{"id":76641,"date":"2017-07-01T10:54:23","date_gmt":"2017-07-01T14:54:23","guid":{"rendered":"https:\/\/stateofthenation2012.com\/?p=76641"},"modified":"2017-07-01T10:54:23","modified_gmt":"2017-07-01T14:54:23","slug":"pensions-timebomb-in-america-national-crisis-cometh","status":"publish","type":"post","link":"https:\/\/stateofthenation2012.com\/?p=76641","title":{"rendered":"Pensions Timebomb In America \u2013 \u201cNational Crisis\u201d Cometh"},"content":{"rendered":"

\"\"<\/a><\/p>\n

by\u00a0GoldSeek.com<\/p>\n

\u2013 America\u2019s underfunded\u00a0pension<\/span>\u00a0system is \u201cnot a distant concern but a system already in\u00a0crisis<\/span>\u201d\u2026<\/span><\/strong><\/p>\n

\u2013 Tax may explode as governments seek to bail out insolvent pension plans<\/span><\/strong><\/p>\n

\u2013 Illinois, California, New Jersey, Connecticut, Massachusetts, Kentucky and eight other states vulnerable<\/span><\/strong><\/p>\n

\u2013 The simple mathematical mismatch at the heart of the\u00a0pension<\/span>\u00a0crisis<\/span>\u2026<\/span><\/strong><\/p>\n

\u2013 Why the\u00a0pension<\/span>\u00a0crisis\u00a0<\/span>really is \u201cAmerica\u2019s silent\u00a0crisis<\/span>\u201d\u2026<\/span><\/strong><\/p>\n

\u2013 Pensions timebomb confronts Ireland, UK and most EU countries<\/span><\/strong><\/p>\n

<\/span><\/p>\n


\nBy Brian Maher, Managing editor, The Daily Reckoning<\/span><\/strong><\/p>\n

\u201cThis is going to be a\u00a0national crisis\u2026<\/strong>\u201d<\/span><\/p>\n

\u201cThis\u201d being\u00a0America\u2019s woefully underfunded pension liabilities<\/strong>, according to Karen Friedman. She\u2019s the executive vice president of the Pension Rights Center.<\/span><\/p>\n

(A place called the Pension Rights Center does in fact exist. We checked.)<\/span><\/p>\n

MarketWatch columnist Jeff Reeves howls in confirmation that\u00a0\u201ccollapsing pensions will fuel America\u2019s next financial crisis.\u201d<\/strong><\/span><\/p>\n

\u201cThis is not a distant concern,\u201d warns he, \u201cbut a\u00a0system already in crisis.\u201d<\/strong><\/span><\/p>\n

According to data supplied by the Federal Reserve, pensions \u2014 public and private combined \u2014 were roughly 27% underfunded at the end of last year.<\/span><\/p>\n

By some estimates, America\u2019s public pensions alone are sunk in a $6 trillion abyss.<\/span><\/p>\n

The issue, approached from any direction, is an impossible knot\u2026 a tar pit\u2026 a minotaur\u2019s maze of blind alleys and dead ends.<\/span><\/p>\n

How has the American pension come to such an estate?<\/span><\/p>\n

Most public pension systems were built upon the sunny assumption that their investments will yield a handsome 7.5% annual return.<\/span><\/p>\n

But consider\u2026<\/span><\/p>\n

The average\u00a0public pension plan returned just 1.5% last year.<\/strong><\/span><\/p>\n

Last year marked the second consecutive year that plans undershot the 7.5% return rate, according to Governing magazine.<\/span><\/p>\n

The same plans worked an average gain of 2\u20134% in 2015.<\/span><\/p>\n

A highly technical term describes the foregoing if it goes on long enough\u2026 and we apologize if it sends you to the dictionary:<\/span><\/p>\n

Insolvency.<\/span><\/strong><\/p>\n

Briefly turn your attention to the Golden State, for example.\u00a0California.<\/strong><\/span><\/p>\n

State pensions are only in funds to meet 65% of their promised benefits.<\/span><\/p>\n

