Category Archives: Uncategorized

Coal Ash Clean-up: Duke’s Bill Exceeds $5 Billion

A truck embarks upon coal ash clean-up at a Duke Energy.

A truck embarks upon coal ash clean-up at a Duke Energy. Photo credit: Charlotte Observer.

Cleaning up coal ash in North Carolina will cost Duke Energy $5.2 billion, 50% more than previously estimated, and the electric utility has indicated it will seek rate hikes beginning next year to recoup its costs.

Duke has spent $770 million so far on the clean-up, which entails recycling and landfilling more than half its coal ash ponds, and the utility wants to charge the cost to North Carolina rate payers, reports the Charlotte Observer. Clean-up in the Carolinas could total $2.5 billion by 2021, and would continue accumulating beyond that.

Duke’s move is sure to be watched here in Virginia, where Dominion Virginia Power is under heavy pressure from environmental groups and elected officials with coal ash ponds in their districts. Citing the example of utilities in North Carolina, South Carolina and Georgia, foes of Dominion’s cap-in-place approach have argued that the utility should instead recycle coal ash where possible and bury the rest in state-of-the-art landfills.

Dominion has argued that cap-in-place is both safe and significantly less expensive. Pursuing the recycling-landfilling approach at all four power stations would increase costs from a few hundred million dollars to $3 billion.

Bacon’s bottom line: If there was ever any question that recycling/landfilling is an order of magnitude more expensive than closure-in-place, the Duke numbers should settle the matter.

A higher cost doesn’t rule out pursuing the option, but it does give pause. Dominion’s closure-in-place plan does entail a higher risk of groundwater contamination, although the company’s containment basins will be monitored for 30 years and the utility will be required to ameliorate any damage. On the other hand, the costs will be highly localized and modest in magnitude compared to the alternative..

The cost of contamination isn’t modest to the homeowners living near the Possum Point Power Station, however, as evidenced by a large turnout and heated testimony at a public hearing last night in Prince William County. The main concern expressed was contamination of well water, although some citizens worry about the effect on aquatic wildlife as well.

Here in Virginia, we have yet to quantify the risks and potential costs to the public and environment of different coal ash clean-up strategies.

If, to pick numbers out of a hat, it would cost $10 million to compensate Dominion’s Possum Point neighbors for contaminated well water by hooking them up to municipal water, would that not make more sense than spending $750 million to remove the coal to a landfill? Of course, those numbers aren’t real. We need to get better numbers. But you get the principle: We need to weigh costs and benefits. Otherwise, we’re shooting blunderbusses in the dark.

Complicating the picture even more… According to the Charlotte Observer, Duke is treating coal ash clean-up costs as an operating expense. In Virginia, operating expenses are included in the “base” electric rate. And base rates are frozen through 2022 under a legislative deal worked out in 2015.

Dominion has said publicly that it has already eaten nearly $300 million in coal ash-related expenses. So, maybe the full $3 billion cost of the recycling/ landfilling approach wouldn’t get passed on to ratepayers after all. If that’s the case, Dominion would take the hit, not rate payers, although the exact amount of damage would depend on what costs the company could defer until after the freeze ends. If Duke is any guide, half the expense could be pushed out beyond 2022.

“Blood on the Mountain”

Jeff Thomas, author of “Virginia Politics & Government in a New Century” and podcaster, interviews former Bacon’s Rebellion contributor Peter Galuszka about the “war on coal” and the Upper Big Branch mine disaster in West Virginia.

Peter also appears as a prominent “talking head” (his words, not mine) in a documentary, “Blood on the Mountain,” coming out later this month in DVD, Netflix and Amazon. Look for it.

Exploring the “American Lake”

View from Fort Cabrits, Dominica, the island where the Godspeed replenished provisions on the way to Jamestown.

