U.S. Pension Nightmare Has Begun

At the end of 2006, with U.S. equity markets and the U.S. economy both bloated to artificial highs – thanks to the Wall Street Ponzi-scheme, built atop the U.S. housing “bubble” - the United States already had a “pension crisis”.

State and local governments had unfunded liabilities for retiree health-care of close to or above, $1 trillion, according to the Center for Retirement Research at Boston College. The actual range of estimates was $600 billion to $1.6 trillion, with a median value being well over $1 trillion.

This large, unfunded liability is totally separate from the roughly $40 TRILLION in unfunded health-care liabilities for the federal government.

However, with the U.S. housing collapse not yet at the half-way point (see “U.S. mortgage-crisis to get MUCH worse in 2010-11”), and losses from Wall Street's Ponzi-scheme having already siphoned more than $10 TRILLION in hand-outs and pledges to the banksters, a new multi-trillion dollar, pension nightmare has begun.

By the end of 2008, losses in U.S. equities had depleted the total assets of U.S. state and local pension plans by roughly $2 trillion. Even when the U.S. economy appeared to be at the peak of its economic health, funding for U.S. pensions (excluding health care) was barely adequate. Thus, there is no “cushion” to absorb these losses.

To those who place no more faith in Ben Bernanke's 5th prediction of a “U.S. economic recovery” than they did in the first four, the current “rally” in U.S. equities market is nothing more than a Plunge Protection Team-manufactured mirage – meaning valuations will soon revert to where they were at the end of 2008, and then head lower.

With a federal government which must now print money just to pay the interest on existing debt, the obvious question is what will be done with the $3 trillion pension short-fall for state and local governments? Potential “solutions” can be broken down into only three categories.

Either state/local governments must boost contributions, reduce benefits, or panhandle money from the bankrupt federal government. Each of these options carries a list of negative consequences.

Boosting contributions means state/local governments must raise taxes and/or reduce spending (i.e. slashing jobs). State and local governments have resisted doing either of those things – since they both fuel the current downward spiral of the U.S. economy. Clearly, attempting to make up any more than a tiny percentage of this $3 trillion nightmare through raising contributions would have a devastating impact on the overall economy.

This brings us to slashing benefits. This is not only certain to occur, but will almost certainly account for the majority of the $3 trillion in savings which is required – meaning taking $1 to $2 trillion out of the pockets of new and existing retirees. This comes at a time, when the average retiree has a mere $60,000 in their retirement portfolios, and very little more in other savings.

Thus, just as the population of seniors in the U.S. is exploding, this demographic bulge is experiencing a severe revenue-crunch. The only choices open to these seniors are either reducing spending, or selling assets. If they reduce spending, this accelerates the downward spiral of the U.S.'s consumer-economy – where there is enormous excess capacity already. This means nothing less than millions more lost jobs.

If they try to sell “assets” this essentially means either used automobiles or real estate. With the U.S. real estate market certain to continue its crash for years to come, should U.S. seniors attempt to raise an additional trillion dollars (or so) flogging real estate (assuming they have any equity), this will only magnify the housing catastrophe – and extend it for several more years.

Should state/local governments (or the retirees, themselves) look to the federal government (for yet another bail-out), the consequences of having the Federal Reserve crank-out countless billions of additional Bernanke-bills are equally bleak.

Accelerating the inevitable collapse of the U.S. dollar is guaranteed to cause even more dollars to flee U.S. equity markets. Nominal losses on equities are much less tolerable when compounded by huge currency losses. Anything which pushes U.S. equities lower only exacerbates the size of the pension deficit – meaning yet another vicious circle.

As usual, the U.S. government's “response” to this problem is to instruct their corporate propaganda-machine (i.e. the “free press”) to simply keep these ugly truths far away from the headlines – as they have been doing for years (while the U.S. government accumulated its $50 TRILLION in unfunded liabilities).

The problem is that the seniors are retiring now.