And California pins its hopes on that golden annual 7.5% return to make the shortage good.<\/span><\/p>\n

But it\u2019s in a devil of a fine fix if the average public pension plan only returns 1.5%.<\/span><\/p>\n

The math is the math.<\/span><\/strong><\/p>\n

California essentially depends on returns 400% above the norm, according to financial analyst Larry Edelson.<\/span><\/p>\n

But\u00a0California<\/strong>\u00a0is by no means alone.<\/span><\/p>\n

We won\u2019t run the entire roll call of shame.<\/span><\/p>\n

But the great state of\u00a0Illinois,<\/strong>\u00a0for one, risks sinking into a $130 billion \u201cdeath spiral\u201d from its unfunded pension liabilities, as Ted Dabrowski of the Illinois Policy Institute described it.<\/span><\/p>\n

S&P Global Ratings has even threatened to downgrade the state\u2019s credit score to \u201cjunk\u201d status.<\/span><\/p>\n

New Jersey, Connecticut, Massachusetts and Kentucky<\/strong>\u00a0are also among the worst deadbeats.<\/span><\/p>\n

But the problems run from ocean to ocean and south to north.<\/span><\/p>\n

A report from Moody\u2019s reads thus:<\/span><\/p>\n

For many states and municipalities, exposure to unfunded pension liabilities is already at or near all-time highs. Since cost burdens are already expected to further increase, pension fund investment performance is critical for the credit quality of many governments.<\/span><\/p>\n

Not even a \u201cbest case\u201d cumulative 25% investment return on public pension plans would stanch the blood flow, according to Moody\u2019s.<\/span><\/p>\n

They say that best-case 25% would merely reduce pension liabilities a slender 1% through 2019 due to weak contributions and poor past investment returns.<\/span><\/p>\n

\u201cBut I don\u2019t have a pension,\u201d comes your response. \u201cThis doesn\u2019t concern me.\u201d<\/span><\/p>\n

Ah, but have another guess \u2014 at least if you swear off your taxes in these United States.<\/span><\/p>\n

Is it your belief that governments will let their prized public pension plans flop?<\/span><\/p>\n

There are votes to consider, after all.<\/span><\/p>\n

Jilted pensioners are capable of generating a good deal of hullabaloo, hullabaloo to which the official ear is exquisitely attuned.<\/span><\/p>\n

Besides, do you think kind Uncle Samuel will turn the politically strategic states of California and Illinois out on their ears?<\/span><\/p>\n

As our resident income specialist Zach Scheidt argues:<\/span><\/p>\n

Your\u00a0tax bill could explode as governments around the country seek to bail out insolvent pension plans<\/strong>. And you know how much politicians like to use your tax money to bail out some constituent. They like to prove their \u201ccompassion\u201d with your money!<\/span><\/p>\n

\u201cExpect to pay higher state and local taxes for fewer services in the years to come,\u201d adds Larry Edelson, before mentioned.<\/span><\/p>\n

And:<\/span><\/p>\n

\u201cDon\u2019t be surprised if authorities of all shapes and sizes \u2014 from local governments to national agencies \u2014 up the ante to get ahold of your assets any way they can.\u201d<\/span><\/p>\n

We would have to agree. You shouldn\u2019t be surprised in the least.<\/span><\/p>\n

And we can scarcely imagine the holy hell that would follow another financial crisis.<\/span><\/p>\n

Illinois Gov. Bruce Rauner warns the state\u2019s pension crisis is driving his beloved Land of Lincoln into\u00a0\u201cbanana republic\u201d<\/strong>\u00a0territory.<\/span><\/p>\n

But we suspect the good governor\u2019s mouth ran away with him here\u2026<\/span><\/p>\n

Can you imagine comparing the venerable, eminently worthy banana republic\u2026 to Illinois?<\/span><\/p>\n

The pension crisis is truly \u201cAmerica\u2019s silent crisis\u201d and indeed the world\u2019s silent crisis.<\/span><\/p>\n

From\u00a0<\/span>The Daily Reckoning newsletter<\/span><\/a><\/strong><\/p>\n

___
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