Former Fed Advisor: State Pensions Time Bomb Spells Disaster For The US

Tyler Durden's picture

Underfunded government pensions to the tune of $1.3 trillion, with a gap that just can’t be filled, is the ticking time bomb facing the US economy which faces dramatic cuts in public services - and potentially riots reminiscent of Athens six years ago - according to former Federal Reserve advisor, and President of Money Strong, Danielle DiMartino Booth.

As she picks apart the danger signs with the US on the precipice of recession, it’s the impending pensions crisis that keeps her awake at night, sharing the gloomy sentiment laid out in an extensive March 2016 Citi report titled "The coming pensions crisis."

With few people taking part in what little recovery the US has had, and given how stretched pensions are, checks are going to have to be written from Washington sooner than you think, DiMartino Booth told Real Vision TV in an interview. “The Baby Boomers are no longer an actuarial theory,” she said. “They're a reality. The checks are being written.”

A Bulldozer Couldn’t Fill the State Pensions Gap

The $1.3 trillion pensions deficit just takes into account state and municipal obligations, and with promised returns of 8% and funds compounding at 3% for decades it will take nothing short of an economic miracle to recover.  “The average state pension in the last fiscal year returned something south of 1%. You cannot fill that gap with a bulldozer, impossible,” DiMartino Booth said. “Anyone who knows their compounding tables knows you don't make that up. You don't get that back unless you get some miracle.”

The last time we saw significant market weakness, the baby boomers pretty much accepted that they would be retiring at 70 instead of 65, she added. “Well, guess what? They're turning 71. And the physiological decision to stay in the workforce won't work for much longer. And that means that these pensions are going to come under tremendous amounts of pressure.

“And the idea that we can escape what's to come, given demographically what we're staring at is naive at best. And it's reckless at worst,” DiMartino Booth said. “And when you throw private equity and all of the dry powder that they have -- that they're sitting on -- still waiting to deploy on pensions’ behalf, at really egregious valuations, yeah, it's hard to sleep at night.”

Pension Fund Underfunding is Ground Zero

The interview with Real Vision was held in Dallas, which DiMartino Booth said is Ground Zero for the pensions crisis, where returns for the $2.27 billion Police and Fire Pension System have suffered due to risky investments in real estate made over a decade ago. Huge withdrawals are now taking place, amid concerns over the future viability of the pension scheme, which commentators say could be flat broke in a little over ten years.

“We're seeing this surge of people trying to retire early and take the money. Because they see it's not going to be there. And if that dynamic and that belief spreads-- forget all the other problems,” DiMartino Booth said. “The pension fund -- underfunding is Ground Zero.”

The gravity of the situation with the lack of returns is magnified by the fact that the underperformance has been going on for between ten and 15 years. Calpers, the California Public Employees’ Retirement System is a case in point, amid reports that it returned just 0.6% last year compared with its long term target of 7.5%. With the legal language tightly written on pensions like this across the country, such that states and municipalities won’t be able to break free of their obligations, DiMartino Booth thinks the endgame will evoke memories of the Winter of Discontent in London in 1979 and more recently the riots in Athens as key public services are cut.

Angry Country, Angry World – The Wealth Effect is Dead

“This is where the smile comes off my face. We are an angry country. We're an angry world. The wealth effect is dead. The inequality divide is unlike anything we've seen since the years that preceded the Great Depression,” she told Real Vision TV. “Where's the money going to come from? And the answer is, for now, they cut services. I've just written about the Winter of Discontent and the rubbish piled up in central London streets in 1979, as Thatcher was coming in. I worry about the ambulance not getting there in time. I worry about firefighters being cut to the bone and policemen.”

The seriousness of the issue might not have hit home yet in Denver, where the state budget for tulips had to be cut recently to top up the pension fund, she said, but what happens when you are not talking about flowers anymore and when you are talking about a very populous state like Illinois?

“If the actuaries are going to force the checks to be written and reduce the rate of returned assumptions to anything remotely related to reality, then we won't be laughing anymore looking in the rear view mirror at the riots in the streets of Athens a few years back,” DiMartino Booth warned.

Visit Real Vision TV to watch this exclusive full interview, free to all. Real Vision TV is a video-on-demand channel for finance, offering over 500 videos from 200 of the world’s sharpest investment minds. Think of it as what CNBC could have been if it actually focused on quality of content.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
AC_Doctor's picture

Seriously FAKE boobs...

knukles's picture

Look a fake boob!

