States' Debt looking like Greek Debt

This graphic shows state debt in three categories: bonds, unfunded pension obligations, and additional liability. The interesting part is the“additional liability” category this essentially represents hidden debt beyond the known pension obligation funding problems. The article this graphic comes from “State Debt Woes Grow Too Big to Camouflage,” Discusses just how bad the situation is as compared to the recent problems in Greece. One of the possible causes of the financial crisis in Greece was after the new Prime Minister announced that about two thirds of the countries total debt had been hidden by his predecessor investors did not pull out immediately, but they were no longer willing to continue investing in Greek debt. Although the author shows both support for trusting that the state debt situation is fine and opposition to that view. The fact that California paid last year’s vendors with i.o.u.’s, but still paid the bonds that came due, seems like the kind of move that won’t cause an investor panic, but could likely reduce future investment into state bonds, much like the situation in Greece.


Eric said...
This comment has been removed by the author.
Eric said...

I found this article that talks about the effects of credit default swaps on the ability of California to sell bonds. I thought it was an interesting addition to the article in the post.


Dr. Tufte said...

It's unbelievable when you look at these numbers, isn't it?

It's actually worse than this. Some of the amounts are based on calculations that include rates of returns on government investment portfolios. Yet, governments routinely assume rates of return that private investors are unable to achieve. This makes all these values understated.

There are two ways to think about what's going on here.

One is that there's no reasonable justification for any of this.

Another is that if technological growth rates continue to rise, could we grow ourselves out of these problems? Right now, the numbers don't add up, but we also don't know that the limits of technological growth are.