Home » Posts tagged 'pensions'

Tag Archives: pensions

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Illinois’ financial decay spreads to cities across the state

Illinois’ financial decay spreads to cities across the state

Illinois’ finances aren’t just decaying at the top, they’re falling apart everywhere. The state’s one-size-fits-all pension laws and overly generous benefits have left many cities suffocating under impossible pension debts as their populations shrinktax burdens jump and resident incomes stagnate

Without an amendment to the Illinois Constitution’s pension protection clause – and subsequent pension reforms – expect many cities to head toward insolvency. 

The map below shows just how wide and deep the crisis is. Of the 630 downstate police and fire pension funds that reported data to the Illinois Department of Insurance in 2017, 57 percent had funded ratios lower than 60 percent. And nearly 100 funds had funded ratios below 40 percent.

What’s worse, the downstate pension decline has occurred during one of the nation’s longest-ever bull runs. If Illinois public safety pensions are doing this poorly in a great economy, imagine their struggles during an eventual downturn.

False, and true, solutions

Illinois cities – from Kankakee to Danville to Alton – need pension fixes before costs bankrupt them. And while state politicians have effectively quashed any chance for reforms now, that shouldn’t stop city officials from demanding real changes.

Real changes don’t mean pension fund consolidations or tax hikes. Consolidation may reduce administrative costs and increase investment returns, but it’ll do nothing to reduce the pension shortfalls. Not only that, but there’s the risk lawmakers will try to bail out cities by taking over or socializing all downstate pension debt. 

Illinoisans should also beware the talk of a “statewide” solution for the pension crisis. For politicians, a statewide “solution” isn’t about passing reforms, it’s about taxing everyone in Illinois. Chicago Fed economists have already suggested enacting a statewide 1 percent property tax – on top of the nation’s highest rates Illinoisans already pay – to pay for the crisis. 

 …click on the above link to read the rest of the article…

The $6 Trillion Pension Bailout Is Coming

The $6 Trillion Pension Bailout Is Coming

Fiscal responsibility is dead.

This past week, Trump announced he had reached an agreement with Congress to pass a continuing resolution which will suspend the debt ceiling until July 2021.

The good news is that it will ONLY increase spending by just $320 billion. 

What a bargain, right?

It’s a lie.

That is just the “starting point” of proposed spending. Without a “debt ceiling” to constrain spending, the actual spending will be substantially higher.

However, the $320 billion is also deceiving because that is on top of the spending we have already committed. As I noted just recently:

“In 2018, the Federal Government spent $4.48 Trillion, which was equivalent to 22% of the nation’s entire nominal GDP. Of that total spending, ONLY $3.5 Trillion was financed by Federal revenues, and $986 billion was financed through debt.

In other words, if 75% of all expenditures is social welfare and interest on the debt, those payments required $3.36 Trillion of the $3.5 Trillion (or 96%) of revenue coming in.” 

Do some math here.

The U.S. spent $986 billion more than it received in revenue in 2018, which is the overall “deficit.” If you just add the $320 billion to that number you are now running a $1.3 Trillion deficit.

Sure enough, this is precisely where I forecast we would be in December of 2017.

“Of course, the real question is how are you going to ‘pay for it?’ On the ‘fiscal’ side of the tax reform bill, without achieving accelerated rates of economic growth – ‘the debt will balloon.’ 

The reality, of course, is that is what will happen because there is absolutely NO historical evidence that cutting taxes, without offsetting cuts to spending, leads to stronger economic growth.”

More importantly, Federal Tax Revenue is DECLINING. Such was NOT supposed to be the case, as the whole “corporate tax cut” bill was supposed to lift tax revenues due to rising incomes.

 …click on the above link to read the rest of the article…

We’ve Arrived At The End Of The Road

We’ve Arrived At The End Of The Road

Decades of central bank intervention have left us with an unavoidable insolvency crisis

When Richard Nixon closed the gold window in August 1971, fully severing the US dollar from its gold standard, the Federal Reserve and other world central banks found themselves liberated. No longer was their ability to provide liquidity constrained by the physical limitations of the gold supply.

The Fed started intervening more and more during times of slowing growth to goose the economy back to vigor. Cheered and further egged on by politicians happy for easy solutions and desperate to avoid having to make tough calls, central banks have been increasingly willing to provide liquidity in good times and bad.

