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Imploding Pensions Take The Rest Of US Down With Them

It’s the same story pretty much everywhere: Cities and states promised ridiculously generous (by today’s standards) pensions to teachers, cops and firefighters, failed to sufficiently fund the plans and invested the money they did have very badly. And now the weight of the resulting unfunded obligations are crushing not just plan recipients but entire communities. Here’s a representative case:

Oregon PERS unfunded liability swells to $21 billion

(KTVZ) – This week, Oregon’s Public Employee Retirement System Board received an earnings report on the status of the PERS fund investment. The report said Oregon’s PERS fund fell by 4 percent in 2015, a loss of nearly $3 billion — and a Central Oregon lawmaker said that means major reforms are more urgent than ever.

“The blow to PERS from the Moro court case left Oregon with an additional $5 billion in unfunded liability,” Sen. Tim Knopp, R-Bend, said Tuesday. “Now PERS is an additional $8 billion short of its target.”

In that ruling nearly a year ago, the state Supreme Court overturned the vast majority of the PERS reform cost-saving provisions enacted by the 2013 Legislature.

The current unfunded PERS liability now exceeds $21 billion, up from $18 billion last year, he noted.

PERS Communications Director David Crossley said while the PERS fund earned just over 2 percent last year, it did not achieve the “assumed savings rate” of 7.75 percent, so the liability increased by about $3 billion.

He noted that PERS had positive earnings, but lost value because it pays out about $3.5 billion in benefits a year.

PERS rates for school districts and local governments will rise in July 2017, Knopp said, forcing school districts to lay off teachers, reduce school days, increase class sizes, and cut programs like art and PE. Local governments will also have to make cuts to public safety and other critical services.

This combination of worse-than-expected investment returns and legal barriers to cost savings is playing out across the country. See Fitch downgrades Chicago after “worst possible outcome” in state supreme court pension reform bid.

What follows — “…forcing school districts to lay off teachers, reduce school days, increase class sizes, and cut programs like art and PE. Local governments will also have to make cuts to public safety and other critical services” — is also playing out in most states and cities.

And this, remember, is at the tail end of an epic bull market in financial assets. If pension plans aren’t fully funded now, they’ll fall into an abyss in the coming correction.

The result: everyone gets poorer. Or more accurately, everyone discovers that they were never as rich as they thought they were, and that the down escalator they’re on has a long way to go.

At the risk of belaboring the point, imploding pensions, like most other modern problems, can be traced back to easy money. Put a monetary printing press in the hands of government and the resulting corruption flows from Washington outward to every state capital and mayor’s office. With interest rates artificially low and inflation artificially high, generating 8% returns as far as the eye can see looks not just possible, but easy. So promising benefits based on high rates of return seems reasonable to elected officials anxious to buy labor peace. And once the Ponzi scheme is in place, there’s no way to turn it off without creating chaos.

The only solution (again at the risk of repetition) is to take the easy money program to its logical extreme and devalue the dollar by an amount large enough to make nominal pension benefits affordable. That’s functionally the same as honestly cutting benefits and will impoverish everyone who doesn’t own lots of real assets, but it will be easier to hide.

22 thoughts on "Imploding Pensions Take The Rest Of US Down With Them"

  1. My lifetime as a boomer in America has been characterized by the worst American leadership in American History. This predominately due to socialist ideology that has penetrated our formerly solid Institutions advocating false altruism to gain personal power.

  2. I knew this was coming. Worked in financial industry and the shenanigans have been going on for a long time. These pension fund idiots have been planing on an 8% annual return on investments for decades and never stopped. I cannot explain how big of a mess this is.

  3. Most government pension plans include cost of living adjustments. So using inflation to debase the currency will not help much.