Here’s what the Virginia Band of Goat Eaters, Rum Guzzlers and Low-Adrenaline Adventure Seekers learned from a week-long excursion to the Lesser Antilles: Cruise ships use their market dominance in small islands to extract lucrative terms – 30% to 70% of revenue from what we heard – from their local tour operators. Fortunately, the Internet has changed the economics of the business by allowing passengers and tour guides to cut out the middleman. And that’s exactly what we did, thanks to the pre-vacation exertions of our traveling companion Steve Nash, whom some readers may recall from his book, “Virginia Climate Fever.”

Steve patched together a string of top-rate tour guides to explore the theme of America’s role in the Caribbean, sometimes known as the “American lake.” Instead of joining least-common-denominator tours organized by cruise ships, we went on excursions adapted to the quirky interests of our six-person group. We enjoyed the guides’ full attention, we bombarded them with questions, and we engaged in memorable conversations about history, culture and current events.

The tours were no more expensive than what we would have paid through our cruise ship, but they were far more enjoyable, and the tour operator got 100% of the revenue. In such a manner did we Virginians deploy our vacation dollars to combat the cartel-like exploitation of poor, developing Caribbean nations by the cartel of European-owned cruise lines! (Nice twist, huh? Jim Bacon – capitalist social justice warrior!)

Herewith is a small  portion of what we learned.

The Hogensborg estate on St. Croix, circa 1833

The harshest slave owners. We started our tour in Puerto Rico, which I have already blogged about, and then stopped in St. Croix. One of the three main islands of the American Virgin Islands, St. Croix was settled originally by the Danes. The U.S. purchased the islands from Denmark during World War I for military purposes, and the islands remain a U.S. possession to this day.

The Danes used slave labor to work their sugar plantations, and were reputed to be among the harshest of slave owners. Although Denmark can boast that their nation freed its slaves in 1848, years before the Americans did, the Scandinavians did not exactly cover themselves with glory. Governor Peter von Scholten issued a proclamation freeing slaves on the three islands, but in so doing he defied the wishes of the Danish king. Furthermore, the act was hardly magnanimous. Slaves in St. Croix were in open revolt at the time. When excitement over the end of slavery settled down, the plantation owners struck back, enacting strict labor laws to maintain control over their workforce. But the now-free slaves would have none of it, and erupted in labor riots. Eventually, the Danes abandoned their plantations, and the colony’s economy went into decline. The U.S. bought the islands in 1917 for $25 million.

Lennox Honeychurch tells of the Virginia delegation that presented the Godspeed plaque.

First stop for the Godspeed. We found little of interest from an American history perspective on St. Maartin, a prosperous Dutch island (shared with the French). But in Dominica we had the good fortune to engage Lennox Honychurch, arguably the most knowledgeable tour guide in the Caribbean. Honychurch authored the only comprehensive history of Dominica, served in the island nation’s legislature, and worked as press secretary for Prime Minister Eugenia Charles, an ally of the U.S. during the 1983 invasion of Grenada. Among his many accomplishments, he spearheaded the decades-long restoration of Fort Cabrits, an 18th century-era fortification protecting the island city of Portsmouth.

Inside the main building there resides a plaque presented by the Commonwealth of Virginia as part of a 1985 reenactment of the voyage of the Godspeed from England to Jamestown. Following currents and trade winds, the English settlers bound for Virginia sailed south to the Canary Islands off the coast of Africa, then crossed the Atlantic with favorable winds in the tropical latitudes. Their first landfall in the New World was Dominica where, according to Captain John Smith’s account, “we traded with the Savages.” Only then did they follow the Gulf Stream north to Virginia.

George Washington’s home during his two-month stay in Barbados.

George Washington slept here, or how Barbados saved the American Revolution. In Barbados, the locals have preserved a handsome colonial-era house where George Washington lived for about two months with his older half-brother Lawrence, who had traveled to the tropics in the hope of recuperating from tuberculosis. In the mid-1700s, Barbados was the jewel of the English empire; its sugar plantations were the greatest wealth generators of the era. The plantation aristocracy there was far more cosmopolitan than the provincial tobacco farmers of Virginia. In the Barbadian interpretation of history, the impressionable, 19-year-old Washington widened his horizons in the company of his worldly hosts.