Chris Dakota's picture
Chris Dakota (not verified) knukles Dec 17, 2016 8:52 PM

San Francisco Chinese lesbian woman cop who never held a gun or worked one day on the street was appointed Chief of Police by Greasy Gayvin Newsom.

She retired at 50 something, she started to make herself twitch and went out on disablity so that 75% of her pension would be tax free.

Her pension is 278K per year.

And now she is working for Homeland Security, they wanted her to head border control, from a sanctuary city?

that didn't fly


JRobby's picture

Less workers, ZIRP / NIRP for 8 years = broke pensions. They couldn't see that coming?

Tick, tick, tick BOOM

Save_America1st's picture

Damn baby...I bet I know where you're hiding all your cash!  And it ain't under yer mattress like the rest of us.  lol ;-)

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Save_America1st Dec 17, 2016 9:22 PM

" key public services are cut."

Cut the hundreds of six, plus, figure salary Head of Diversity and Inclusion jobs.  Nobody will miss them.  Go back to volunteer firefighters.  Get rid of the government sports/swim centers, replaced with YMCAs.  Make trash pickup private (mine always has been).

Not that hard...

But, Central Planning will be sure to only cut where it will create the most pain.

RAT005's picture

The click bait for me was to see if they're real.  And soon as I know can move on to other more interesting issues.

MagicHandPuppet's picture

I'll start caring about these old and crooked beurocrats' pensions when I get an equivalent freaking goobermint pension too.  But, it ain't gonna happen since I work for a living.

Stuck on Zero's picture

I'm curious what happens when the pension funds don't just return 1% but actually return -30%.

cheka's picture

reason number 101 that frn will continue to be debased

mock any/every deflationist with confidence

Déjà view's picture

Tejas Whistling Dixie...

A major plank in Houston Mayor Sylvester Turner’s first-of-its-kind pension reform plan hinges on city council’s approval of $1 billion in pension obligation bonds. But one Houston senator hopes to change the way those types of bonds are approved.

On the first day of bill filing for the upcoming legislative session, State Sen. Paul Bettencourt (R-Houston) filed Senate Bill 151 to require voter approval for the issuance of obligations to pay down municipal pension fund liabilities.

Bettencourt’s bill fixes a problem that was created by the legislature.In 2003 the legislature passed SB 1696, a bill that allowed municipalities to issue debt in the form of pension obligation bonds to pay down liabilities equal to or lesser than the amount they owe, without any voter input.

That bill has empowered the Houston city council to approve up to $7.7 billion (its current unfunded pension liability) in bonds without the input of voters.

Bobbyrib's picture

Short term-deflation, long term-Zimbabwe.

JRobby's picture


Everyone else, SUCK IT UP!

Paul Kersey's picture

The pension crisis has been no crisis for the hedge funds that manage them. As it turns out, Former Lehman Bros bro, John Kasich, really wasn't "the adult in the room".

FREMONT - Gov. John Kasich claims Ohio public pensions are “rock solid,” but the math revealed in the Comprehensive Annual Financial Reports (CAFR) and the annual U.S. Census survey of all public pensions shows a system sinking in the quicksand of terrible investment returns and ultra high expenses.

In 2015 Ohio’s five public pensions paid outside fund managers a staggering $734.8 million. These management fees are extraordinarily high because Ohio relies on secretive alternative investments more than any state in America. Census data shows Ohio reduced holdings in hedge funds and private equity funds by more than $10 billion dollars last year but still own more of these high-cost investments than any other state.

The results are embarrassing. In 2015 the Ohio Public Employees Retirement System, the state’s largest pension fund, spent $428.2 million in external management fees for investment results that fell 99.8 percent from 2014, a year when PERS also failed to match what a low-cost index fund would have returned.

The Ohio Retirement Study Council, a state government agency created to advise the state legislature, confirms that no Ohio public pension fund has earned the investment returns assumed by their contribution rates over the last 10 years. This is why three of the five funds have increased employee contribution rates from 25 percent to 40 percent and all of the funds have changed the benefit calculations to cut retirement payments."

And the two worst state pension plans in the country, NJ and Illinois, have been sold out by their crooked governors, too.

Save_America1st's picture

um, well...I was...pretty much...referring to her huge rack, but yeah...what you said too.  that works....I guess.  lol ;-)

SoDamnMad's picture

And some are calling for Kasich to potentially be named as Trumps replacement if the Electoral College impasse gets thrown to the Congress?  WTF

This guy is a budget wizard. Yeah And I'm the Pope.

