Pensions Timebomb In America – "Global Crisis” Cometh

GoldCore's picture

Pensions Timebomb - Pensions "Are Going To Be A National Crisis"

  • America’s underfunded pension system is “not a distant concern but a system already in crisis”...
  • Tax may explode as governments seek to bail out insolvent pension plans
  • Illinois, California, New Jersey, Connecticut, Massachusetts, Kentucky and eight other states vulnerable
  • The simple mathematical mismatch at the heart of the pension crisis...
  • Why the pension crisis really is “America’s silent crisis”...
  • Pensions timebomb confronts Ireland, UK and most EU countries

By Brian Maher, Managing editor, The Daily Reckoning

"This is going to be a national crisis..."

“This” being America’s woefully underfunded pension liabilities, according to Karen Friedman. She’s the executive vice president of the Pension Rights Center.

(A place called the Pension Rights Center does in fact exist. We checked.)

MarketWatch columnist Jeff Reeves howls in confirmation that “collapsing pensions will fuel America’s next financial crisis.”

“This is not a distant concern,” warns he, “but a system already in crisis.”

According to data supplied by the Federal Reserve, pensions — public and private combined — were roughly 27% underfunded at the end of last year.

By some estimates, America’s public pensions alone are sunk in a $6 trillion abyss.

The issue, approached from any direction, is an impossible knot… a tar pit… a minotaur’s maze of blind alleys and dead ends.

How has the American pension come to such an estate?

Most public pension systems were built upon the sunny assumption that their investments will yield a handsome 7.5% annual return.

But consider…

The average public pension plan returned just 1.5% last year.

Last year marked the second consecutive year that plans undershot the 7.5% return rate, according to Governing magazine.

The same plans worked an average gain of 2–4% in 2015.

A highly technical term describes the foregoing if it goes on long enough... and we apologize if it sends you to the dictionary:

Insolvency.

Briefly turn your attention to the Golden State, for example. California.

State pensions are only in funds to meet 65% of their promised benefits.

And California pins its hopes on that golden annual 7.5% return to make the shortage good.

But it’s in a devil of a fine fix if the average public pension plan only returns 1.5%.

The math is the math.

California essentially depends on returns 400% above the norm, according to financial analyst Larry Edelson.

But California is by no means alone.

We won’t run the entire roll call of shame.

But the great state of Illinois, for one, risks sinking into a $130 billion "death spiral" from its unfunded pension liabilities, as Ted Dabrowski of the Illinois Policy Institute described it.

S&P Global Ratings has even threatened to downgrade the state's credit score to "junk" status.

New Jersey, Connecticut, Massachusetts and Kentucky are also among the worst deadbeats.

But the problems run from ocean to ocean and south to north.

A report from Moody’s reads thus:

For many states and municipalities, exposure to unfunded pension liabilities is already at or near all-time highs. Since cost burdens are already expected to further increase, pension fund investment performance is critical for the credit quality of many governments.

Not even a "best case" cumulative 25% investment return on public pension plans would stanch the blood flow, according to Moody’s.

They say that best-case 25% would merely reduce pension liabilities a slender 1% through 2019 due to weak contributions and poor past investment returns.

“But I don’t have a pension,” comes your response. “This doesn’t concern me.”

Ah, but have another guess — at least if you swear off your taxes in these United States.

Is it your belief that governments will let their prized public pension plans flop?

There are votes to consider, after all.

Jilted pensioners are capable of generating a good deal of hullabaloo, hullabaloo to which the official ear is exquisitely attuned.

Besides, do you think kind Uncle Samuel will turn the politically strategic states of California and Illinois out on their ears?

As our resident income specialist Zach Scheidt argues:

Your tax bill could explode as governments around the country seek to bail out insolvent pension plans. And you know how much politicians like to use your tax money to bail out some constituent. They like to prove their “compassion” with your money!

“Expect to pay higher state and local taxes for fewer services in the years to come,” adds Larry Edelson, before mentioned.

And:

“Don’t be surprised if authorities of all shapes and sizes — from local governments to national agencies — up the ante to get ahold of your assets any way they can.”

We would have to agree. You shouldn’t be surprised in the least.