Among his less enjoyable experiences on the island, Washington contracted small pox. But the Barbadians spin this incident, only partially in jest, as a history-changing event. When small pox ravaged the colonial army during the American Revolution, Washington was immune to its ravages. Had he not been exposed to the disease in Barbados, he surely would have died or been incapacitated at the most inopportune time possible!

Memorial commemorating America’s dead during the invasion of Grenada.

Keeping the world safe for democracy. In 1983, the island of Grenada fell under the rule despotic rule of a Marxist-Leninist regime aligned with Cuba and the Soviet Union. When one faction liquidated the leadership of another faction, bringing about a violent change of power, the leaders of Barbados and Dominica appealed to the Reagan administration to intervene. The cold war was raging at full force at the time. Leftist Sandinistas had seized control of Nicaragua, and 36,000 Cuban troops were supporting a communist regime in Angola against a guerilla insurgency. The Cubans were building an airfield that would forge a transportation link to Africa, the Soviets were flooding the island with armaments, and the Grenadian regime was building the most militarized society (other than Cuba) in the Caribbean. President Reagan saw an opportunity to halt the expansion of communism in the Caribbean Basin, and he acted decisively. (Protecting the students at the St. George’s University medical school was a pretext for the invasion, not the real reason.)

The resulting conflict was a fiasco, plagued by abominable military intelligence, inadequate time for planning, and poor communications between army, navy and special forces. The Grenadians and Cuban airport construction workers put up tougher-than-expected resistance, and some two dozen Americans died during the conflict.

The Low-Adrenaline Adventurers visited the memorial to fallen American soldiers located at the airport, where the heaviest fighting occurred, and paid our respects. The U.S. soldiers’ sacrifice was not in vain. Grenada represented the high-water mark of communist influence in the western hemisphere, and Reagan demonstrated that the U.S. was serious about confronting the expansion of Soviet power across the world. The rest is history.

Mofongo!

The Bacon family is on the road again. Well, on the “road” is perhaps not an accurate description. We’ve made our way to San Juan, Puerto Rico. As always, I try to partake of the local cuisine (unless it’s something disgusting like sheep eyeballs or monkey brains). In Puerto Rico, that means eating mofongo.

The base ingredient of mofongo is plantain. The Puerto Ricans shred the banana-like plant, add garlic and other spices I couldn’t identify, sprinkle with carrots and meat, and drown in a delicious sauce. I’m not a huge plantain fan, but I found the mofongo I ate at an unremarkable neighborhood restaurant to be pretty tasty. If you’re looking for a different taste sensation, it’s worth sampling.

Chesterfield Finds $83 Million Unfunded Liabilities

Somehow Chesterfield County schools missed $83 million in unfunded liabilities until late last year.

Somehow Chesterfield County schools missed $83 million in unfunded liabilities until late last year.

Our society is riddled with unfunded liabilities. Nowhere is the magnitude of short-term thinking more egregious than the federal government. As case in point, the U.S. military has put off maintenance and repairs to the point where we don’t have the money for the military we have, much less the military we would like to have.

“The Department of Defense “has breathtaking liabilities — as much as $88 billion a year — that ought to be addressed before procuring a single additional plane, ship, or tank,” says Tom Spehr, as quoted by Robin Beres in her Richmond Times-Dispatch op-ed today.

But Virginians can’t get sanctimonious. Not only do we have the example of Petersburg to to keep us humble, we now hear of scandalous inattention to hidden liabilities afflicts one of Virginia’s most populous jurisdictions — and one with the reputation, no less, of being exceptionally well run.

In Chesterfield County, school officials are grappling with massive unfunded liabilities for a supplementary teacher retirement benefit. Under the program, teachers can retire then get re-hired under the program working part-time, temporary jobs similar to their pre-retirement work. As incentive, they get a lucrative supplement to their normal Virginia Retirement System benefits.

In 2014, reports the Times-Dispatch, unfunded liabilities were found to be $58.7 million. Now they are $83 million.