Comments

[5142152-337:]

Jeff,

Another terrific article! Thank you for writing it!
I have one question, Jeff: Do you believe that the upcoming catastrophy which will impact the commercial real estate industry will be "bad for gold"? Would love to read your view on this upcoming disaster!

Keep us informed, sir!

May 19 03:54 PM

[notsosmart:]

let them eat cake(or their granite counters).

May 19 05:09 PM

[Fighting Yoda:]

Pension, Health Care, Medicare, Social security are all going bankrupt at an accelerated pace.

America has to get back to basics and all of us have to do our individual parts: Live within your means.

The ‘borrow and consume’ mantra that has been preached to us by our leaders for last two decades is the cause of all our problems. Everyone including the Govt. of course is living/spending beyond their means.

We have to get back to Econ 101 – Save -> Invest ->Produce ->Consume. All this services stuff – paper shuffling , burger flipping, iPod selling (mfrd in Taiwan) will not cut it.
Worse is yet to come, after Bush wars and deficits now we are being hit by Obamanomics – spend baby spend (borrow baby borrow). All this is going to end very very badly – we are already in the Great Recession, little bit more and we end up in the GREAT DEPRESSION. Yes it is very much possible.

Stimulus can cause the stock market to go up- too many fools on Wall Street, but the real economy (jobs and wages) continues to suffer - no green shoots only weeds.

May 19 05:20 PM

[Jeff Nielson:]

5142152, based on your kind words, I'm guessing that I must have encountered you before on a different site.

What must be understood regarding the flows of capital in the short and medium term is that the bankers cannot control WHERE all the liquidity they have unleashed will end up (much as they would like to pretend otherwise).

What must happen is that the majority of this money will flow into (relatively) "scarce" assets. This means many commodities, and other assets which are not in OVER-SUPPLY. Thus gold (and even more so, silver) are guaranteed to have huge upsides.

It is the MASSIVE overhang in U.S. real estate which is continuing to cause this market to plummet downward. I wrote a year ago that the U.S. would have to bulldoze at least a million homes to chip-away at this inventory.

Today, with over 20 MILLION empty homes, it would likely require bulldozing 2-3 million homes to BEGIN to restore some sort of balance between buyers and sellers.

And as I wrote in a piece yesterday about the U.S. pension crisis, U.S. seniors will likely be trying to dump roughly $1 TRILLION in real estate onto the market over the next several years - to try to finance their retirements.

With U.S. real estate being a terrible "store of wealth" for many years to come, this further enhances the appeal of precious metals.

On May 19 03:54 PM 5142152-337 wrote:

> Jeff,
>
> Another terrific article! Thank you for writing it!
> I have one question, Jeff: Do you believe that the upcoming catastrophy
> which will impact the commercial real estate industry will be "bad
> for gold"? Would love to read your view on this upcoming disaster!
>
>
> Keep us informed, sir!

May 19 05:26 PM

[Frohickey:]

I beg to differ.
I'm find with the defense budget, as well as post office budget, patent office budget, printing press budge, and lower courts budget.
What I have a problem with is the Social Security Budget, the Medicare budget, the Food Stamp budget, the Foreign Aid budget, the Dept of Education budget.
Stay within the Article One Section Eight line items and I think we'd be fine.


On May 19 12:24 PM conceptwizard wrote:

> A major problem lies with the defense budget, especially the unaccounted
> black programs that we never talk about here on SA. Donald Rumsfeld
> the day before 9/11 was looking for 1.2 trillion of unaccounted for
> expenditures. The US has to back off the military agenda, and bring
> the 760 bases, with the jobs and the salaries spent here making purchases
> and buying homes. Stop funding Nevada and the other military BS.
> And look after the American citizens on its own soil. The military
> budget for US is equal that to ALL of the rest of the world and 8
> times that of China.

May 19 05:37 PM

[Jeff Nielson:]

Oops, missed that you were asking about COMMERCIAL real estate. Same arguments apply, if not more so - since the commercial real estate market has started its own crash a full two years later than residential.


