Wednesday, January 04, 2017 by JD Heyes
There’s nothing going on here. Nothing to see. Move on. Things are under control.
That’s what anyone who makes an inquiry about California’s critically unstable public pension system is told. ‘We got this. No worries.’
That’s because if state government officials and pension managers were being truthful, the system would completely collapse tomorrow—instead of, just, someday. But that day is definitely coming and there are those who say it is a mathematically certainty.
City Journal recently laid out the economic nightmare awaiting California taxpayers. In the Winter 2013 edition, the magazine reported that over the course of decades, greedy labor unions and willing politicians in state government conspired to transform what began as an austere public pension system in the 1930s into a lavish, taxpayer-funded behemoth today, a system that is unaffordable now.
As reported by SHTFPlan.com, the Golden State is just one of several states around the country that are teetering on the edge of financial ruin, thanks to overly-generous public retirement pensions that the states’ ability to pay has long since passed. The problem is, none of these funds can be reformed so they don’t collapse completely because of two things: 1) some state laws prevent lowering pension benefits beyond what was promised; and 2) there is no political will to lower them anyway.
The end is approaching one way or another. That’s because there are several factors at play simultaneously that prove as much, when taken together.
One of the factors is the stock market. Oh, sure, it seems to be doing quite well since the Nov. 8 election victory of billionaire real estate developer Donald J. Trump, nearing 20,000 in recent days. But is this just an illusion?
— As reported by Business Insider, in a note to clients sent recently, Murray Gunn, head of technical analysis for another financial giant, HSBC, issued a “Red Alert” warning of an imminent sell-off of stocks given the price action over the past two weeks.
In late September, Gunn proclaimed that the stock market’s moves were beginning to look eerily similar to those that took place just before the crash of 1987. In fact, Citi’s Tom Fitzpatrick highlighted those similarities just days ago. “With the U.S. stock market selling off aggressively on 11 October, we now issue a RED ALERT,” said Gunn
Many pension funds, you may recall, are depending on the stock market to remain viable, and growing.
— In October Bank of America issued a recession warning that worried many financial analysts and forecasters. As noted by CNBC, Bank of America-Merrill Lynch’s head of U.S. equity and quantitative strategy Savita Subramanian said on the financial network’s program, Fast Money, “We are seven years into a full-fledged, all out, central bankers doing everything they can to stimulate demand. We looked at all of these indicators that have been pretty good at forecasting recessions and we extrapolated that if they follow the current trends they’re on, we’re going to hit a recession sometime in the second half of next year.”
— Viktor Shvets, the global strategist of the investment bank Macquarie Group, has predicted that once the global collapse is upon us, “the private sector will never recover, it will never multiply money again,” as reported by the Epoch Times. He is basing his prediction on declining returns for human capital; that is, in the digital and robotics age, human workers are becoming less desirable as companies and manufacturing operations turn increasingly to machines to do more work.
A declining human workforce means declining revenues that feed fat pension funds.
Finally, the funds themselves are already in trouble. In January Forbes reported that state pension funds were “as broke as ever,” and there was no indication they would be receiving an influx of pension-saving cash anytime soon.
For now, public pensioners are doing quite well; some, including firefighters, have to ‘make do’ with around $284,000 a year, according to the Empire Center for Public Policy, a fiscal watchdog in Albany—and that came as average 401k plans were taking a beating.
But research published by Moody’s earlier this year found public pension funds were in the red nearly $1.3 trillion. What makes that figure even more troubling is that it was based on figures from 2014. And obligations have only risen since then.
It’s time to begin your move from intangible pensions, stocks and other electronic funds and put more of your portfolio into physical assets—land, water resources, gold, silver, etc. When the pension well runs dry—and mathematically speaking, that is inevitable—you don’t want to be left holding an empty bag.