Here’s the amazing part. The T-D quotes Donald Wilms, president of the Chesterfield Education Association, as being shocked when he learned of the program’s underfunding for the past five years. “Teachers were continually told that the program isn’t going away. So I think it was natural to assume that the program was healthy,” he said. “Nobody told you it was in danger.”

Nobody, that is, except for MGT America, which provided an efficiency review of Chesterfield schools in 2010 (!!!) and noted that the  supplemental retirement plan faced a large unfunded liability in the next few years as Baby Boomer teachers began retiring. “The increased number of participants will dramatically increase the cost of this program,” warned the report.

Somebody wasn’t paying attention.

Forget the federal government. Let Donald Trump and Congress worry about that. Here in the provinces, we need to worry about how we handle our own business. Do other school systems have supplemental retirement programs like Chesterfield’s? How many other unfunded liabilities, the existence of which lurk deep within Comprehensive Annual Financial Statements, are ticking time bombs? Is anyone paying attention?

Economic Development “Reset” Needed in Virginia

John O. "Dubby" Wynne wants to overhaul Virginia's outmoded approach to economic development.

John O. “Dubby” Wynne wants to overhaul Virginia’s outmoded approach to economic development. Photo credit: Pilotonline

It’s time for a “fundamental reset” for the way Virginia’s colleges and universities think about economic development, John O. “Dubby” Wynne told the State Council of Higher Education for Virginia (SCHEV) board yesterday. Wynne, former CEO of Norfolk-based Landmark Communications, is a driving force behind the Virginia Go initiative.

“For the first time in decades, Virginia’s economy is not doing very well,” said Wynne. The problem runs deeper than federal budget sequestration’s hit to military spending or managerial issues at the Virginia Economic Development Partnership. Virginia needs to address major structural problems, he said.

One of those problems is the mismatch between jobs and skills in the state. Wynne quoted a figure widely used by Governor Terry McAuliffe, that 150,000 jobs in the IT sector alone are going unfilled; tens of thousands of those are in the cyber-security field. With skills shortages of that magnitude, it won’t be easy recruiting outside corporate investment, Virginia’s traditional economic development strength.

“If outside people see that you can’t take care of your existing businesses,” said Wynne, “the chances of them coming here are small.”

Since retiring from Landmark, Wynne has immersed himself in state and regional economic-development efforts. He serves as vice chairman on the state-appointed Council on Virginia’s Future and is a member of the Virginia Business Higher Education Council. He worked with Dominion CEO Tom Farrell to create the Go Virginia initiative, which has received state dollars this year to spur regional and public-private collaboration to spark economic growth.

Virginia needs to produce people who can participate in the knowledge economy, and the state’s higher ed system is critical to making that happen, Wynne said. It’s an open question, though, how well the state’s colleges and universities can make economic development part of their mission. There are so many stakeholders with a voice, he said, that “it’s very hard to get movement with any kind of market speed.” Higher ed needs “to get a serious discussion going to say that it’s OK to be involved in economic development.”

Aside from workforce development, Wynne cited two strategies for Virginia higher ed to pursue. One is to do a better job of getting intellectual property out of the labs and into the market. Other states have found ways to do this; so should Virginia. He would like to see more incubators and accelerators in university communities.

The other strategy is to identify industry clusters where Virginia has particular strengths and to help create a workforce with the skills those clusters need. Collaboration is the key. As an example, he cited a 40-firm cyber-security cluster in Hampton Roads. Local educational institutions need to develop “a new model” — possibly including more “self-paced” courses — in which local industry is much more involved. Already, three cities in the region are collaborating with a regional community foundation to raise money to build the cluster. Said Wynne: “Companies will move to places helping them grow.”

“If you put all your money in the present and none in the future,” he concluded, “you won’t have a future.”

The Self-Employed as a Political Constituency

Will 3-D printers swell the ranks of self-employed manufacturers?

Will 3-D printers swell the ranks of self-employed manufacturers? Image credit: CNN

The maker movement is transforming the American economic landscape. The number of people who make a self-employed living making stuff is still small — almost imperceptible in a U.S. labor market of 160 million — but it is growing.

In 2014 more than 350,000 manufacturing establishments in the U.S. had no employee other than the owner, up almost 17% over ten years, according to Commerce Department data reported by the Wall Street Journal. By comparison, the 293,000 establishments with employees had experienced a 12% decline in number over the same period. Overall, there are roughly 12 million manufacturing jobs in the U.S.

The boom in self-employed manufacturing is most pronounced in the “food” category, but also notable in chemicals (including soaps and perfumes), transportation, leather, and beverages & tobacco.

I expect the movement to gain momentum as the revolt against mass, industrial-era standardization gives way to mass customization. Technologies such as Computer Aided Design and 3-D printers continue to gain in capability and come down in price, making them available to almost anyone. Many colleges have 3-D printers on campuses, and students are learning how to use them. Meanwhile, just as the Miller-Budweiser beer duopoly has given way to the craft beer revolution — the biggest advertising budgets in the country could not halt that consumer trend — we are seeing the revival of artisinal foods, beverages, and craft products.

The proliferation of self-employed, small-scale manufacturers is part of a larger trend toward the so-called “gig” economy. So far, the needs and aspirations of makers, hackers, craftsmen and free-lancers have gone mostly unrecognized by the political establishment. These self-employed workers are even more politically invisible than small business. They are unorganized politically. They don’t have trade associations, they don’t hire lobbyists, and they don’t donate money to politicians. Indeed, the only politician I can think of who takes them seriously is Sen. Mark Warner, D-Virginia. While the senator has performed a valuable service in highlighting the group and its unique needs, his interest in the topic does not appear to be widely shared, and he can cite few tangible accomplishments yet.

Making a living as a free-lance writer and blog publisher for the past 14 years, I feel a strong affinity for this group. In Virginia, there are hundreds of thousands of us. And as consumer tastes continue to shift from standardized products and services to personalized products and services — our numbers will grow.

We are the petite bourgeoisie. We are noted for our stubborn independence and our ornery attitude toward our “betters” who would tell us what to do. In my view (which, I concede, may not be universally shared), we don’t seek special treatment. We don’t want subsidies, tax breaks or special privileges. We just want a level playing field.

The most important legislative priority for self-employed workers is to gain more control over our health care insurance and retirement plans. Our health insurance should enjoy the same tax status as health plans provided by corporations and other major employers. Our pension vehicles should be portable as we move back and forth between conventional employment and self employment. Oh, and it wouldn’t hurt to keep a lid on taxes.

As I scan the political economy of Virginia, I don’t see anyone (other than Warner) representing the interests of the self-employed. Neither Democrats nor Republicans, beholden as they are to established corporate and bureaucratic interests, provide a natural home for us.

The Libertarian Party could become that home if it moved beyond articulating abstract principles to applying those principles to real-world problems. Indeed, if the Libertarian Party has a natural constituency, it would be the free-lancers and small businesses whose interests are routinely subordinated to those of better organized, more vocal groups who turn to the government for everything. As Libertarians run for office, they would do well to cultivate the large and growing ranks of the self-employed.

Food Pantries, the Latest College Craze

An increasing number of college food pantries in Virginia provide emergency rations to hungry students. Photo credit: VCU's Rampa

An increasing number of college food pantries in Virginia provide emergency rations to hungry students. Photo credit: VCU’s Rampantry

There’s a new wrinkle on the college affordability crisis. Some students are so strapped for cash that colleges are setting up food pantries. As CNN reports, membership in the College and University Food Bank Alliance has quadrupled in the past two years to 398 members.

“Even if you don’t hear about hunger being a problem, there’s probably a population on campus in need,” said Megan Breitenbach, a student who volunteers at the pantry at Montclair State in New Jersey.

Food Bank Alliance members include these Virginia institutions:

Virginia Commonwealth University. The mission of Ram Pantry is to “to provide VCU students with healthy, culturally appropriate, emergency food.” Due to limited resources, the website says, the pantry can no longer service VCU faculty and staff!