Akin to removing the limit on a teenager’s credit card, with access to so much cheap money, the US went on a debt bender. One that has lasted for nearly half a century:

FRED chart Total Us Debt Outstanding

Here we stand today with the national debt at over $22 trillion, total US debt outstanding of $70 trillion (shown in the above chart), and unfunded national liabilities of over $200 trillion. And we add to this every year with an annual deficit now exceeding $1 trillion.

This gigantic accretion of debt will never be repaid. And as the pile grows higher, the burden of servicing it — even at today’s historically low interest rates — is placing an increasingly heavy drag on economic growth.

To date, the central banks have gotten away with their easy money policies because they could. The day of reckoning could always be pushed further out via a fresh round of liquidity. But, as Brien Lundin says in the video below, the reckoning is “no longer simply inevitable, it is imminent. We are reaching the End of the Road.”

 …click on the above link to read the rest of the article…

What Went Wrong With Pensions — And Why The Whole World Should Be Worried

What Went Wrong With Pensions — And Why The Whole World Should Be Worried

The past decade was a uniquely smooth stretch of financial highway. Pretty much every major asset class – stocks, bonds, real estate, fine art, you name it – did well, making it hard for conventional investors to lose money and easy for them to earn outsized returns. 

So why then are US public sector pensions (which own a ton of the above assets) a looming disaster that could trigger the next great financial crisis? Several reasons, ranging from negligence and criminality. 

Let’s start with the fact that Wall Street preys on the ignorance of pension fund managers to extract huge fees for little or no excess return. Here’s a video in which pension expert and “forensic lawyer” Ted Siedle lays it all out for Peak Prosperity’s Chris Martenson:

An even bigger problem is the tendency – understandable but still despicable – of state and local politicians to underfund pensions and then lie about it, pushing the eventual reckoning onto their successors. 

As baby boomer teachers, police and firefighters retire, the required pension payouts are soaring. Combine this with inadequate contributions, and the liabilities of major U.S. public pensions are up 64% since 2007 while assets are up only 30%.

This math is simple enough for even a politician or fund trustee to grasp, but because there’s no immediate penalty for underfunding a pension system, it has become normal practice in a long list of places. 

Another, related problem is also mathematical, but it’s harder to manage in a boom-and-bust world: When pension plans suffer a big loss, as they tend to do in bear markets, the next few years’ returns have to go towards making up that loss before plan assets can start growing again. The following chart, from a recent Wall Street Journal article, shows pension fund assets falling behind in the past two bear markets and having increasing trouble catching up with steadily-growing liabilities.

 …click on the above link to read the rest of the article…

Ted Siedle: The Greatest Retirement Crisis In The History Of The World

Ted Siedle: The Greatest Retirement Crisis In The History Of The World

The pension crisis is even worse than we imagine.

“We are on the precipice of the greatest retirement crisis in the history of the world. And that makes perfect sense because, first of all, we have the largest elderly population in the history of the world.

Just focusing on the United States: our elderly are woefully unprepared to retire. And in the decades to come we will witness millions of elderly American’s, Baby Boomers and others, slipping into poverty. ‘Too frail to work, too poor to retire’ will become the new normal for many elderly Americans.”

So warns pension fraud whistleblower Ted Siedle.

Siedle’s firm, Benchmark Financial Services, Inc. has pioneered over $1 trillion in forensic investigations of the money management industry. He’s nationally recognized as an authority on pensions and investment management matters, having testified before the Senate Banking Committee regarding fund scandals and is an expert in various Madoff-related and other litigations.

In 2017, he secured the largest SEC whistleblower award in history of $48 million, and in 2018, the largest CFTC award in history at $30 million. 

Siedel rings a loud warning bell regarding the solvency of today’s public pension system. Specifically, his investigations show that most of them:

  • Are much too under-funded to meet their future payout obligations (e.g., Kentucky’s state pension plan is only 12% funded)
  • Are experiencing annual returns far below the required 7% average the plans assume in their forecasts
  • Have oversight boards making portfolio allocation decisions that are staffed by individuals with zero experience managing financial securities (e.g., policemen, kindergarten teachers)
  • Have little transparency. Many are rarely audited. And many have moved their capital off-shore without accounting for where it’s been moved to.

 …click on the above link to read the rest of the article…

We’re Reaching the Beginning of the End of the Pension Fund Crisis

We’re Reaching the Beginning of the End of the Pension Fund Crisis

pensions unstable
Photo by Bank of England | CC BY | Photoshopped from original

The pension crisis has been escalating for quite some time, and accounting for pension shortfalls seems next to impossible for state governments.

The shortfall between pension assets and liabilities is a major problem. But another problem may be spelling the beginning of the end for public pensions altogether.