JRobby's picture

Kasich is an elitist tool who lives off crumbs that fall from the table. Notice the "patients" he displayed in the debates when challegened.

Same old elitiest arrogance. He's a fool.

"would you like to see the Pope at the end of a rope? Do you think he's a fool?"


Fox Moulder's picture

You left out the part where millions lose their jobs to robots.

Nexus789's picture

Add in rising health costs which are now over 18% of GDP.  A perfect storm is brewing. 

rbg81's picture

I think the purpose of the 2008 Financial crisis was to insure Obama got in.  And then the FED did its best to create a Potemkin Villiage for the next 8 years.  The next big crisis will probably be engineered to hit during Trump's presidency -- no accident that.  The next guy to come in will make Obama look like a piker.  They will institute full blown Marxism to ensure that the poor get their rations.  You only have to look to Venezeula to see where this is going, but on a Global scale.

rbg81's picture

ZIRP/NIRP makes it cheaper for Government to borrow.  But it is a killer for savings and pensions.  So, in a nutshell, we are raiding retiree funds to fund current entitlement spending (as most Government spending is on entitlements).  Most people are too stupid or uniformed to realize this.  Of course, the $$ that Government is borrowing is being conjured up out of thin air anyway.  So we are paying ourselves with Monopoly $$.  One day people will catch on to this.  That is what the War on Cash is about.  Make all exchanges electronic and then people have no choice but to use fiat Monopoly $$.  Either that or barter.

JRobby's picture

"Either that or barter"

Do you know how much non government (civilian) purchased ammunition was sold in the past 18 months?

17,850 tons, a 200% increase. 

Freddie's picture

Loads of idiots loving slave drivers Bezo/Amazon, Apple and headless Uber cars and other idiocy.  Libs love fewer workers, more illegals, bigger pensions and the list goes on.

Xena fobe's picture

This is the rule not the ezceptuin in calif.  And what they don't say is she made sure all her extended family were hired as well.  Then they all got promotion after promotion after promotion.  They also let contracts to other friends and family.  This deal is only available for the well connected.  Those with English skills need not apply. 

SoDamnMad's picture

So with SF being asanctuary city we can cut them off fromfederal funds and drain the Fong swamp a bit faster.  Now, if we could just have a strong earthquke and slide them away from the coast by a few hundred miles.

christiangustafson's picture

Deflationary collapse is necessary to eliminate unsustainable liabilities such as this.


Anyone expecting to collect any pension in the USA in the future is fucking delusional.

Ponzi schemes, one and all based on money in versus money out.

Not even factoring in any future economic collapse.

If you can cash out a lump sum, and immediately invest in gold, silver, food, water, guns, and ammo, you might just have a retirement fund you can actually count on.

Otherwise, bend over for another sperm enema from Big Brother, because that's all they got to offer to Joe Sixpack.  

JohnG's picture

Rioting in Thebes......

JCJames's picture

Federal pensions will be the last to go, if at all. The State and municipal pensions are at high risk now. Maybe those pensions will receive federal bailout but then again maybe not. If they did it might contribute to dollar devaluation if the source of bailout is dollar printing.

AGuy's picture

"Otherwise, bend over for another sperm enema from Big Brother, because that's all they got to offer to Joe Sixpack. "

States will just raise taxes to pay for state worker pensions. its the Working the class that will get screwed before the State workers get screwed.

JCJames's picture

Doesn't it make you seriously want to grab them?

Paul Kersey's picture

Fake boobs are better than no boobs.

Confucius say, "Man who goes out with flat-chested woman has right to feel low down."

Stalefarts's picture

I don't worry a bit about "the ambulance gettig there in time" and sure as shit don't care anything about the firefighters. Firemen are totally worthless. It's a proven fact that fires are rare enough that its more efficent to just let fires burn themselves out rather than spend millions on fireman and their silly fire engines and other toys. Couple that with the fact that many firemen are closet arsonists, and that most of the "fires" they fight are of the burned toast or cigarette in some dry grass variety, and I could live w/out them.

Ditto for cops. Cops today are nothing more than ticket-writing revenue agents, overpaid to an abusrd degree for a job that requires nothing in terms of education or skill/training. Most "arrests" are related to unpaid traffic fines or other nonsense crimes like possession of marijuana, etc. 

