Guest Post by Simon Black
While the federal government is slowly careening toward permanent, fiscal disaster, many state governments (which don’t have the power of the printing press) are already staring into the abyss…
Take Illinois, for example. It’s the most broke state in the US with nearly $250 billion in debt. And it only brings in enough in taxes each year to cover 92% of its expenses… so the problem is getting worse.
Good thing Rahm “you never want a serious crisis to go to waste” Emmanuel is the current Mayor of Chicago. You may remember, the above quote was from Rahm’s days as Obama’s Chief of Staff, as told to the Wall Street Journal during the depths of the Great Financial Crisis…
What followed was the greatest monetary experiment known to man.
Now Rahm has another crisis on his hands – Chicago’s woefully underfunded pensions. And he’s reaching into his old bag of tricks.
Governments can only kick the can down the road for so long. Eventually, they’ve got to make some tough decisions – like who they’re going to default on. Despite the promises made by certain political representatives, it’s impossible for everyone to have everything…
And today, Rahm must choose…
Either Chicago defaults on the pension promises it’s made to city workers or it defaults on its massive debt. It’s simple arithmetic.
Rahm, it seems, has chosen the latter.
Chicago’s pension funds are only 26% funded (meaning it only has enough cash to pay out a pathetic 26% of what’s promised). And with the city’s dismal fiscal situation, that hole isn’t getting plugged on its own.
So Rahm proposed issuing $10 billion of debt to shore up the city’s pensions. The only government solution for debt problems today, it seems, is still more debt…
But even with that extra $10 billion, the city’s pensions will only be 50% funded.
Let me be clear… when you’ve got to take on debt for a chance of paying 50% of your pension obligations… you’re in default.
It gets better…
Rahm is pressuring the city to act quickly before interest rates increase more, which would make it more expensive for the city to finance its new debt.
So he’s essentially admitting the city couldn’t afford this new debt if rates increase 50 or 100 basis points. This is desperation.
OK… If interest states stay low, and Rahm can afford to issue these bonds, now we’ve only got to worry about future pension returns.
And Rahm says they can afford to issue the debt because the city’s pension funds have never seen an annualized return of lower than 8% for any 30-year period.
Most pension funds are grasping to that “magic” 8% number based on the past. But as we’ve written before, making those returns today is no easy feat. We’re at the tail end of 40 years of falling interest rates, which caused an insane bull market in stocks. It’s not likely the next 40 years will be as generous.
Already, at a market peak, pension funds are investing in riskier assets in hopes of achieving their break even returns.
If every single, little thing goes just perfect for the next 30 years, Chicago’s pensions may squeak by for awhile. What’s the likelihood of that happening? About zero.
Remember, a massive, 10-year bull market in stocks is nearing its end.
But desperate times call for desperate measures. And Rahm is out the door in May… so he won’t be around when the city has to default on its debt.
The federal government can still conjure money out of thin air. Cities and states don’t have that luxury. And like Chicago is doing today, we’ll see more of these tough decisions being made in the near future – the decision of who to default on.
There is one bright spot.
When discussing the bonds, Rahm did mention he supports legalizing marijuana and bringing casinos back to Chicago.
So if the pensions don’t work out, we’ve always got pot and gambling to restore our country to the glory days.
“Schiff-cago” – Barry/Jarrett/Rahm stompED-grounds of gang-bang-gunnings – about to self-annihilate? Bring it on, bring it on – hoo-rah!
Damn. Michigan, Indiana and Ohio are gonna need a wall now, too. From migrant Illini.
Relocation flat tax coming.
Leaving Chicago?
Illegal unless you pay 10k exit tax.
Arriving Detroit?
Banned, unless you fork over 5k.
Arriving Orlando.
You, and a million more white haired or balding Boomers.
10k. Pay up.
Gotta make up for that exemption from State income tax.
Leaving the U.S.? 50k.
And yes, Sam will tax your income wherever you go live, one way or another. Expats? Probably at a 40% clip.
Municipal & Federal thieves growing bolder.
Productive working stiffs still receiving income… getting bowled over, growing older.
Everybody wants more of your money and mine.
Back to it’s devaluation, again.
Slowly at first.
Drip by drip.
A bit more every year.
Wake up.
You’re broke.
Your State is broke..
Your country is broke.
The money is broke.
Ah, but not the Cabal.
Yellow Jackets, civil uprising, massive depression,
No more free stuff, anarchy. Easy pickings for China.
Free Shitters, professional nigger and spic victims, and criminal government drones are going to get what they deserve. They are going to get it good and I don’t give a damn.
Could you be a little more clear and avoid the subtleties?