The Beginning of the “End”

Typically, public pensions assume a 7-percent discount rate so they need to generate a return higher than that. But according to Bloomberg, they aren’t getting those returns often enough.

The Bloomberg article states that the average returns for pension-fund-like portfolios have only generated returns of 7 percent or greater for 50-year periods twice since 1871.

The article continues, saying the problem is worse because of two primary reasons:

  1. “Cumulative returns are lower than the averages.”
  2. “An extended period of bad returns cannot be made up even with astronomical returns later.”

For example: Over a 50 year period, if a fund were to have zero returns in the first 15 years, and goes broke, it wouldn’t matter what it did (or could do) after that. If that seems obvious, that’s because it is.

And this example applies even if a fund started in June 1949 and earned an average of 7.99%, according to Bloomberg. Even if the pension is fully funded, “there is no chance existing assets are enough to pay already-contracted liabilities.”

If that sounds dire, once the base of assets start to decline it’s game over, because shrinking assets can’t keep paying increasing liabilities. And according to Pew Research, they have been in decline since 2016.

So worrying about the next 50 years is “pointless”, says Bloomberg:

Worrying about the next five decades is pointless, because there’s also no chance the current system will survive long enough to discover what the next 50-year average returns will be.

…click on the above link to read the rest of the article…

How The Federal Reserve Quietly Bankrupted The US Pension System

Actions have consequences.  Even for the Fed.

That’s not a reference to the market’s grumpy reaction to the central bank’s continued rate hikes and quantitative tightening.  No.  The impact of both on financial assets were as obvious as they were inexorable.  To be sure, Wall Street’s resident soothsayers had a good run spinning tales that ‘this time’ was different. A tightening Fed, we were assured, was a good thing—a ringing endorsement of the economy’s indefatigable strength. But, in the end, there was simply no way around the basic fact: Just as rate cuts and QE were designed to expand the pool of credit and incent the embrace of risk, so would rate hikes and QT necessarily beget the reverse. And so they have.

But while the impact of receding liquidity and the reduced reward for reckless speculation and risk-taking have finally begun to play out on Bloomberg screens everywhere, the real devastation has yet to be revealed.  In the ensuing weeks and months the full and lugubrious legacy of the Fed’s great monetary experiment of the last decade will finally come into view.

Beyond inflating and bursting a bubble in corporate debt (with leveraged loans acting as posterchild), the Fed’s decade-long financial repression has had a far larger and more sinister impact: It has silently bankrupted the US pension system.

Sound overly dramatic??

Here are the numbers from no lesser authority than the institution responsible for this destruction itself: the Federal Reserve.   By their calculations, at the end of the 3rd quarter, the funding shortfall of U.S. pension plans (public and private) stood at -$6.18t.  That’s trillion, with a capital ‘t’.  To put that in perspective, that’s roughly 30% of GDP:

…click on the above link to read the rest of the article…

Three Things That Will Definitely Happen In 2019

Three Things That Will Definitely Happen In 2019

Much about 2019 is uncertain. But a few things are pretty much guaranteed, including the following:

Government debt will rise at an accelerating rate
Like a life-long dieter who finally gives up and decides to eat himself to death, the US is now committed to trillion-dollar deficits for as far as the eye can see. And that’s – get this – assuming no recession in the coming decade. During the next downturn that trillion will become two or more, but in 2019 another trillion-plus is guaranteed.

US government debt three things for 2019

But the US debt binge is downright orderly compared to much of the rest of the world.

After Paris nearly burned to the ground last month, president Macron responded – surprise! – with massively higher spending:

Macron Bets Spending Binge Can Save His Plan to Transform France

(Bloomberg) – Emmanuel Macron is rolling the dice with France’s public finances to keep his grand plans for the economy alive after weeks of protests on the streets.

Macron’s government will set out a raft of measures to try to calm the so-called Yellow Vest protests on Thursday and they will almost certainly see France breach the European Union’s budget deficit ceiling next year.

The 40-year-old president is arguing the concessions are necessary to maintain public support for his efforts to make the economy more efficient.

“Macron is now facing an impossible trilemma,” said Bernhard Bartels, associate director at Frankfurt-based Scope Ratings. “You can’t have have popular support, ongoing structural reforms and fiscal consolidation all at the same time.”

Macron’s announcement Monday that he’ll raise the minimum wage, abolish taxes on overtime, and get rid of a controversial tax on pensions will send next year’s budget deficit to about 3.5 percent of output, up from a previous target of 2.9 percent, according to media reports. That’s well beyond the 3 percent limit imposed on members of the euro zone.

