If decreasing your long-term pension return assumption from 7.5% to 7.0% creates a financial crisis, imagine what happens when their actual returns are 1%.
Guest Post by Martin Armstrong
The roads in Illinois are in decay. This may be the first state to go bankrupt. The question is not if, but when. State unions are so greedy that they are destroying the very state. This is exactly how Rome fell — government employees against the people.
Seven states have constitutional provisions that state employee pensions must come BEFORE everything, including debt payments. Since the legislature in New Jersey was Democrat, they fought Governor Christie on pension reform. Their solution? On the ballot in November, there will be a provision to amend the state Constitution to put employee pensions before everything else. The people are generally kept ignorant of what that means to property taxes and the future of the state. Therefore, the average person will say, “Sure, I should get my pension, so they should also.”
Illinois should declare bankruptcy. It is simply inevitable. There is absolutely no hope for Illinois whatsoever. Every year they will have to pay more and more. If the state who manages the pension money loses, well, the taxpayers have to cover those losses as well. The governor tried to stop the downgrade of expectations for earnings in the pension fund from 7.5% to 7%, which means they have to raise taxes and/or cut service by almost a half-billion.
It’s time to just turnout the lights in Illinois. Welcome to the Sovereign Debt Crisis. This is the contagion you will finally start to hear about, but only after the elections. Why spoil the party?
Illinois has really gotten themselves into trouble.
How it goes is that the ‘defined benefit’ plans (another words pension plans that pay an outrageous percentage of the participants wage and health care for life) require a certain return on their investments to be solvent. Each time they reduce the yield, Illinois is required to give them more money – to balance the reduced yield. Their current model is based on a 7% yield – when it should really be 1%. What makes the debt staggering is the effect of compound interest. It could be 100’s of $billions of dollars.
They don’t have a pot to piss in right now. Several years ago they raised income taxes 50%. The judges won’t let them declare bankruptcy. They are fucked!
If you’re doing business with Illinois, don’t overpay on your taxes – it could take 2-3 years to get a refund.
I know when Communistfornia had financial problems several years ago, they asked a couple of my clients to ‘pay sales tax in advance’ – as an estimated payment – what BS.
Also, if you leave the state of California, be sure to move all your accounts out of the state. They have been seizing money, and claiming it’s for back taxes. Then you have to prove to them you no longer live in the state. Takes a year or two to get your money back.
You can expect a Federal bailout.
There and everywhere else similar situations exist.
I agree – a Federal bailout – we take it up the ass again.
Hillary voters don’t think is a problem. Just bail them out, what difference does it make?
Curri
No worries.
The Hildabeast will wave her hands and fix it.
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While driving on the interstate highway system to the wisconsin dells for holliday I made the mistake of driving near enough to chicago to be caught by highwaymen. These fuckers made me stop every 4 miles and hand it over. The same road I had been on for 140 miles was now a pay to drive on toll road.
What. The. Fuck.
Now for the sum of 1.75 I got to interact with a truly sad part of humanity. A faceless not really employable but I gots this job minority who communicated in grunts and by pointing. Giving anything other than exact change was met with growls and vacant stares.
Soon as the wisconsin border was crossed the madness ended. Like night and day. Or maybe more like black and white.
The 1st World is becoming 3rd World. I used to wonder how folks in Africa put up with all the corruption. After talking to many who attend University in town where I live I realized that is a main factor holding back development in that part of world. Used to think the problem was just over there but now it is quite apparent that it is and has always been here.
I know somebody who thought it would be a good idea to ride a motorcycle from Spain to West Africa. Nigeria I think. I thought he was crazy thinking this would endanger his life. But what ended up happening and what caused him to abandon his quest was the constant shakedowns for money by government trolls along the way. Bribes and fees for passage, trolls and tolls with no guarantee of safety.
It is the Brave New World and we get to pay for it a buck seventy five at a time.
I have to pray the rabble goes south when the lights go off in Chi.
There are miles and miles of same looking brown brick apartment
buildings filled with strange people. In another life I was in one of
those weird buildings/apartments. No furniture. Turned off refrig.
And the floors are covered with spent needles. Needless to say, my motor mouth was turned off. The lakefront is no longer safe for a
stroll. Look out for the random fist. Again, I pray the main go south, not north. Maybe this is why the Mr. got the boat. Chi. to
the south, and Arabia to the west. I hope the mini-caliphate does
not know how to swim. The teachers? And their lavish retirement
money? It will fall to the wayside. Bailout? No problem, a trillion
here, a trillion there, what difference does it make? Heck, the pentagon has lost track of 1/2 trillion a year. Probably used to support the Israeli art students. Ha ha ha ha ha ha ahha
There was a recent article in the WSJ where the Chicago and Illinois union pensions were receiving +$400 million from the bank fines (tribute). So much for indemnifying those that suffered loses during the sub-prime mortgage scam.
JIMSKI…you should have tossed them a banana ….even monkeys at the circus have to eat .
Borrowing.
Everywhere you look, everything was pawned, was it not?
IL’s crooked legislators (or do I repeat myself) didn’t make “required” payments to the pension funds. The pensions are, for all practical purposes, deferred compensation, AKA an IOU.