And we can scarcely imagine the holy hell that would follow another financial crisis.

Illinois Gov. Bruce Rauner warns the state’s pension crisis is driving his beloved Land of Lincoln into "banana republic" territory.

But we suspect the good governor’s mouth ran away with him here...

Can you imagine comparing the venerable, eminently worthy banana republic... to Illinois?

The pension crisis is truly “America’s silent crisis” and indeed the world's silent crisis.

From The Daily Reckoning newsletter


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new guy's picture

We are beset by parasites. How important would retirement be to a healthy 50 year old person if he only had to work two days a week to make ends meet. If you remove taxes from the equation we're there right now. There is no task which you can give to government that they will not fuck up! Or it seems that way until you realize that they do not have your best interests at heart. You are the host and parasites don't make decisions based on whats good for the host.

The Real Tony's picture

It certainly is reassuring knowing the entire American pension plans hinge on the central bankers not getting arrested and prosecuted. An 80 to 90 percent fall in the stock market would wipe out most of the pensions.

Glyndwr will return's picture

The only people who really use demographic data are the elite. They think there are too many people on the planet for everyone to have a middle class lifestyle ( they are actually right) and they want them indebted and mixed. They want us fighting basically . Divide and rule. Everything flows from this . Pensions are planned to collapse so the savings rate skyrockets and births plummet . It's the plan. Wars help.

Fed-up with being Sick and Tired's picture

Guys and Gals>>>>>they are NOT PUTTING A TIME-LINE on this,  are they?   When they mention 65%, this means that this is over the long run.  In other words, they are projecting a short-fall going out over 5-10 years.

Things are NOT falling apart RIGHT NOW, but in the long run, they will.   So, to place our fears in context, they will TAX THE FUCK out of US (non-Government folks, such as SAVERS and regular working citizens) to PAY FOR GOVERNMENT EXPENSES.

This is just another way of saying that all of this over-spending will be kicked down the road, and SLOWLY BUT SURELY, insidiously, they will use VAT to pay PART OF THIS PENSION nightmare.

 

This is why the WAR ON CASH is so insidious (yes, this is the correct term).   THEY WILL SCREW US with TAXES ON PENSIONS, on FUEL, ON ANYTHING with a VAT.

numapepi's picture

The 1-2% we are getting in our bonds, is the result of, the real return minus the hidden tax, suppression of interest rates by ZIRP and the actions of the PPT.

_SILENCER's picture

They'll let it go up in flames so they can move everyone to cashless, strap you down with planned, directed minimum "income", and keep you on the plantation.

 

Unless, of course, they're killed

OKUSA's picture

Eventually they will just have to cut the benefit. The retirees will yell and scream, along with their union bosses if they have them, but if there is no money there is no money. Once the retirees realize they aren't going to get their money, things will go back to normal. The new workers are already being prepped for their own cuts in benefits.

Dwarsligger's picture

Aha. Now I understand why the banks and the big corporations are working so feverishly to prepare their Plan B: give every global citizen a biometric number without which they can't access their basic needs like their pensions and other financial transactions. It's called ID2020, a hare brained scheme overseen by the UN and to be developed by the banks/tech/biosensor community.

Biometric ID2020 on the Blockchain with Microsoft
http://globalcitizennews.blogspot.nl/2017/07/biometric-id2020-on-blockch...

veritas semper vinces's picture

Mark of the BEAST from the Whore of Babylon.

litemine's picture

Hanomy. Best of Luck with your Path. 

What they are saying, this being a Gold Silver Sales Blog is ;  What would happen is if everybody bought say, Some Gold and Silver?

         to farther your ideals then 

 If Money from Pension Funds could buy some Physical Gold. Holding Ca$h buried in a Tin isn't the same as buying a long term savings such as gold. With a strong demand the Price would go up. It takes money, less than some would think to aquire all the free floating Physical. 

Those in the World who have Horded Gold for millennium are some of the Poorest, this could trigger a Transfer of Wealth. Even peasants in India hold physical, not so much in the West. If items get expensive what would you trade your earings for?

 Many Paper Traders will Fall. That said, If you don't hold it, You don't Own it. That is the secret, The Physical needs to be absorbed then if Savings and Pension funds held 5% Physical. "Guarantee'd and Insured" due to this additional demand, the Value should also Increase. 

Investers could inflate the price and private Trading Houses could open  a physical traded market. Bitcoin and all.

What a movement.........Happy Canada's 150 years Birthday Celebration.

$hit happens.                                                                          Thar Be Greed out Thar

Hanomy's picture

Hanomy Manifesto which can be downloaded at  Hanomy.com (a non-commercial site) is the answer.   It has solutions for current problem worldwide and up coming problems due to AI.  112 pages document lays out a new social, financial, and political system.  We can implement it within few short years.  Take the goods, rid the bads .... national debts are settled, concept of money is turned up side down. Please help me spread the word.  Thank you... Highlights of Hanomy:

• Fundamental human needs met throughout life’s existence
• Basic human rights observed everywhere
• Sovereign debts worldwide are settled and eliminated
• Upheld liberty and freedom
Financial contributions drawn from a portion of idle/unutilized money
No taxes on income, profit or spending
• Interest charges and usury practices abolished
• Power of money creation where it belongs - the people
• An end to the fractional reserve system
• Upheld free market principles (true capitalism but with social responsibility)
• Decreased or dissolved inflation and hyperinflation
• Reduced income inequality
• An end to corporate welfare
• Advanced technology benefiting humanity
• Freedom of time for quality of life and caregiving
• Prohibited conditions for authoritarianism
Preserved sovereignty and respected borders
• An end to “modern day slavery” (this includes you)
• Improved care of the environment and world resources
• A world we’re proud to claim and pass along

bshirley1968's picture

Bottom line?  They will take and take and take until someone tells them, No!

They will bail out the pensions and demand it be covered by higher taxes or the backdoor tax called inflation.  They will never stop stealing until they are stopped.

If we cannot find the grit, character, will, and leadership to tell them no.......and back it up, then we are destined to become what the rest of the world was for thousands of years before there was a United States of America and what the rest of the world is now......serfs that belong to the state.

Freedom cannot be legislated into existence.   It cannot be voted into existence.   It cannot be protested into existence.  Freedom is born and maintained by the death of tyranny,  tyrants, and those that would be free.......period!  We can talk and talk but we all know where this leads and the end result......one way or another.

Is there anything worth dying for?  Are you afraid of death?  Patrick Henry summed it up best with his "give me liberty or give me death" speech.  The same choice is about to be forced onto us.

Think I'm seditious or treasonous?  Maybe to this government but not to the Constitution.  My allegiance is to the Constitution. .....my duty is to the Constitution.   All laws that violate the Constitution are null and void,  and I don't give a shit about what some lawyer or judge says to the contrary.  Push me, and that is where I will make my stand.....under the liberty of the Constitution or in the liberty of death.

 

AE911Truth's picture

Are we going to let these criminals rob us, or are we going to stop them?

https://youtu.be/w0mimIp8mr8?t=4155

 

Disgruntled Goat's picture

The Fed screwed every Pension Fund by by destroying the coupon of every laddered Treasury Portfolio with its reckless ZIRP policies.

The Fed, The OCC, TheSEC, The CFTC, et al, screwed every Pension Fund by allowing the banks to sell them toxic, fraudulent asset backed securities and derivative swaps of dubious value. 

Corrupt and/or clueless fiduciaries in charge of these funds screwed themselves and their rank and file by purchasing this crap and by perpetuating the belief that future benefits were assured under any circumstance. 

Fuck the Pension Funds, Fuck the Banks, and Fuck the Government. No more bailouts for anybody, including the banks (again). I'd sooner fight a bloody revolution in the streets.

cherry picker's picture

All governments overextended their intended purpose.

They can cut back unnecessary spending and fill the gaps.

They can forget about taxing more as they will just open up shadow or black market economies.

Only so long that government can push people around.   History is full of stories of assassinated dictators, monarchs, overthrown governments and it can easily happen again.

linkster's picture

When big banks were insolvent The Fed had no problem flooding Wall St with trillions and at the same time screwing savers and pensioners with absurdly low interest rates. So how about the fed declaring the nation's pension plans too big to fail and pumping several trillions into the system they helped ruin.

Xena fobe's picture

Two wrongs don't make a right.

Ned Zeppelin's picture

Satisfying the demanding uionized public sector by squeezing the much larger populationnot blessed with these ridiculous pensions is a non-starter. I put my money on the pols fearing the rest of the voters over a comparativlely much smaller number of squawking municipal employees. These plans will go bankrupt Hemingway style, slowly and then all at once. Huge tax increase to fund these promises is a non-starter.

"But, but we were PROMISED,.,. . . "

Life's a bitch.

mike_king's picture

Let's hope the states default and kill the welfare state. I want to watch the riots when the EBT cards and Section 8 run out. Burn the cities and all the people in them.

LA_Goldbug's picture

The problems started when they started to diverted money that was being put away !!!

"The parties ran campaign advertisements on the issue. They fashioned baroque legislative ''lockboxes'' to protect the Social Security trust fund. George W. Bush said in his 2000 campaign that ''for years, politicians in both parties have dipped into the trust fund to pay for more spending -- and I will stop it.''

Now all those pledges are a memory. With the surplus drained by recession, last year's $1.35 trillion, 10-year tax cut and the war on terrorism, the president's new budget uses Social Security surpluses to pay for other programs every year through 2013, ultimately diverting more than $1.4 trillion in Social Security funds to other purposes.

This year alone, $262 billion in Social Security funds are to be tapped. In 2003, the budget envisions using $259 billion."

In 2002,
" In the rush to spend, we are not asking the basic question: Is this the best use of our limited funds at this point in time? I want to emphasize to my colleagues how critical our budget situation has become. Over the past year, the budget outlook has worsened dramatically. Last year, the Congressional Budget Office predicted a unified budget surplus of $313 billion. That is for fiscal year 2002. That means the Social Security surplus and the n-budget surplus together equals $313 billion. We all thought everything was going great, and I was extremely pleased because Congress believed that we might be able to once again use the entire Social Security surplus to reduce the national debt, after all, we did it in 1999 and 2000. As a matter of fact, during that period of time we reduced the national debt $365 billion, the first time that had happened in almost 30 years. Unfortunately, it is not turning out that way. Instead of reducing the debt, we are going to add to it. Seven months ago CBO released budget projections that showed the Federal Government is in much worse fiscal condition than we all thought. These new projections show that the Federal Government will spend the entire Social Security surplus in both the current fiscal year and in fiscal year 2003."

In other words they blew the money away on Wars !!! War on Drugs, War on the World, War on Terror, War on You and Me.

media_man's picture

Debts that can't be paid won't. The public employee retirees in CA, IL, MA, NJ, NY, etc can take a haircut. Politically it's the only choice. There are limits to what the public will be willing to pay for.

how_this_stuff_works's picture

" There are limits to what the public will be willing to pay for."

Yes, and there are many people comprising the "public" who have had their own pensions undergo a significant haircut when the company they worked for declared insolvency and turned pensions over to the PBGC.

Apparently it is folks like those who are expected to pick up the slack to ensure "public servants" receive their "due."

Endgame Napoleon's picture

In the fake-feminist era of the dual-earner household, the same people who have the bulging 401ks have the pensions in most cases, doubling up on retirement money, just like they doubled up on the few jobs with decent wages and benefits. And fake feminism also makes sure that during the years when they take two of the few good jobs out of the economy, dual earners have plenty of family-friendly, excused, babyvacationing absenteeism privileges in their crony-parent hiring/retention gangs. Perhaps, some of the pensions would do better if they occasionally hired and retained people outside of their back-watching parenting cliques, some non working families who need or are granted less absenteeism privileges. They might focus more on the job.

It is a little different situation for those with one, low, earned-only income to cover all household bills, including unaffordable rent, but not for those with high womb productivity. During their childbearing years, they just need to work the required 20 hours per week to get their household bills covered via welfare-reform goodies, including free rent, free food, free energy, nearly free daycare, monthly cash from government and Child Tax Credits up to $6,269. But after the kids grow up, these single women join the ranks of one-earner households who are not paid by taxpayers for sexual imtercourse and reproduction. They are then forced to live on the inadequate take-home pay alone. The pay won't cover both housing and adequate food. Pension....401k....what a joke. Count these people in your analysis of the coming crisis, putting them in a special housing crisis category, and you'll have a more complete picture.

media_man's picture

Virtually the entire private sector is on cash balance pensions & immune from the type of budgetary tricks the public sector is playing with its fantasy return rates & endless taxes on people who work.

Blazing in BC's picture

Cut all pubic pension plans by 10% per year until they are solvent

mary mary's picture

Again, I suspect the primary reason is the FED and ECB dictatorially holding down interest rates to deprive the retirement accounts of interest income.  This is Zionist at its finest.  But don't look there; look at the starving children in Syria.

PitBullsRule's picture

This is very simple, and was summarized by Brittany Spears some time ago; "You gotta work bitch."

montresor's picture

 One. Simple. Ratio..   Workforce Participation Rate/Total Unfunded Liability..   What's that ratio 1/200? 1/500? 1/2000? ..  If people aren't allowed to start businesses or get a job because of excessive regulation, then these liabilities can never be paid.. Those who trust the word of the democratic party deserve to lose everything..  The future of this country will be defined by hatred of the democratic party..  The only path to absolution is total war against the democratic party and all who support them..  One fantastic way to harm the democratic party is through highly aggressive tax avoidance strategies.. If every American followed the tax code to a "T", then in theory, no American would pay taxes beyond the AMT..   Starve the nigger ass beast until it dies of it's own boonery..

Wild E Coyote's picture

America does not have a pension crisis.

If we reduce war and military expenses we will have noe than enough to give a happy pension to all our elders. 

 

U4 eee aaa's picture

I'm almost thankful I came up in a time when the also ran companies were not giving pensions to their workers. Had I had a pension I have no doubt our company would try to rip us off regarding it today and I would be in a worse off position. So, instead, I had to make do and generate my own retirement income, which I'm well on my way to doing. At this point, I only need the Canada pension plan to survive if I get injured and can't work any more but by the time retirement rolls around I don't plan on being dependent on that either.

Seeing where things were going as I got into the working world in the '80's and onward forced me to study finance and what I learned about the vampire banking cabal horrified me. That may end up being the saving grace as my income should not only be independent of .gov but also of geography, so I should have the opportunity to choose a safe, relatively cheap retirement home on earth and if I need to be a nomad with a magic money pocket I can

GreatUncle's picture

Notice how all the entitled politicians are well covered on the pension front with golden pensions?

What pension crisis? There is no pension crisis until you start cutting theirs!

U4 eee aaa's picture

It's called trickle down CYA. It starts with the elites, then the bankers and CEOs, then the politicians.

It usually doesn't get below upper management unless you are a contrarian and have an excellent internal lie detector

Mazzy's picture

Pensions rob current workers of wage/salary in order to pay for past workers who aren't producing anything.

Like any debt based system (think of it in those terms) it has to be maintained or even expanded upon to remain viable. Thus, current workers are not going to be attracted or retained without a pention system in place while they pay for the pensions of those who are long gone.

Meanwhile the original pension created a moral lapse among it's original recipients; namely they decided they would never have to save for their future and could be as frivilous as they wanted knowing that money would almost certainly trickle in for them forever.  Put frugality to the wayside! 

Doing this caused a debt based consumption boom, which had many players interested in it's continuation and rose prices for goods and services across the board, thus damning future generations who wanted an early start along the road of adulthood.

LA_Goldbug's picture

"This” being America’s woefully underfunded pension liabilities, "
But not the military budget or the US bases ALL OVER THE WORLD !!!

http://www.politico.com/magazine/story/2015/06/us-military-bases-around-...

wchild's picture

The shitstorm cometh...

BandGap's picture

The shitstorm just docked in Illinois. It's here-eth.

dinkum's picture

A few responses to the premise of this post received the past 72 hours at a community dinner, by phone and at lunch:

  1. This is a Republican conspiracy. 
  2. You read too much. 
  3. Trump's crazy. 
  4. Trump's stupid.
  5. Obamacare should be run the same as Social Security, Medicaid and Medicare because they don't have any problems. 
  6. If Hillary were president this would not happen. 
  7. If Sanders were president this would not ever happen. 
  8. Favorites were two retired seniors with $2+m estates who separately gave me the finger. 