…click on the above link to read the rest of the article…

2018 in Review: Pension Problems, Hawkish Rate Hikes, and Piles of Debt

2018 review

2018 in Review: Pension Problems, Hawkish Rate Hikes, and Piles of Debt

A lot happened in 2018, and while it would be a challenge to cover them all, there are three big trends that appear to have defined this year economically. And, each of them had an impact on retirees, investors, and the overall U.S. economic picture.

Here’s a review of 2018 in light of each of these three, impactful trends…

Corporate and Public Pensions Are Sinking Fast

On a local level, a public pension “Hurricane Harvey” hit a small town in Illinois. The city that once had over 20% unemployment, and property tax rates over 5%, had a major pension shortfall. Ultimately, this small town didn’t know how to make ends meet.

But the pension problem isn’t limited to this one small corner in the U.S.

New Jersey has its own pension conundrum too. Their plan back in April was to tax everything and raise enough revenue to cover their shortfall. This month, it appears they aren’t doing too well, according to a Volcker Alliance study:

It’s a math test that New Jersey, Illinois, and even Texas are nearly failing: How to pay for billions of dollars in unfunded liabilities for public-employee pensions and retiree health care.

All in all, states topped $1.4 trillion in underfunded pensions, according to the most recent data available. The story got even more dire worldwide when Sovereign Man reported a pension savings gap approaching $400 trillion. This amount is more than 20 of the world’s largest economies.

This is indeed a crisis. And it could become a crisis for everyone else, whether you have a public pension or not. Especially, if services get cut or tax dollars for a federal bailout are needed. Plus, if tax dollars are needed to rescue failing pensions, there are a whole host of other consequences for lawmakers following that bailout “script.”

…click on the above link to read the rest of the article…

Outlaw Government Pensions? The Hunt for Endless Taxes

The commentary that has appeared in Forbes calls for the only solution is to outlaw pensions. This is actually what will happen. Because there is no resolution, the government pensions will demand to raise taxes and then there is never any reform in government so the end game is one major economic confrontation – the people v government. They really cannot grasp that the crisis is profound. For every person who retires, the government hires a replacement. The cost of government explodes exponentially. The system is doomed and this is what is going to rise up into civil unrest.

Federal governments can create money but state/provincial and local government can only raise taxes. In Germany, the lessor governments are petitioning the federal government for a bailout since already 40% are effectively broke. It is this desperate letter we received from California trying to claim we must pay taxes simply because Amazon may store some reports or DVDs in their California warehouse. If you buy something from Amazon, they send it to you and collect whatever tax. They remit the tax and we do not mail the products nor receiver the taxes collected. We would have no idea what tax would be owed to California. Obviously, we have no choice but to inform Amazon to remove all our products from California. If everyone is compelled to do the same, then there go those jobs in their California warehouse.

…click on the above link to read the rest of the article…

2018 Year in Review

2018 Year in Review

The year everything changed

Every year, friend-of-the-site David Collum writes a detailed “Year in Review” synopsis full of keen perspective and plenty of wit. This year’s is no exception. As with past years, he has graciously selected PeakProsperity.com as the site where it will be published in full. It’s quite longer than our usual posts, but worth the time to read in full. A downloadable pdf of the full article is available here, for those who prefer to do their power-reading offline. — cheers, Adam

David B. Collum
Betty R. Miller Professor of Chemistry and Chemical Biology – Cornell University
Email: dbc6@cornell.edu
Twitter: @DavidBCollum

“Dave: You are roundly tolerated.”

~Danielle Dimartino Booth, former Fed advisor and founder of Quill Intelligence

Introduction

Every December, I write a Year in Reviewref 1 that’s first posted on Chris Martenson & Adam Taggart’s website Peak Prosperityref 2 and later at ZeroHedge.ref 3 This is my tenth, although informal versions go back further. It always presents a host of challenging questions like, “Why the hell do I do this?” Is it because I am deeply conflicted for being a misogynist with sexual contempt—both products of the systemic normalization of toxic masculinity perpetuated by an oppressively patriarchal societal structure? No. That’s just crazy talk. More likely, narcissism and need for e-permanence deeply buried in my lizard brain demands surges of dopamine, the neurotransmitter that drives kings to conquer new lands, Jeff Bezos to make even more money, and Harvey Weinstein to do whatever that perv does. The readership has held up so far. Larry Summers said he “finished the first half.” Even as a fib that’s a dopamine cha-ching.

