The pension time bomb

Posted On: Saturday - July 1st 2017 6:35PM MST
In Topics: 
  Global Financial Stupidity

Zerohedge has an article, Pensions Timebomb In America – "Global Crisis” Cometh, giving some facts and some opinion about the scary state of pension funds. Don't think this doesn't matter much because you, and most people in fact nowadays, don't have any kind of pension coming promised to them. This is still a major part of the serious economic pit we are in because:

a) The people who do expect to get money to live a good life during retirement from these plans are many, and they are not going to be happy at all,

but, more importantly,

b) As noted specifically here and in general in some posts under the "Global Financial Stupidity" topic key, investments are kind of fungible and are intertwined. That means that some other "safe" investment of yours may have a stake in some pension plans or others. It will all go down together, when it goes down.

The Zerohedge article is not original zerohedge by the Tyler Durdens, but by one Bryan Maher of "The Daily Reckoning", that discusses:

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.
After having read the lined material, I agree with Mr. Maher's opinions on this big problem, but he has his own big problem of not understanding the idea of writing in paragraph form, so it's hard to put a big quote in here. Just a few lines:
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:


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.
His conclusion is that, for public pensions that is, states will have to go nuts with new taxes to prop up the plans:
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.


“Don’t be surprised if authorities of all shapes and sizes — from local governments to national agencies — up the ante to get ahold of your assets any way they can.”

Though the previous article concerns the problem in the US, a month back on Zerohedge some guy John Mauldin of "Mauldin Economics", "Warns The Next Recession May Be A Complete Reset Of All Asset Valuations" in an article about pension plans throughout the world:
Sometime this year, world public and private plus unfunded pensions will surpass $300 trillion. That is not even counting the $100 trillion in US government unfunded liabilities. Oops.

These obligations cannot be paid. A time is coming when the market and voters will realize this.

Will voters decide to tax “the rich” more? Will they increase their VAT rates and further slow growth? Will they reduce benefits? No matter what they decide, hard choices will bring political turmoil.

And that, of course, will mean market turmoil.
Hey, in the rest of the article the guy's got a colorful graph, so you know, case closed and all....

Peak Stupidity had this article previously on the topic, and we emphasized there would be many more stories. Right now Illinois is the biggest one in the news.

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