 

Xena fobe's picture

Out of touch rich bastards.  Tell them the working poor have big plans for them when the SHTF. 

dinkum's picture

Zf: "Out of touch rich bastards.  Tell them the working poor have big plans for them when the SHTF." 

Xena fobe, my premise is: "Mass guilt fosters dissociative identity disorders". Net worths do not generally detrmine what second life or split personalities a person adopts. 

My Dad told us at the kitchen table when I was 5 or so that the worst law in America was employee withholding tax provisions where an employee requests their employer to withhold their taxes so they do not have to fund the payments on their own. 

I found this to be the most common denominator of both types of ignorance -- true ignorance and intentional ignorance of the concept of zero with multiplying and dividing. 

There is a near perfect negative correlation between policies advocated to reduce income inequalities and basic concepts such as independence, education, welfare, mental and physical health and savings. Most, not all, of the loudest whingers about income inequality are the worst at funding health, education, welfare and pensions. 

They are not evil. Just their split personalities' acts are evil. One way to describe them is that their evil persona is sadistic believing others expecting duty of care and responsibility by government policymakers are masochists. 

The two who gave me the finger had children with 150 to 160 IQs graduating summa but unable to raise their own children independent of majority of expenses paid by family donations and government payments.

Rich b grandparents cannot deal with the stress caused by guilt so they try their best to make sure other families suffer corruption causing income inequalities.  

Omen IV's picture

The responses at their core are fear based -  rationalize anything - once the chaos begins the anger will replace the smug response and then the fear comes to the surface as they accept there are no bailouts and no solutions  -

sure - sell the lake house in a declining market when all the would be buyers are also on the government tit and the kids have no free cash flow to carry even the overhead.

we are starting the cycle to revolution as the necessary proletariat wakens from hypnosis called consumerism.

 

It was supposed to be Hillary as Dictator executing for the Public "Good" as all this chaos took place with supermajority of illegals / refugees / minorities  - voting for free stuff with minimalist existence.

 

Less than a year from November 16' and all unraveling - they all knew it was bailing wire and scotch tape holding it together.....Fake everything

Uncertain T's picture

You're right.  Not facing reality is what got the private and public pensions into trouble.  It's coming and it's inevitable.

 

On the other hand.... I've been reading the Daily Reckoning for some time and there is always doom and gloom similar to King World.  

DjangoCat's picture

The doom and gloom predictions have been going on for a long time.  IMO the fact that reality has been postponed does not negate the inevitable comuppance.  What we are seeing is genius at work propping up a failed system.  We can put off the inevitable, but we cannot stop it. 

BandGap's picture

Coming?

Read the headlines, it's here.

Handful of Dust's picture

The benefits were unrealistic to begin with so it should be no surprise pension payouts need to be cut. Even my firemen friends whose pension is in trouble said the plan's 8% expected retrun was nonsense. Luckily, they planned accordingly and saved alot on their own (which is what everyone should do; namely, take some responsibility!)

Anyway, cut the benfits instead of or in addition to raising taxes. And fix the unrealistic return on those plans.

Also, put lots of blame on the federal reserve (greenspan, bernanke, yellen). If our society was "fair" Greenspan would be in jail righ tnow.

divingengineer's picture

Claw backs already happening, Oakland police and firefighters pension has done multiple clawbacks over the last few years to my father. But he's a greedy old bastard anyway, and likely deserves it.

drendebe10's picture

Fuk raising taxes. Wrong answer.  Give em 401-Ks like every one else. Fukemall

GreatUncle's picture

I agree with you sentiment ... problem ...

Big gov is the main beneficiary of the taxes, welfare is piffle in comaprison to what big gov is keeping.

Bit like a foundation / charity  where only a tiny % goes to a good cause (the rest gets pocketed.

Xena fobe's picture

Then stop taxing the poor if that is the case.  It's all trickling up.