The politicians issued what amount to IOU’s to the IOU.
My wife is a teacher. Her job has become a nightmare (imagine 10 year olds willing to basically tell an adult to go to hell, then put 10 of them in a class of 27.) We wonder how we’ll live in coming decades. We look at what we’re “promised.”
I have a pension promised from Johnson & Johnson.
I have monthly payments promised from Social Security.
She has no Social Security, only the Teacher’s Retirement System pension (a small one, she took a long time off to raise our kids.)
I regard all three of these as probably uncollectable. But just because I forecast doom doesn’t mean we can count on doom. I’d have said we could NEVER make it to 2016 without the bursting of the Bubble yet here we are. I might be wrong on the timing of the Phase Change, the pensions might still be there, for long enough, when we’re old enough to begin to collect in a few years.
MIGHT be.
So we have to try to plan our lives around the possibility that we’re On Our Own. Which means my wife must still go to work, surrounded by chaos, her blood pressure quite literally 30-40 points higher (both systolic and diastolic) than three weeks ago, wondering if her job will kill her…or we both go get $9/hr jobs working part time (because this wonderful economy is quite bimodal: either you have a good job or a crappy one, with nothing in between.)
To those going to college: between us my wife and I have four college degrees. Fat lot of good it does you.
PS: We own a modest home in IL. I carry its value on my “books” at $0.00 because I figure that before the nadir of what’s coming, IL will attempt to tax their way to success…and all they’ll do is drive property values into the cellar. My modest home has property taxes higher than a Chicago homeowner with almost twice the property value. Chicago’s Democrat Machine has the best state legislature money can buy. Every twenty years my property taxes could buy my home again…at current market prices.
@D.C.
Yeah, I was a teacher too. Luckily, it only took me 2 years to figure out that babysitting a bunch of wild animals was no way to spend my one and only life. This was at the turn of the century and I can not even begin to imagine what it must be like 17 years later in the public schools.
I found myself faced with a choice: fight or flight. Since simple requests like books or a change in focus to reading were met by hostility from the administration, I decided that it was a fight I could not win.
Finally, I never met a dumber group of people than public school teachers. Most were about as useless as the TSA.
some of my wife’s colleagues are dumb as rocks.
Did you say your ‘Johnson’ has a pension? That’s pretty spectacular.
I don’t want to rip on you, or your wife, and I know we make some uninformed choices – especially when we are young….
But… I’m 67, attended ‘government schools’ – near the Philadelphia area – they were horrible – atrocious – boring – 50 some years ago. Did you wife not understand this?
It’s all lies again, I’m afraid. Worthless currency in a pension carries no higher value than worthless currency now – imagine that your pension benefits are denominated in Zimbabwe fiat (Zim dollars). The Crunch (here, Phase Change) will simply be the process of speeding up the conversion from US FRN to Zim dollars, in real time. All the other side effects (riots, starvation, Just-in-time deliveries –> never deliveries) will follow from this one: the people losing any faith in “the full faith and credit of the United States government” to make good on its promises.
Prepare, stockpile, gear up and bunker down; do whatever you can to be able to live in your house with no outside assistance for months if needed. The banks will be unable to evict you when the police are busy suppressing starving rioting looters, and we can all balance the books once the fires die down from running out of fuel. Best of luck to all TBP’ers, we’re all going to need it.
Watch how they deal with Puerto Rico, and you will have a pretty good idea how things will go in bankrupt states like Illinois, New Jersey, Rhode Island, Alabama, etc. Whatever “solution” or “bailout” or “workaround” is proposed will not, cannot last, but at least you will know that the last act is on, and the curtain is coming down soon.
Give it a couple years. Be ready to move and move fast, you will only get one chance. If you can get out now, why wait?? Not everyplace is going to fall as hard as some.
It will all stop when vendors can no longer deliver goods and services except COD. They are waiting a long time to be paid now. Sooner or later their suppliers will no longer extend credit.
I tried warning my sister-in-law about the shit storm headed our way back in 2009. She lives in IL and is an accountant of some kind. She just told me she was well versed in accounting and economics and that I was just paranoid and nothing like what I was talking about would ever happen because the govt wouldn’t allow it. I had a good laugh and left her to wallow in ignorance.
Anon above was I.
The shitstorm that the dems have been effectively delaying, most likely will hit after the election and woe to Trump if he wins. Obamacare is gonna collapse and Illinois is next. It’s not just the city a Chicago, Cook county and the state that’s in trouble. There are thousands of municipal taxing districts in the state that are totally bankrupt. Their % funded rates are mostly less than 50% and that’s at a loony yearly rate of return of 7 to 8 percent. At a realistic rate of 5%, the funded rates are most likely down around 25%, basically bankrupt. Washington can’t bail them out because there are hundreds of other states, cities, counties around this country that are almost as bad. Even a minor recession will turn catastrophic for Illinois. The paychecks and pension checks of nearly every policeman and fireman in the state could be in jeopardy. If Obamacare and Illinois collapse close together, you could see a collapse of all services in Illinois. This is not a loony suggestion. Look at the numbers. Go to pensiontsunami website and get real scared.
Rainman….