Pensions Timebomb In America – “Global Crisis” Cometh
Pensions Timebomb – Pensions “Are Going To Be A National Crisis”
- America’s underfunded pension system is “not a distant concern but a system already in crisis”…
- Tax may explode as governments seek to bail out insolvent pension plans
- Illinois, California, New Jersey, Connecticut, Massachusetts, Kentucky and eight other states vulnerable
- The simple mathematical mismatch at the heart of the pension crisis…
- Why the pension crisis really is “America’s silent crisis”…
- Pensions timebomb confronts Ireland, UK and most EU countries
By Brian Maher, Managing editor, The Daily Reckoning
“This is going to be a national crisis…”
“This” being America’s woefully underfunded pension liabilities, according to Karen Friedman. She’s the executive vice president of the Pension Rights Center.
(A place called the Pension Rights Center does in fact exist. We checked.)
MarketWatch columnist Jeff Reeves howls in confirmation that “collapsing pensions will fuel America’s next financial crisis.”
“This is not a distant concern,” warns he, “but a system already in crisis.”
According to data supplied by the Federal Reserve, pensions — public and private combined — were roughly 27% underfunded at the end of last year.
By some estimates, America’s public pensions alone are sunk in a $6 trillion abyss.
The issue, approached from any direction, is an impossible knot… a tar pit… a minotaur’s maze of blind alleys and dead ends.
How has the American pension come to such an estate?
Most public pension systems were built upon the sunny assumption that their investments will yield a handsome 7.5% annual return.
But consider…
The average public pension plan returned just 1.5% last year.
Last year marked the second consecutive year that plans undershot the 7.5% return rate, according to Governing magazine.
The same plans worked an average gain of 2–4% in 2015.
A highly technical term describes the foregoing if it goes on long enough… and we apologize if it sends you to the dictionary:
Insolvency.
Briefly turn your attention to the Golden State, for example. California.
State pensions are only in funds to meet 65% of their promised benefits.
And California pins its hopes on that golden annual 7.5% return to make the shortage good.
But it’s in a devil of a fine fix if the average public pension plan only returns 1.5%.
The math is the math.
California essentially depends on returns 400% above the norm, according to financial analyst Larry Edelson.
But California is by no means alone.
We won’t run the entire roll call of shame.
But the great state of Illinois, for one, risks sinking into a $130 billion “death spiral” from its unfunded pension liabilities, as Ted Dabrowski of the Illinois Policy Institute described it.
S&P Global Ratings has even threatened to downgrade the state’s credit score to “junk” status.
New Jersey, Connecticut, Massachusetts and Kentucky are also among the worst deadbeats.
But the problems run from ocean to ocean and south to north.
A report from Moody’s reads thus:
For many states and municipalities, exposure to unfunded pension liabilities is already at or near all-time highs. Since cost burdens are already expected to further increase, pension fund investment performance is critical for the credit quality of many governments.
Not even a “best case” cumulative 25% investment return on public pension plans would stanch the blood flow, according to Moody’s.
They say that best-case 25% would merely reduce pension liabilities a slender 1% through 2019 due to weak contributions and poor past investment returns.
“But I don’t have a pension,” comes your response. “This doesn’t concern me.”
Ah, but have another guess — at least if you swear off your taxes in these United States.
Is it your belief that governments will let their prized public pension plans flop?
There are votes to consider, after all.
Jilted pensioners are capable of generating a good deal of hullabaloo, hullabaloo to which the official ear is exquisitely attuned.
Besides, do you think kind Uncle Samuel will turn the politically strategic states of California and Illinois out on their ears?
As our resident income specialist Zach Scheidt argues:
Your tax bill could explode as governments around the country seek to bail out insolvent pension plans. And you know how much politicians like to use your tax money to bail out some constituent. They like to prove their “compassion” with your money!
“Expect to pay higher state and local taxes for fewer services in the years to come,” adds Larry Edelson, before mentioned.
Read more at Zero Hedge: http://www.zerohedge.com/news/2017-06-30/pensions-timebomb-america-%E2%80%93-global-crisis%E2%80%9D-cometh
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Bad and corrupt management mostly is the real answer as to why pensions are in huge trouble.
Starting with California
“CalPERS’s three-decade-long transformation from a prudently managed steward of workers’ pensions into a highly politicized advocate for special interests.”
“CalPERS has become an outright lobbyist for higher member benefits, including a huge pension increase that is now consuming California state and local budgets.”
“CalPERS has also steered billions of dollars into politically connected firms. And it has ventured into “socially responsible” investment strategies, making bad bets that have lost hundreds of millions of dollars.”
