A Melman Minute By: Leonard Melman   NOTE: In order to complete Mr. Melman's forthcoming book on the essential fundamentals of the developing international financial crisis and its relationship to gold and silver, new "Melman Minutes" will be posted only three times per week, each Monday, Wednesday and Friday. Since the work has been expanded to include potential solutions to the growing list of seemingly insoluble dilemmas, the working title of the book has been revised to 'REVERSING THE WAY IN!"   March 31, 2010 A crescendo of rising voices is beginning to make itself heard in various parts of the world and, in our opinion; it is a most unwelcome one for those who advocate handing over greater power to governments which labor under the control of civil servants.  The voices are beginning to ask, "What the hell is going on?" For many years, employment in civil service positions carried an assumed trade-off.  In return for job stability; better health, vacation and retirement provisions; and working conditions that were usually comfortable and devoid of hard physical labor, a government employee normally assumed his/her wages would be slightly lower than the private sector.  Thus, a balance was achieved where taxpayers were able to support a reasonable number of government workers. But all of that has changed dramatically, and the fallout is now being recognized around the world.  And, it is becoming clear the private sector of the world does not like what they are now learning. Simply put, an overly generous distribution of government funds to union-controlled civil service workers has put two enormous pressures on society.  First, there is growing resentment over an array of outsized salaries and special benefits that now accrue to civil servants as compared to the general run of private industry workers.  Second, there is growing awareness - and resentment - that the tremendous expenditures required to maintain these outsized salaries and benefits are now putting intolerable pressures on the financial structure of government bodies around the world. The figures speak for themselves.  According to US Bureau of Labor Statistics, the total compensation package for state and local government workers in America is $39.66 per hour, compared to $27.42 in the private sector.  Wages are $26.01 per hour compared to $19.39; paid leave is $3.27 compared to $1.85; Health Insurance is $4.34 compared to $1.99; Death Pension benefits are $2.85 compared to 41 cents and, in the other direction, in order to receive far fewer pension benefits, private workers contribute 53 cents per hour compared to 31 cents per hour by government workers. In every case, the greater benefits - by a wide margin - go to the government workers' side of the equation with the gap being particularly sharp in the matter of benefits where government workers receive a whopping seventy percent greater benefit package than private employees. Many economists point to the size of civil service packages as one of the prime reasons many American states are falling ever-deeper into deficit financing and enlarging already-crushing debt burdens.  In fact, a recent Cato Institutue study showed that, "Of the 40 states that have a budget deficit so far this year, 28 would have a balanced budget were it not for the windfall to government workers."    But all of that pales in comparison to the staggering retirement benefits which have been embodied in state and local union contracts.  In our opinion, some of these retirement benefits are so huge that they defy rational understanding.  For instance, we learn that, "...California has 3,000 retired teachers and school administrators, who stopped working at age 55, collecting at least $100,000 a year in pensions for the rest of their lives."  We also hear of gimmicks such as police and firefighters "retiring" from their jobs one day in order to get the pension moneys flowing and then returning to the same jobs the next day, then earning both retirements benefits and current salaries - all on the backs of the taxpayers.  The procedure is called "retire and rehire" and the oppression is compounded by the fact that they begin to earn a second retirement benefit for each day on their "new" job.  As we learn, "...some can earn nearly $200,000 a year in pensions and salaries." When the City of Vallejo, California declared bankruptcy in 2008, they cited the intolerable burdens of paying stupendous civil service salary and retirement benefits as one of the primary causes of the municipality's financial difficulties.  They quoted police captain salaries as high as $300,000 per year and firefighter salaries averaging $171,000 per year as no longer affordable.  They also cited retirement benefits, fully earned by age 50 for police and firefighters, which average ninety percent of their final year's salary, for the rest of their lives.  Despite filing bankruptcy, Vallejo has still been unable to legally stop paying these benefits and the city, now again running huge deficits, is turning to the state for help.  But California is almost bankrupt itself, so, ultimately, we suppose that Vallejo's burdens will be added - along with numerous other states and municipalities - to the federal government's spending and deficit projections, many of which we believe will ultimately be financed by outright monetization of debt, or "Quantitative Easing" as it is now known. The problem is hardly confined to America.  In Canada's Province of British Columbia, exorbitant civil service management salaries have been paid to government employees to run a railroad which was sold years ago and which does not have a single locomotive and owns only about 20 miles of track!  And then, when the public outcry became so severe that the management people were finally terminated, two of them received C$600,000 in severance pay! Many of the problems of Greece, Italy, Spain, the UK, Portugal and Ireland can be traced directly to financially ruinous packages which have been granted to civil service unions.  However, when governments begin to act responsibly by trying to reduce the flow of government funds into civil service wallets, the howls of anguish combined with demonstrations and threats of worse from those unions usually quickly force those governments into retreat. The power of the civil service unions is enormous.  First, virtually every government function is a monopoly with no competition permitted.  Second, the civil service unions hold a monopoly in the provision of workers to operate those functions - so the private world is faced with a monopoly inside a monopoly which has handed the union leadership powers to virtually strangle society at their whim - and they have used that power effectively - and ruthlessly - to get their way. But an end to the gravy train is in sight.  Governments simply can no longer provide the funds to continue these gravy trains and the general public is speaking with an ever-louder voice and declaring plainly, "enough is enough." The situation is compounded by the fact that for eighty years or more, society has allowed government to take over provision of one service after another and alternatives to many government functions simply no longer exist - and this has added additional force to demands of government unions. The potential for unrest, financial disorder and even growing levels of service breakdowns is rising.  Precious metals have historically functioned well during periods of such actual or even potential disorder.  We believe, therefore, that unless some miraculous solution to these seemingly intractable problems are found, insurance positions in gold, silver and platinum are fully justified - bearing in mind, of course, the disclaimers found elsewhere on this site. Markets this morning have been active in advance of Friday's closes for the Good Friday holiday.  As of 10:00 AM, precious metals are higher with gold now above $1,115, silver up strongly to $17.50 and platinum ahead by over $20 today to above $1,640 per ounce.  Base metals are trading quietly today after strong recent gains and mining share indexes are about one percent to the upside.  The US Dollar is down sharply in currency trading this morning. Crude oil is also higher, trading above $83 per barrel and threatening to break above the trading range which has contained its price for several months.  In the absence of active markets Friday, we plan to review several new reports on petroleum, as well as discuss President Obama's speech this morning on opening up new areas for oil offshore exploration. - - - - - All quotes US$ unless otherwise noted. Next "Melman Minute" scheduled for Friday, April 2, 2010.                            ◄  Previous Minute                                                                                                        Next Minute  ►
		DISCLAIMER The information presented above is based on data which we believe to be from reliable sources, but the accuracy of which cannot be guaranteed.  Any opinions or predictions contained herein are those of the editor and are likewise offered also for information purposes only. Any investment decisions should be made only following consultation with registered investment professionals.