  4. These downward times have been obvious to millions for many decades. Many great but sadly now virtually unknown economists warned of the use of fiat currency. (Check out the reading list at mises.org). If “Leaders” lead to success, then we’ve had few to none. In America, a great leader will be one who has a solid knowledge of what it takes to build a sound currency. Our currency is anything but sound, and it’s probably too late to fix. Ignorance of what a sound economy consists of is overwhelming. It’s extremely doubtful that even if we had politicians who did understand, and who might direct us toward foundational prosperity, would have the guts to try. For doing so would require a rhetoric offering so profound and uncomfortable in change, that the people would reject him/her, and prefer the socialistic type who promises an easy life for all. The consequences coming to each of us, is grave, to be sure. And it’s not difficult to grasp an utter collapse of the currency which is merely supported by the promises of our federal government. We can trust however, the promise that “there are no contradictions”. When the bottom falls out, the distance to our hard landing may be deeper than many can survive.
    Invest in ammo.

  5. Ever since I started school, at age 4, in Hong Kong, I have realized that anything other than Math and Reading is a total waste of educational tax payer dollars. School, being that it is not a place for learning about life, society, love or family, should ONLY be for Math and Reading.

    All this social nonsense, “sociology”, B.S. Psychology, re-written false History, Art (modern crap), etc. has no business in State funded education. If you want those hobbies, then pay for them on your own, AFTER, school since they have nothing to do with Education but are State sponsored means of brain-washing propaganda.

    Also, stop using the school system as a day care/ baby sitting service while mommy works for money. Men are mules and should work to support their wives and children. Women are designed (By both God and Nature) to have babies, feed them, raise them and nurture them. The abnormal, unnatural act of women working like donkeys for money is wrong and revolting.

    1. Interesting views on things which I believe are basically true.
      We have millions of Liberal Arts Masters degrees & Doctorates which are essentially useless.The holders of these degrees have been fully indoctrinated into Knowing many things,…but most of what they know is misinformation!

      These Liberal Arts Degrees are as useless as a 1940 Doctorate in Aryan race Theory from a German University or a Doctorate in Marxist/Leninist thought from a Russian University,just a bunch of discredited nonsense that can’t be applied to any positive use!

      As one poster remarked months ago,”these people have college degrees that leave them with no known employable skills”,just a very high priced waste of time & energy….
      In the future jokes may be told about university educated economists who were taught to know & believe in Keynesian Theory,…….all of those years working with nonsense!

  6. I believe at some point there will be a moratorium on all home foreclosures and apartment evictions. When markets finally begin to tip over, the hyper-entitled American will smell the jubilee and will have nothing to lose by withholding payment. Creating a hundred million more homeless would be unthinkable for a government in crisis mode, and so it would look like something out Russia in 1918: groups of people and extended family living in anything they can, with or without utilities. Without pensions and benefits, I don’t see an easier and more heavy-handed dictate than this.

  7. Well, I’m not sure a currency devaluation would make any difference because the implied assumption is, the pension funds somehow retain their pre-devaluation value. Unless, the pension holdings are in assets that revalue relative to the dollars fall, (and only a few assets truly do that), then the unfunded problem remains.

  8. I’m not sure I agree that currency devaluation is easier to hide than cuts in “benefits”. I consider myself to be fairly informed and a normal US citizen, yet I have very (zero?) experience with any veterans and their plights, with unemployed people and their difficulties, with retired people struggling because of ZIRP, etc. Therefore, I question whether reducing benefits to retirees would be all that widely known, compared to an across the board monetary devaluation in which everything suddenly costs twice as much for everybody.

    1. Believe me most people do not get it at all. Inflation will occur but it will not happen all at once and the government will say it it beyond their control.

      1. Well, this discussion may also be academic because just because currency-devaluation/price-inflation may seem like the “solution” doesn’t mean the Fed/CBs are going to be able to create that. Everybody’s been trying for several years now and just the opposite is happening. The only way at this point is ‘copter money so people have more “cash” and will be willing and able to pay higher prices, but I think the CBs are still trying to salvage the system and ‘copter money will destroy it. We shall see.

  9. I suspect PERS are used by government like social security. Government uses funds for anything it pleases on the assumption interest gains will pay off. Pers is more about government security just like social security. They are both giant Ponzi schemes that aid illegal government spending.

  10. Probably have to start paying tuition for elementary school and if you need the police to come out have your credit card ready.

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