Yet another reason why taxes are going up, cities and states are
going broke, and the world is approaching financial implosion…
As if the world needed another dangerous and volatile factor in the mix of
looming economic downturn.
Unfunded liabilities for pensions have been a problem for a while now, but as
investors continue to face fleeting returns, many states and cities are facing the music… and when it
stops, there won’t be enough money to go around.
Someone will lose their savings, their standard of living, their
retirement and maybe their future. Others will be taxed to death to clean up
the mess of the many places were the system is cracked, fissured and falling
apart.
According to FT:
The US public pension system has developed a $3.4tn funding hole
that will pile pressure on cities and states to cut spending or raise taxes
to avoid Detroit-style bankruptcies.
[…] the collective funding shortfall of US public pension funds is three
times larger than official figures showed, and is getting bigger.
Devin Nunes, a US Republican congressman, said: “It has been clear for
years that many cities and states are critically underfunding their
pension programmes and hiding the fiscal holes with accounting
tricks.”
Mr Nunes… added: “When these pension funds go insolvent, they will
create problems so disastrous that the fund officials assume the federal
government will have to bail them out.”
Large pension shortfalls have already played a role in driving
several US cities, including Detroit in Michigan and San Bernardino in California,
to file for bankruptcy. The fear is other cities will soon become
insolvent due to the size of their pension deficits.
The inevitable result is, of course, tax increases and spending cuts –
potentially on important and vital services.
Regardless, it is likely that many more governments will face bankruptcy
and difficult choices… with the prevailing wisdom to kick the can down the
road and pretend that funds will make extraordinary returns
in the years to come despite continue misuse in schemes leveraging pensions
in various funds and schemes….
Olivia Mitchell, a professor at the Wharton School at the University of Pennsylvania
said: “I do believe that US cities and towns will continue to suffer,
and there will be additional bankruptcies following the examples of Detroit,”
she said.
[…]
Mr Rauh’s study claims the “true extent” of funding problems in US
public pension system has been obscured because plans calculate both their
costs and liabilities on the assumption they will achieve returns of between
7 and 8 per cent a year. The academic believes this rate is “wildly
optimistic and unlikely to be achieved”.
In a perfect world, all this stuff would have been responsibly managed,
and the returns would be modest and predictable.
But in the real world, pension managers have run with Wall Street sharks;
they invest in derivatives together, and when things turn upside down (as
they tend to do), it isn’t the fund manager who is out, but the diffuse and
de-personalized millions have their retirement built
into a dangerous system.
As negative interest rates are still trending, it is an atmosphere that
ripe for disaster.
If you have your nest egg in a pension, it might be a good idea to take a look at
your options for getting out… if you even can.
The problem is that so many are held captive by this financial system, and
the lot of us will face the consequences, while the usual suspects head for
the exits.
Read more:
Warning: You May Be Next: 400,000 People Just Had Their
Pensions Cut By 50%: “Going to Happen To The Rest Of Pensions in the United
States”
Swelling State Debt and “Pension Tidal Wave” May Engulf
Economy
Here Comes the Pain: Detroit To “Significantly Cut Vested
Pensions” For Retirees
Pension Fund Ultimatum: A Haircut Looks Better Than a
Beheading