“If you think you are too small to make an impact, try spending the night in a room with a mosquito.”

~African proverb

…click on the above link to read the rest of the article…

The Fate of All Municipal Governments – Look to Peoria, Illinois

The system we have is totally corrupt and it outright UNSUSTAINABLE!!!! In Illinois, the city of Peoria has been forced to eliminate 22 firefighter and 16 police positions even after they made 27 layoffs earlier this year. Besides eliminating employees, they are now looking at adding a tax of $50-$300 to try to cover their own pension schemes as pension spending consuming everything. Pension costs are forcing Peoria to cut 38 emergency worker positions and to raise property taxes further. Peoria joins the south Chicago suburb of Harvey which is yet another warning of what is coming over the next three years into 2021.

Bundesbank warns of Coming Pension Crisis

The Bundesbank has come out warning that there is a German pension crisis. They have proposed that states raise the pension tax and that they should gradually increase the retirement age because the life expectancy in the future has risen. Central Bank President, Jens Weidmann, has stated that he is generally in favor of raising the statutory retirement age beyond 67 years.

We must understand that the ECB policy of “stimulating” the economy with negative interest rates has bankrupted state pension plans. This theory that lowering interest rates to get people to borrow and thus manipulate demand higher has NEVER been proven to have ever worked. The consequence of what we now face is a major pension crisis that is undermining the future of Western economies.

Will Your Retirement Efforts Achieve Escape Velocity?

Will Your Retirement Efforts Achieve Escape Velocity?

Sadly, most of us will outlive our savings

The concept of ‘retirement’, of enjoying decades of work-free leisure in your golden years, is a relatively new construct. It’s only been around for a few generations.

In fact, the current version of the relaxed, golfing/RV-touring/country club retirement lifestyle only came into being in the post-WW2 boom era — as Social Security, corporate & government pensions, cheap and plentiful energy, and extended lifespans made it possible for the masses.

But increasingly, it looks like the dream of retiring is fast falling out of reach for many of today’s Baby Boomers. Most will outlive their savings (if they have any at all).

And the retirement prospects look even worse for Generations X, the Millennials, and Gen Z.

A Bad Squeeze

While the US enjoyed a wave of unprecedented prosperity throughout the 20th century, the data clearly shows that halcyon era is ending.

Real wages (i.e., nominal $ earned divided by the inflation rate) for the average American worker have hardly budged since the mid-1960s:

Yet the cost of living has changed dramatically over the same time period. Note how the rate of increase in the Consumer Price Index (CPI) started accelerating in the late ’60s and never looked back:

Squeezed between stagnant wages and a rising living costs, perhaps it should be little surprise that so many Americans are having difficulty finding anything left over to save for retirement.

We’ve written about this extensively in our past reports, such as Let’s Stop Fooling Ourselves: Americans Can’t Afford The Future and The Great Retirement Con. But as a way of driving the point home, here are some quick sobering stats from the National Institute On Retirement Security:

  • The median retirement account balance among all working US adults is $0. This is true even for the cohort closest to retirement age, those 55-64 years old.

…click on the above link to read the rest of the article…

Here’s Why the Market Must Continue to Rip Higher — Everything Depends On It

Rarely discussed, corporate and government pensions, are barreling towards disaster. For some reason, there is an assumption that what ails the government, with their $20 trillion in debt, isn’t something that ordinary folk need to worry about. After all, times are good and corporate stock prices are near record highs, people are working, and even wages have been increasing.

But beneath the shiny veneer is a sickness that is festering, a red nightmare of underfunded pensions, both on a government and corporate level. They menace over markets like an explicit threat, a promise of crisis that is both maturing and spoiling with equal violence.

Former Dow component, and once upon a time great American company, has an underfunded pension of $31 billion and a business that is in the midst of restructuring. The stock has been cut in half over the past year.

But at a time when General Electric Co. is facing what amounts to an existential crisis, a $31 billion deficit in its pension plan may complicate any turnaround that involves a breakup of the 126-year-old icon of American capitalism. Divvying up the obligations won’t be easy.

After all, GE owes benefits to at least 619,000 people. And retirees aren’t the only ones at risk. Ideally, breaking up a conglomerate as sprawling as GE would unlock value for shareholders, who have seen their stock fall 40 percent since the CEO took the reins from Jeffrey Immelt in August. Stronger divisions wouldn’t be dragged down by weaker ones, and each business would stand on its own financially.

Here’s a nice genteel list of the top corporate pension deficits in America. The municipal deficit is far more insidious, $6 trillion in the hole.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase