From Birch Gold Group
Of all the troubling economic issues in the United States today, the current crisis erupting from mismanaged public pension programs stands out as a uniquely menacing threat to Americans’ financial security. Five major cities have filed bankruptcy over pension woes since 2008, and dozens more are teetering on the brink.
Faced with massive budget shortfalls, a rapidly increasing number of beneficiaries, and stagnant rates of return, federal and state pension funds around the country are near their tipping point.
Ex-Federal Reserve advisor Danielle DiMartino Booth warns:
…the idea that we can escape what’s to come, given demographically what we’re staring at is naive at best. And it’s reckless at worst. And when you throw private equity and all of the dry powder that they have — that they’re sitting on — still waiting to deploy on pensions’ behalf, at really egregious valuations, yeah, it’s hard to sleep at night.
But when it all comes crashing down, pension holders won’t be the only ones who suffer.
Trouble in Dallas Proves the Problem with Pensions
The most recent example of our nationwide pension crisis comes from Dallas, Texas. After years of negligent decisions and questionable accounting, the Dallas Police and Fire Pension Fund is poised to bankrupt the city. To make matters worse, retirees are frantically cashing out, so much so that the mayor just filed a lawsuit to stop them.
Unfortunately, the Dallas pension debacle is far from an isolated incident.
Mary Walsh of the New York Times writes:
What is happening in Dallas is an extreme example of what’s happening in many other places around the country. Elected officials promised workers solid pensions years ago, on the basis of wishful thinking rather than realistic expectations.
But there are several problems keeping those promises from being fulfilled, none of which can be easily fixed.
Stunted Returns & Bad Investments
In 2008, the U.S. economy entered its worst downturn since the Great Depression, pushing already-struggling pension programs into even more dangerous territory.
Pension funds need to invest their money and earn a healthy return in order to keep functioning, but that became nearly impossible in the post-2008 aftermath. So pension managers were forced into a lose-lose scenario: either start pursuing riskier and riskier investments to get the return needed to stay afloat, or die slowly while trying to make do with the paltry return on safe, conventional investments.
As we’re seeing today, both paths lead to an equally catastrophic destination.
Cooking the Books
When pensions make promises, they have to back them up with some kind of quantifiable proof showing they can actually deliver. But when you dig deeper into the books of pension programs around the country, you’ll see they’ve assumed a liberal interpretation of what “proof” really means.
There are two vastly different ways to account the financials of a pension fund: the actuarial approach and the market-based approach. The former method tends to gaze through rose-colored glasses for the sake of keeping budgets stable and predictable. In contrast, the latter focuses on tried-and-true fundamentals like assets and liabilities — no matter how ugly of a picture they paint.
Unsurprisingly, pensions have overwhelmingly favored the actuarial method, and they’ve made enormous exaggerations regarding their funds’ values as a result. Now, it’s time to own up to the truth.
Pension Holder or Not, No One Is Completely Safe
People relying on a pension for financial security aren’t the only ones who should be concerned about this. If this pension crisis does hit, the ripple effect could impact everyone in the U.S. economy. Here’s why…
As pensions cut their benefits or dissolve entirely, millions of retirees will be forced to live on far less income than they expected, meaning they’ll spend less too. Vast sums of money will disappear from the financial system, and the likelihood of another recession will drastically increase.
Consider the other current risks at play in the economy, and you’ll see how a pension crisis could quickly trigger a snowball effect that ends up risking every retirement and savings account in the country.
The only way to prepare for such a scenario is to hedge your savings with a real asset that has real, intrinsic value and maintains value in times of economic distress.
If you haven’t already protected your savings with hard assets, the time to do so is now. Gold offers protection to those who buy before crisis strikes. And with the pension landscape looking the way it does now, it might be wise to err on the side of caution and act sooner rather than later.
I didn’t make any promises to anyone.I owe no one a pension.You have people retiring at 45 with the hope of sitting on their butts for the next 30 years .Fuck that.
Hey BB! “I owe no one a pension.”
Exactly! The doctrine of odious debt applies. https://en.wikipedia.org/wiki/Odious_debt
Our governments (at various levels) have all been hijacked by criminal syndicates, running the budgets for their own benefit, not for the benefit of We The People. We do not owe the debts the criminals have incurred. I feel (just a little) sorry for the small time governmental employees who willing joined the gangs because they were promised a big payoff after they retired. Hey, it sucks to have your hopes dashed! But, oh well, when you lie down with dogs you get up with fleas. Not my debt, not my problem. The only problem is that the gang still has lots of guns and I know that they are going to try a shakedown on me. That is a problem… but the debt? NOT my problem.
There’s no legitimate way to pay off all the public pensions, not with money equal to what it is now, and the private pensions are mostly in the same condition.
Several things I expect to happen as they start crashing, the movement of all pensions, first public then private, into a general pension fund under the Federal government, a sort of super SS type of thing. Limits on what can be taken out, an end to withdrawals other than monthly pension payments, and an end to transfer of anything in them to heirs heirs when the pensioner dies.
This could keep them going for quite a while as the majority of of near term pensioners die off and some new system replaces the current one for younger and not yet retired workers.
But maybe I’m totally wrong, I tend to think in real money terms and not financial manipulation terms.
There’s probably other ways of manipulating the system to keep the funds afloat for at least another decade or so.
You know, if hilory would have won she would have pushed, and then changed the law or signed a executive order allowing states to claim bankruptcy.
This shit show of democrat states crying for a pension bailout will be fun to watch.
BUT A PROMISE WAS MADE!
I echo bb, fuck that.
Public pensions are a perfect illustration of two things: kicking the can down the road, way down the road, and buying peoples votes.
