but also economically efficient. Okay, if you federalize you have two choices. First, you could turn it into social security, which pays out a return related to CPI which should have some relationship to US government bond prices. This would significantly decrease the value of the retirement account. Second, you could increase spending to "make the pension whole", which would add to price presures (in the future), Since these pensions have been built using relatively high expected returns. I agree that states should not use the same structure, the question is which of the two solutions above do you choose. The choices that are made in the present should with a view to increasing availability of real resources in the future to avoid problems in the future. Funding is never a problem operationally for a government issuing a fiat currency, which can inject and withdraw funds at will in a targeted fashion. Availability of real resources is the contraint. China and the US "Domestic credit creation is funding foreign savings. Assume you live in the US and decide to buy a car made in the China. You go to a US bank, get accepted for a loan, and spend the dollars on the car. So where do things then stand? You exchanged the borrowed dollars for the car, the Chinese car company has a deposit at the bank, and the bank has a loan to you and a deposit belonging to the Chinese car company on their books." You need