Took the words right outa my mouth……
I read a similar article – but it explained it this way: Chicago will issue bonds – say at 5%. They will invest this money in the pension fund – that is supposed to earn 8%. Wa-la – they make 3% on the spread. This is criminal – a ponzi scheme of the century.
Nice comment.
It will work great! ……. Unless the stock market goes south and actually loses money which is entirely possible. The market could lose 10%, 20% 30% or more. Then a big part of the borrowed principle is gone and the taxpayers are still on the hook to pay it back.
And it is worse than that. With less than 30% of their pension liabilities funded and only 50% of the liabilities funded after the borrowing, Chicago is going to be spending the borrowed money to be paying these liabilities.
I wonder who or what is lining up to lead this Titanic as it goes under the waves? Probably the usual suspects….
I don’t have any problem with this at all. How do you deal with the pensions on a macro scale? You don’t. You let each individual entity carve their own path. That’s a deal between their taxpayers and their employees. Doesn’t affect me at all. I could care less. If you make each individual pension system deal with its own problems, they are sooner or later going to have to renegotiate everything. Here’s how much money we have, here is how we split it up. If the local taxpayers object, it’s up to them to do something about it. And all you have to do to put the whole thing in motion is keep raising interest rates.
Make pot and prostitution legal. It’s been going on illegally for so many years it’s stupid to let it continue untaxed.
the idea of legal pot actually producing money for the state government is still a PIPE DREAM.
https://www.newsstandhub.com/en-us/the-new-york-times/now-for-the-hard-part-getting-californians-to-buy-legal-weed
why would anyone who’s been conducting business “illegally” for so many years… actually want to pay the extra overhead which “legality” always adds?
Nazis scream Libertarians are globalists for supporting secession and Communists say Libertarians are racists, but Fascists and Commies are the ones who want a global government.
Hitler didn’t want the French flag to fly in France or Poles to speak Polish.
https://www.theguardian.com/world/2009/sep/08/life-in-occupied-france-nazi
Nazis hate free trade and immigration, but the US used to have open borders.
Closed borders hasn’t made North Korea rich.
https://openborders.info/blog/tag/ellis-island/
Default on both- someone has to be the first of many to come.
Strictly as a Chicago resident, I feel it’s my duty to defend my city. While nothing you’ve heard is incorrect, Chicago’s a great place to live… except if you’re poor, black, and uneducated. If you’re confined to an area no white person would be caught dead in, it ain’t so great. And no one I’ve talked to has an answer. I’ve been to a few of those areas in the last few months, passed through really, and it’s surely as depressing as the 30 blocks. However, for the rest of us, summer in Chicago, even spring and fall(what there is of it) is amazing. We even have people from all over the world come visit.
NYC Mayor DeBlowme will make Chicago look like a Conservative Paradise. DeBlowme just yesterday gave his State of NYC speech. Here are some highlights;
— a universal retirement program
— expansion of the NYC Ferry system
— a new “sheriff” office to hold landlords accountable, and seize by force property of “bad” landlords
— require every employer, regardless of size, to give employees 2 weeks paid vacation
— big expansion of the 3-K for All program, which offers free, full-day education to 3-year-olds
— increased protections for the lowest-paid New Yorkers, such as paid sick leave
— proposal to mandate paid personal time, up to 10 days, for employers with 5+ employees
Now, that’s on TOP of all the free shit he’s already given this year;
— like half-price subway tickets for the poor …. will cost the city $106 million per year
Just last week he announced Universal Health Care …. to cover the 600,000 people (majority are illegals) in NYC still without health care. DeBlowme said it will “only” cost the city $100 million. For you math challenged — that comes out to about $170 per person. And we all know that $170 is waaaaay more than enough to cover a person’s annual medical costs!!! (/end sarc)
NYC has more gov employees than all but 5 states. Let that sink in. And he keep giving them raises. The average salary of a gov goon is now just shy of $100,000 per year, NOT including benefits.
In his speech DeBlowme said that (paraphrased) “there is PLENTY of money around … it’s just in the wrong hands” There ya go … the Theory of Wealth Redistribution in just one brief fuktard comment.
When the SHTF, well, NYC is gonna go down HARD!! Think of bankers, stockbrokers, pols, etc jumping out of skyscrapers. Dear Good Lord Almighty, PLEASE let me live to see that day!!!
One of the best series on Starz was ‘Boss’ starring Kelsey Grammer as the mayor of Chicago. Gave you a real look at how and why things really get done, not just in Chicago but probably just about in everything, everywhere. It pulled no punches, great acting, storylines etc.
Too bad it lasted only 2 years. Must have hit too many to close to the bone.
For all you people who are thinking about visiting Chicago…