On May 19 03:54 PM 5142152-337 wrote:

> Jeff,
>
> Another terrific article! Thank you for writing it!
> I have one question, Jeff: Do you believe that the upcoming catastrophy
> which will impact the commercial real estate industry will be "bad
> for gold"? Would love to read your view on this upcoming disaster!
>
>
> Keep us informed, sir!

May 19 06:10 PM

[Bobz:]

If the media has been hiding this information they aren't doing a very good job. Every day, we are getting the warnings about underfunding of pensions in some areas. In some cases we are ok though because at the state level they did something called "smoothing" which means they make sure they don't get carried away if the market has a good year, so they have funds available when the market doesn't do so great. A bigger problem is the underfunding of private pensions and companies being allowed to walk away from their pension obligations, something the public sector can't do. And the move from defined benefit to defined contribution has been a disaster for the average person who is not a financial expert and has limited ability to properly manage 401k's and IRA's in their portfolio. 401k's were never intended to replace regular pension plans. We now have a group of people approaching retirment whose savings have been cut in half and another group following them who have not saved enough in the first place. We need a major overhaul in this country of the entire financial planning apparatus for ensuring that retirees have an adequate income in retirement, something our European cousins don't have to worry about.

May 19 06:20 PM

[fireball:]

painfully aware
another astute observation. need food, water, shelter, protection, medical care? turn in your weapons. get on the bus or truck or train.

jeff
i too very much appreciate your articles. glad i listened to my old dad. don't borrow, pay your own way, never trust a politician, cover your own retirement the best you can. the one place we differed was on p.m.s. in his last years he was glad i did what i did.
government pensions-sieze all retirement accounts in exchange for a government guarantee-bad stench. the illusion was grand, the party seemed like extravagent fun while the wealth was looted.

May 19 06:24 PM

[5142152-337:]

Appreciate your reply, Jeff.

In re-reading my post, I should have added another question: Do you think this real estate episode I posed would tend to be inflationary rather than deflationary, thereby a postive for precious metals (gold/silver).

(I have been a reader of your articles with SA) Routinely pure Gems!

May 19 06:28 PM

[qj:]

all this fearmongering can drive one to worry if their tax-deferred savings will be safe. So much so, that they begin to contemplate a total withdrawal and start digging a hole in the backyard. What I fear more is that the US Gov't itself is at the heart of the fearmongering so that they can ultimately tax that big withdrawal before it would normally be taken.

May 19 06:41 PM

[Northstar10000:]

Talk of Texas already says they want to leave the union. I told the people at work years ago that this would be the talk sometime in t˙´near future. they looked like deer in the head lights, you know kind of like the obma voters will look in about a year. college kids overwhelmingly voted for the fool and now they can't find jobs and are moving back with mom and daddy who most likely also voted for him. Oh lovely justice.... Still in Iraq, build up in Afganistan, still bailing out the big banks. Oh by the way I am also enjoying the fools in the auto unions who think they won. A good bunch of them will be laid off and the rest will run the thing completely in the ground with the help of their obma friend. I am forced to join a union where I work so don't tell me the union sob stories. I see first hand the damage they do.

May 19 07:30 PM

[perceptions...:]

Regrettably, your basic premises are correct!

That said, there are three separate tsunami's entering the Global economy :
1) Population - Aging (Baby Boomers) & Total Population reduction
2) Peak Oil
3) Climate Change

The sheer magnitude of these events will shake Global economic foundations to the core and sorely test even the oldest of players - Greed & Self Interest.


