Pensions: Politically Poisoned, Preventing Progress …

Black SwanChicago’s Pension obligations we hear, exceed the city’s revenue by a factor of ten. Though as little advertised as possible, the same applies to many other cities, counties and states. Such pensions are owed, they will never be paid. Simply, there is no money to pay them, nor ever will be. Though they are doing all that they can to pretend, the local governments with this problem are insolvent.

The Federal Government’s Social Security does not collect sufficient taxes to fund its payments either. Americans planning retirement are in an impossible position. No politician can afford to admit that, so the problem continues. To solve it means reducing promised payments to match real income and none wishes to proceed with that. Such reductions will be large …

The problem is uniquely one of government policy. Employers rely on interest earned and safe investments to supply pension money but Federal Reserve policy has almost eliminated interest sufficient for that purpose for the last several years. Pension funds either failed to grow as needed or took excessive risk in hopes of coping. Meantime, politicians raised wages and therefore, related pensions. Some teachers are receiving six figure pensions.

In the face of these challenges, private industry mostly dropped pensions entirely, turning to 401(k) retirement plans without a promised specific payout instead. Governments, pushed by unions, stuck with pensions and politicians went along. Now, the promises have outgrown the ability to pay. Therefore, the pensions won’t be paid. Chicago is a bellwether, but there is a long line of such black sheep.

The numerous ‘baby boomers’ are now retiring. The numbers will increase for a while, increasing the draw down n pension money. The rock is getting closer to the hard place. Pretty soon, they will meet.

A stock/bond market collapse can wipe out pension funds. Restructuring of insolvent government finances can change pension obligations. Simple inability to pay can bring that on. Whatever trigger reality selects, it is coming.

One writer has called this a “Black Swan” event. Such is any unpredicted, massive human event that, looking back at it, seems inevitable. It likely fits; we are seeing the culmination of politicians buying elections with other people’s money plus voters who counted upon eating their cake and having it, too. It’s obvious, but who wants to look?

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About Jack Curtis

Suspicious of government, doubtful of economics, fond of figure skating (but the off-ice part, not so much)
This entry was posted in Economics, Government, Politics and tagged , , . Bookmark the permalink.

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