It doesn’t take a rocket scientist to warn about the US’s debt woes. For example this finance blog warned about it April of 2010. And Bill Gross and PIMCO quit holding US Government bonds recently. Now S&P joins the bandwagon with a warning that US Treasury debt’s AAA rating is at risk. This in effect would mean lowering the government’s credit score.
Predicting particularly congressional outcomes is not my strong suit. But I have been predicting growing US debt online since 1998. Then the debt was a mere $5.3 trillion. And I’ve been right that not only nominal debt, but debt as a percentage of GDP would rise.
To so many investors like myself the unsustainability of our current fiscal course is blatantly obvious. During the day I work for a successful tech company, and I get a significant portion of my pay that varies based on the companies performance. If profits increase my coworkers and I get more cash; if the profits dwindle so does my pay. If the company stock rises, so does my compensation. And if it falls, my compensation falls with it. It is a smart system, commonly called profit sharing.
Might I suggest a similar compensation plan for federal government workers. I’d call it deficit sharing. (I’d prefer to call it surplus sharing, but get real.) Beyond a certain point (say the average US annual wage) base pay is fixed and all future raises are in terms of variable pay increases. And variable pay is awarded at the end of each fiscal year. The proportion of the federal deficit to federal spending prorates this variable pay. If someday there is a balanced budget there is a 1.0X multiplier to variable pay. If there is a deficit then variable pay is reduced. Should there be a surplus a multiplier of greater than 1 would apply. Share and share alike. The private sector employees do… and right now we are sharing the sacrifices. So should Federal employees.
What to do you think America?