Virginia Tech. Tech won reknown for its No. 1 ranking in the “best food” category of “The Princeton Review’s” 2015 best colleges review. But in December 2015, according to the Roanoke Times, the food pantry was serving 50 to 75 students per week.

Old Dominion University. ODU launched Ignite Pantry in October.

Northern Virginia Community College and Eastern Shore Community College also operate food pantries.

Bacon’s bottom line: In their never-ending quest to recruit more elite student bodies, Virginia colleges and universities are placing more emphasis on the kind of food that kids from affluent families are accustomed to. Virginia Tech is a case in point. As I blogged last month when discussing the rising cost of food services at the University of Virginia:

Upgrading from the crappy cafeteria food I ate back in the 1970s to trendy, locally sourced food is expensive, and the lower-income and middle-class students whose families live on McDonalds or Olive Garden budgets are hard-pressed to pay for it.

Little did I realize that the situation was so bad that colleges and universities were setting up food pantries!

With every passing day, it seems increasingly evident that colleges and universities in Virginia (and across the nation) are engines of exploitation, running up the cost of attendance (tuition, fees, room, board), encouraging indebtedness, and sending their graduates into the workforce deeply in hoc — all to acquire the resources to boost institutional prestige in a never-ending race with other institutions doing the same thing. Starving students are the latest symptom of a system that is terribly broken.

Thoughts on Donald J Trump

HOLLYWOOD, CA - JANUARY 16: Donald Trump was honored with a star on the Hollywood Walk of Fame on January 16, 2007 in Hollywood, California. (Photo by Vince Bucci/Getty Images)

HOLLYWOOD, CA – JANUARY 16: Donald Trump was honored with a star on the Hollywood Walk of Fame on January 16, 2007 in Hollywood, California. (Photo by Vince Bucci/Getty Images)

From one Donald J to another.  Donald Trump will be the next president of the United States.  He won less by his own virtue than by the lack of virtue ascribed to the political elite by millions of voters.  For many Donald Trump represented a break from the kind of political orthodoxy exemplified by his Democratic opponent, Hillary Clinton.  This blog’s main author finds him “loathsome”.  The political establishment and its chattering class enablers hate Trump.  Trump has been pilloried on blogs from BearingDrift to Blue Virginia.  I am cautiously optimistic regarding “The Donald’s” election.  Anybody who can send the political establishment, on both sides of the aisle, into a mental tailspin deserves some respect.  Lord knows, that establishment needed a comeuppance. Is he crude and crass?  Yes.  So was Lyndon Johnson.  Does he have some deep seated personality flaws?  Yes.  So did John F Kennedy and Bill Clinton.  Will he be a good president?  Well now, that’s the question.

How to start fast.  If I were advising President-elect Trump I’d have one big thought on how he should get started as the leader of the free world … get the money out of American politics.  Trump’s appeal is that of a renegade.  He’s the antithesis of the Clintons, the Bushes and all the other latter day American monarchies.  Over his first two years in office he’ll have the rare opportunity to drive a stake through the heart of our crony capitalist political class.  Donald Trump  should aggressively campaign for a constitutional amendment to drastically limit the amount of money any person or group can spend in the furtherance of their political agenda.  From George Soros to the Koch Brothers – this has to end.

In his own words.  Donald Trump has been surprisingly candid regarding the influence money has on American politics.

  • In reference to Jeb Bush … “He [Bush] raises $100 million, so what does $100 million mean? $100 million means he’s doing favors for so many people, it means lobbyists, it means special interests, it means donors,” Trump said in New Hampshire last month. “Who knows it better than me? I give to everybody. They do whatever I want. It’s true.”
  • In reference to the Koch Brothers (via Twitter) … “I wish good luck to all of the Republican candidates that traveled to California to beg for money etc. from the Koch Brothers. Puppets?” Donald J. Trump (@realDonaldTrump)”

Dog catches car.  Donald Trump tried to become president in 2012.  His campaign went nowhere.  In 2016 a series of unlikely events has “The Donald” headed to the White House.  Will he view the presidency as the next installment of his reality TV career or will he capitalize on his outsider mystique to build a legacy?  President-elect Trump joins the vast majority of Americans in believing that money plays too big a factor in US politics.  The political elite (from both parties) hate the idea of seeing the money fountain dry up.  There is no practical remedy in legislation based on the Citizens United ruling.  A constitutional amendment is the only way forward.  This would be a rarefied long shot battle against powerful vested interests.  Who better than Trump?