The kicking the can part occurred because politicians promised big pensions to government workers while paying them somewhat less than the private sector. Interesting to note is that now because of strong public employee unions, government workers are often paid more than the private sector, plus they receive much larger pensions. But it wasn’t always that way.
The buying votes comes from politicians giving big pensions to government workers to gain their votes. That is why public employee unions so heavily favor current politicians who want to protect government pensions.
In the end the whole house of cards will tumble down. But first government services will be cut severely as more and more tax money must go toward pensions. Then governments, one by one, then many by many, will start to go bankrupt because of their pension obligations. The best part of the bankruptcy scenario is that government workers who refused to negotiate changes to the pension plans because they love their upcoming retirement free lunch will be forced to accept $0.10 on the dollar for their pension benefits. Karma is a bitch!
I’m fascinated that so many PSEs really believed such astronomical pensions and bennies would be waiting for them at retirement. Given the last 8 years of stealth depression in the US it takes a willful suspension of belief.
Imagine the alternative reality where a city had trustworthy politicians who funded their pension liabilities as promised. Unions would have understood the value of that trust and didn’t ask for outrageous new contracts, allowing the politicians to continue to fully fund. Workers retired in confidence that their pensions would provide for a comfortable, if not wealthy, retirement.
The system was so well run that companies invested in the city, provided philanthropic funds that trained workers in a decent educational system (also because politicians required it to be high quality) and did well financially because they had a solid workforce and a business environment that favored investment.
Ah, daydreams.
Pension underfunding is for all practical purposes equal to politicians taking an involuntary loan from future pensioners in order to continue to spend without having to tax.
It’s a bait and switch, a con game. Yes, a common one.
You can debate the merits of gold-plated pensions for gov’t workers, but if you think it’s some undeserving clown who double-dipped and mutually backscratched other con artists that you’re laughing about, reconsider.
Some people worked decades, aren’t even ELIGIBLE for social security (assuming it exists), were LEGALLY PROHIBITED from putting money in IRA’s, and they are likely to get totally stiffed after having contributed MORE as a percent of their income than do employees paying FICA taxes.
My wife’s among them. IF we get robbed of what she put in, I sure as FUCK hope you all do too.
And…. Barnum, what prevented you from just living below your means and saving your own nest egg? The problem is that you are blaming the wrong people. You would not need a rate of return to hedge inflation, if the fed was not debasing your savings (read stealing your buying power) so the federal government can continue running trillion dollar deficits for programs that we can’t afford. If you are a government worker, you have essentially been paid in money that was stolen from a productive person through deficit spending and the threat of force by gun point. Sorry, but that is the truth. Please look within yourself, and see where the real problem is. If your job is one that does not produce something of value, that would be worth something in a private competitive marketplace, then you have been paid in other peoples money. The problem with all the pensioners is that they see a number on a piece of paper, and think that they are entitled to it. News flash – your NOT. None of the pensioners are. If you, and the other folks with pensions would have been more vigilant and paid attention to the warnings years ago, you would not be in this situation. Now, you all are screwed because you want “yours” and believed lies told by hustlers and charlatans that you elected.
The problem with public sector pensions is not created by the average white or blue collar employee who has dutifully contributed 8 or 10% of their pay to the pension plan. It is the fact that after 30 or 35 years of service they can retire and IMMEDIATELY begin receiving benefits. That no longer works actuarially. Change the PS plans to a max benefit of $60K per annum and a benefit age of 66 and all of this “underfunding” will quickly disappear (while simultaneously eliminating the double and triple dipping scumbags and the $100k plus fire and LEO retiring at age 52 etc).
“My wife’s among them. IF we get robbed of what she put in, I sure as FUCK hope you all do too.”
Well that’s some sound thinking. Perhaps that kind of thinking got you (or your wife) into that mess in the first place. Sounds like you were on the “It’s too good to be true plan”. I’ll bet you bought the “8% annual return” on your pension hook, line and sinker and never once bothered to look into it yourself didn’t you? No, you were probably busy planning all the luxurious travel you were going to do in retirement never once thinking about the poor saps (like me) who would be working extra hard to pay for those plans huh?
Here’s a little tune you should have been exposed to decades ago:
https://www.youtube.com/watch?v=Ip-vRmUxfBA
Good – Shut it down, shut it all down. These same pensioners have been buying up assets and pricing everyone else out of the marketplace. If the pensioners are angry, send them to the heros at the Eccles building in Washington DC that thought it would be a good idea to bail out bankers instead of really fixing the economy and letting interest rates rise to clean out the risky garbage. Also, blame the boomers, who mortgaged the entire future of this nation so they could continue making “theirs”. I wish everyday that all of these obligations made through force on the future generations of this country all go poof all at once. Then, maybe prudent savers will once again have a shot at participating in the economy and not have to watch as the stupid and imprudent continue to kick the can. All of these wizards of finance that have attempted to make gold from lead have just managed to push off the inevitable reckoning. Problem is, now it will be far bigger and more destructive than it would have been just deal with the problems in the first place. Stupid is as stupid does.
But, with the “bail-in” laws that make YOUR deposits the BANK’s assets, saving makes no sense. With ZIRP for a decade (more or less), NO pension plan can stay solvent. With people living longer and requiring income longer, few people die before collecting, so few “leftover” assets remain in the plan – a KEY feature of sound actuarial statistics.
Growing up, I was told to make a “three-legged stool” to retire on – SS, private pension(s) and (private) savings. Nowadays, anyone who can do math knows SS is broke due to politicians spending the premiums, private pensions were raided of any “excess” contributions so Wall St. MBAs could collect funds to finance hostile takeovers, and my savings are now the Bank’s assets, to cover any bad bets they made (and those bad bets are LEGION). So what am I supposed to retire on, again?