world pay little attention to the national debts. They don't understand it, and as long as they get their "entitlement" they simply believe government is an endless supply of money.

Stockton, during their bankruptcy, can void some of their pension and other union contracts and possibly work their way through the problem. But with the USA facing a $16 trillion debt which is rising at a rate of a trillion dollars a year, it may not matter which party is in control. The time is coming when the debt may be in control because "USA bankruptcy" will not be an option.