— DJ Rippert

The 5,000-Year Sovereign Debt Bubble

maelstromby James A. Bacon

Every financial bubble has its own unique characteristics. The late-1980s Savings & Loan Bubble was restricted mainly to anachronistic savings & loans institutions. The Internet bubble was limited mainly to tech stocks. The real estate bubble was tied mainly to mortgage finance. The common thread is that in each case, the powers that be convinced themselves that “this time it’s different” — and ridiculed the warnings of the doom sayers. Now we find ourselves in the midst of the sovereign debt bubble, the largest financial bubble in human history, and the story is the same. The experts tell us that everything is just fine and lampoon the critics as cranks and gold bugs.

This bubble is not limited to the United States. Indeed, other economies such as Japan, China and the European Union have been pushing the experiment of covering massive debts with massive credit creation even more aggressively than our own Federal Reserve Bank. But when the bubble bursts and the dominoes start toppling, they’ll eventually reach the United States. In a global economy, everyone is connected to everyone else in ways that are not always visible to policy makers.

In a Wall Street Journal op-ed today, James Freeman notes that there is no evidence in 5,000 years of recorded history of negative interest rates. Such rates are an innovation of modern central banks, and they take the world into uncharted territory. Writes Freeman:

However it ends, the deflating of the sovereign debt bubble may have us longing for the carefree days of the 2008 mortgage crisis. Internationally traded bonds amount to nearly $60 trillion, according to the Institute of International Finance. That’s about six times the mortgage debt outstanding for American homeowners. But those sovereign bonds are a mere fraction of the liabilities carried by the world’s governments. If you count political promises to support retirees, patients and others, the obligations are hundreds of trillions of dollars higher. …

The sovereign debt boom certainly has its share of liar loans. European countries routinely violate pledges to limit larger budget deficits. As for documentation, has anyone found a thorough and comprehensible description of government accounting?

And then there’s China, arguably in a league all its own when it comes to financial opacity. I suspect China is one big Enron, kept afloat by unfounded confidence in its financial integrity. When that confidence starts eroding, watch out. The financial collapse will be spectacular, and China’s economy is big enough to send shock waves around the world.

It’s impossible to predict how the global debt bubble will play out. In the early stages, the U.S. actually might benefit as capital flees to safe havens. Insofar as the dollar is regarded as less un-safe than other currencies, U.S. Treasuries might stay strong. But the unwinding of the global sovereign debt bubble will be unpredictable, creating wreckage in ways that no one today can imagine. There will be secondary and tertiary effects as nation states pursue protectionist policies to blunt the damage.

Many readers are confident, no doubt, that the “experts” who didn’t foresee the real estate crisis know what they’re doing this time. And perhaps, after 5,000 years of recorded human history, we finally have perfected a fiscal-monetary perpetual motion machine that allows us to spend and borrow without negative consequence.

If you don’t believe that fairy tale, however, the only sane course for Virginians is to pursue is a contrarian policy of eschewing debt, building reserves and strengthening the balance sheets of governments and public institutions in preparation for the travails to come. That’s why I obsess over the Virginia Retirement System pension crisis, the Petersburg fiscal meltdown, the decaying finances of other small jurisdictions, the unsustainable increase in college costs and the exposure of higher-ed institutions to declining enrollments, land use policies that drive up the costs of utilities and public services, the overbuilding of transportation infrastructure that governments cannot afford to properly maintain, and the mal-investment of public dollars in futile economic development projects. We are part of the global problem. I don’t want Virginia to be part of the global calamity.