The reality is that almost no one will miss these "public servants" a bit. Go ahead and just stiff them altogether on their pensions, save the rest of us a ton of money, and move on. 

roddy6667's picture

I live in China and have noticed a lot of things here that point out the strangeness of American ways. They don't have one "911" number. They have a different one for police, fire, or ambulance. The fire trucks seldom roll, but the fire departments are very modern. In America they look like something from an 1890's costume drama. Almost all the buildings here are concrete, so fires are rare. The trucks are ultramodern and the firemen are dressed for action, not a Charlie Chaplin movie.

In America, if somebody has chest pains or shortness of breath and dials "911", a guy drives up in a $1.5 million fire truck, and comes into your house wearing big boots, a raincoat, and a silly hat from the 19th century. I guess this is in case you burst into flames while having chest pains. Then two cops rush in. Maybe you need to be shot, who knows why they are there? Finally, the EMT's you need show up.

What a huge waste of money! What a boondoggle for the fire and police unions! Every 911 call needs three separate services.

saveUSsavers's picture

Do they put any rebar in those concrete bldgs? lol And I love the pics of tilapia cesspool ponds with chicken coups on top. LOL oh, and if you like your drone, you can keep it.

roddy6667's picture

Of course they do. Do you put any intelligence into your remarks?

Freddie's picture

Well in the USA, the firemen and two cops will show up when you have chest pains and shoot your dog.

In China, the two cops and firemen show up and eat your dog.

Ace006's picture

No lie. I had a back spasm in St. Louis County in the 80s. Couldn't move to unlock the door for girlfriend. Genius neighbor called 911 and a hook and ladder showed up with all the lights. They broke down the inside door in the garage. 

The central planners's picture

Dude she worked at the FED and they inflated her assets. Those boobs are on a bubble dont buy it.

de Cosmos's picture

Maybe The Bernank went motorboating at the FED...

knukles's picture

I been pissing and moaning about this, the math behind it and all for years and right smack dab when the economy's gonna turn south, another fine problem you got us in to, Ollie.  The pension schemes Work if and only if the demographics and real wages expand to fund such.

Surprise surprise.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) knukles Dec 17, 2016 9:27 PM

Not to worry... ILLEGAL aliens are flooding in to take care of this problem: Underfunded Pensions Americans Won't Pay.

malek's picture

And how does this matter, in relation to the $100 Trillion (or $200T depending on who you ask) unfunded obligations for SS and Madicare?

uhland62's picture

Spare a thought for the generation currently young.


Stagnating wages do not enabble them to save themselves and from the government nothing will be forthcoming. What exactly are they buying their bread with - and what are the corporations making a profit from when such large groups cannot buy anything any more? 

GreatUncle's picture

The future the political criminals kept pretending the would never arrive.

The future is here today and every next day also and as into the future they have mamaged to trash the whole economy.

Reckon the next 30 years will be dreadful so a choice ...

1.) Burn the economy tomorrow, man up to them and their crap.

2.) Or apply the continued torment over future generations ... until they revolt.

There is no 3rd option.


Putrid's picture
Putrid (not verified) GreatUncle Dec 18, 2016 6:59 AM

There is a third option that I've advanced: World War Three

Nexus789's picture

The end of civilization is not an option the sane would opt for. 

Ace006's picture

A propos of 2), Trump has much business sense but has placed much emphasis on "infrastructure" "investment." Infrastructure isn't the problem we have and it's intended as a more expensive form of leaf taking beloved of WPA bureaucrats.

Other ideas of his portend well. Simply looking out for the interests of Americans rather than Chinese is a concept of bleeping epic revolutionary proportions. What a concept. We'll see if he really grasps that Keynesianism is economic poison and can communicate that SS, Medicare, welfare, and pensions, are checks that simply can't be cashed. The Hillary voters by their millions weren't in the least interested in hearing about real problems. The Bernie voters wanted free lemonade and Thank You for Breathing, Beautiful Person Money.

So with Trump we have a sort of in-gathering which is THE essential first step which is effing amazing right there when you consider the ultra-left madness of the last 50 years, the New Deal before it, Obongo and the witch Merkel. I'm not sure we'll ever get any politician to embrace your 1) or its variant. However, there will soon be a lot less money for EBT cards and the long torment of a parasitic criminal underclass will essentially be over, regardless of printing new funny money. The new question to be posed to them is Are you with us or against us? So long as they are against us (and common decency) we will continue to have that giant invisible degrading force operating on our great nation.