“Etc” https://www.city-journal.org/html/pension-fund-ate-california-13528.html (2013 information)
Social Security funds (Remember it was a contract between those who serve within our government and the people as a “trust fund” held for the people that paid into it). So what happened? Congress critters cannot stand to see money not being used by them for some political purpose. Back in the 60’s & 70’s they “dipped” into it to pay for alcoholics that could no longer work, for people who were to fat to work (yes, literally), for drug addicts, etc. They added some veterans stuff, but few I know that are aware of it is bothered by that part, but the rest…. Throughout the decades they added “immigrants” that never paid in a dime. Then they added illegals, etc as the latest, all who has never paid in a dime.
Ex Prez George Bush ‘borrowed’ $1.37 trillion of Social Security surplus revenue to pay for his tax cuts for the rich and his war in Iraq, money that he never paid back.
Paul Craig Roberts, who was the assistant Treasury secretary under Reagan, he warned the people that the bonds are harbingers of more tax hikes and more public borrowing to come from SS.
Remember, those that serve within our government changed the contract with no input from the people, what they did was make a law that Social Security “surplus” was to be converted into bonds, and the cash from those bonds then was/still is used by the Treasury to pay for government expenses. That was NOT the deal with the people, not the contract they made.
What has happened to the people’s money? Misappropriation of funds which makes every single person still living personally responsible for those funds – meaning that those who serve within the legislative branches who created this mess, who did NOT stop this mess per the contract with the people, etc can lose everything they have to pay that money back – and should. The people were not asked when they made those decisions, which makes it a form of theft (misappropriation of funds) so those in charge of protecting and caring for the people’s money instead spent it where ever they decided to with NO input from the people whose money they were “borrowing”. I cannot cite a lot of stuff at this time, because most is on an older computer (still have, but stored).
“SEC. 3. (a) From the sums appropriated therefor, the Secretary quarterly to be paid of the Treasury shall pay to each State which has an approved plan for old-age assistance, for each quarter, beginning with the quarter commencing July 1, 1935, (1) an amount, which shall be used exclusively as old-age assistance,” http://legisworks.org/sal/49/stats/STATUTE-49-Pg620.pdf
…
“SECTION 201 . (a) There is hereby created an account in the Treasury of the United States to be known as the “Old-Age Reserve Account” hereinafter in this title called the “Account”. There is hereby authorized to be appropriated to the Account for each fiscal Determination of year, beginning with the fiscal year ending June 30, 1937, an amount amount as an annual premium to provide for the payments required under this title, such amount to be determined on a reserve basis in accordance with accepted actuarial principles, and based upon such tables of mortality as the Secretary of the Treasury shall from time to time adopt, and upon an interest rate of 3 per centum per annum of
compounded annually. ”
“(b) It shall be the duty of the Secretary of the Treasury to invest amounts credited to Account as is not, in his judgment, required to meet current withdrawals. Such investment may be made only in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States.”
Basically retirement pensions, Social Security, etc would NOT be in the shape that they are found in today if those charged with its management had actually ran it as per the contracts with the people. That did NOT happen at the state level, nor the federal level. Which IS the legislative branches problem because they allowed agencies to misuse money held in trust (much like the land was held in trust for the people/states and now the feds claim it). Basically I do not have the answer to the total problem, but for a start charges of Misappropriation of funds would be a nice start; then the confiscation of those who serve within the agencies, the Congress to repay that which they had no LAWFUL authority to misuse. They no longer need to be serving, though those who serve and did not correct the problem, or try to, are also responsible for the unlawful actions of their predecessors when they did NOT remedy their unlawful actions against the people. That is true of all who serve within our governments.
Example, the Federal Reserve is forbidden in writing, (not named, just the actions it has taken) and every single congress critter is PERSONALLY responsible for not changing that as is required by the US Constitution. When they did nothing, they aided and abetted.
Example, Unlawful wars – it is in writing that ONLY those who serve within the Congress can declare war and send out the American people to fight other nations,etc. It is also in writing that wars these actions can be funded for two (2) years. Again, those who serve within the legislative branch are PERSONALLY responsible for the trillions we spend militarily. But, I believe, though may be wrong in this case, that those in the US Military highest ranks, within the Pentagon, within the DoD are all also personally responsible – they LIED, etc to keep us in wars that caused deaths of Americans and of the people of foreign nations. Someone with way more knowledge of this such as Dr. Vieira might have better ideas in the lawfulness of this.
Article 1, Section 8, Clause 12: “To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years”.
How many decades now have we been in unlawful wars that are forbidden constitutionally?