On May 19 08:24 AM doubleguns wrote:

> This story is going to be around for a long time. There is no solution
> now since when things were going good this did not get resolved.
> Now there IS NO WAY that this can be solved with the resources at
> hand. Budgets can not have 30% or more syphoned off to pay into underfunded
> pension plans.
>
> This is simply one more of the straws on the camels back that is
> going to bring our country to a crisis of dollar and leadership.
> A big reset is coming. I only hope it is a peaceful event however
> I cant see how.
>
> We need to change the way our govt spends money and pays for programs
> such as SSN. Programs should not be raided to pay other programs
> and they should be held to their main mission. SSN has become nothing
> more than a glorified welfare program for a bunch of lazies who faint
> disability. Its true purpose long since gone along with the money.
>
>
> A sad day is soon coming. I have no idea what that is truly going
> to entail.
>

May 19 09:53 PM

[Jeff Nielson:]

When the commercial real estate collapse gathers steam, there will be two dynamics. On the days of worst panic, it will drag EVERYTHING down (gold included), as we saw last fall.

However, over the weeks and months it will either cause another flood of bail-out dollars, which dilutes the U.S. dollar and is inflationary, OR, if the government simply allows defaults, then THAT more general fear will drive people to gold as a "safe haven".

There is nothing in the deflation of specific asset classes which is "gold bearish" as long as the current environment of reckless money-supply growth continues - because THAT discourages people from hoarding cash.


On May 19 06:28 PM 5142152-337 wrote:

> Appreciate your reply, Jeff.
>
> In re-reading my post, I should have added another question: Do you
> think this real estate episode I posed would tend to be inflationary
> rather than deflationary, thereby a postive for precious metals (gold/silver).
>
>
> (I have been a reader of your articles with SA) Routinely pure Gems!

May 19 10:15 PM

[Blackeyebart:]

"Prices for medical care are going to skyrocket even more than they are now. This will be the excuse...er, "solution" that the gov't needs to nationalize the whole healthcare system. When that happens the cure will be worse than the disease. Millions of retirees won't have any pension AND really crappy healthcare."

It would be a shame if the US went down the same track as everyone else. The "socialist" health care and pension systems are hardly perfect, (but much cheaper and fairer than the US mess) and a better solution to both should be within the scope of imagination.
What I notice over and again is the lack of any suggested alternative. The debate is always between the "Socialists" and the "Capitalists". If brains were gunpowder neither could blow their hat off.

May 19 10:56 PM

[Blackeyebart:]

PO: Instead of the USG or the States or Big Business funding Health care and pensions (they work well together) create "Security Syndicates". These would be public enterprises run by the members with the task of funding health care and pensions. Membership of a one or other Security Syndicate would be compulsory. You would have to choose. The IRD could collect the fees. (Fill in the blanks.)
I can think of 100 things wrong with this idea. Most could be fixed, avoided or ameliorated. The great advantage of this option is that it not as bad as the other options currently being considered. a) Doing nothing b) Socialising the current mess.

May 19 11:14 PM

[xedge:]

I see it like this, we have two options. One, grasp that this nation is Roman, and the empire will need to expand to have circuses and free bread! Or two, own up, spill the beans, the gov. new of 911, and all the powers that control everthing, are covering up these lies with distractions and crisis. I wont live in fear, I speak the truth!

David

May 20 11:27 AM

[Did U Think...:]

It is important that we go investigate 911 because it is a symptom of the ponzi scheme. Easy money that you don't have to work for (AKA credit) causes people to think differently and lose their moral compass. They start chasing the almighty buck. The reason for this is that prices keep rising because the naked shorting of the dollar (that is what credit/debt actually is) increases the money supply and that money chases the prices of stuff up. No shoebox home in CA is worth 200k much less 500 or 1.2mn when I have a big house in TX worth 200k, 3 car garage, golf course community, clean, upscale all the way and it is only worth 190k. And that is with one of the best economies in the nation. If the economy in TX tanks like I suppose it eventually will, the house will be worth 150k or less just like when I bought it in 1994.

Abolish the federal reserve, return to honest money, get rid of fractional reserve lending and you will see this country find its way again! But first we need to tar and feather Geithner, Bernanke and Paulson and Obama too if he gets in the fvcking way. As for Greenspan, his head should be paraded around on a pole in front of the Federal Reserve building and the building itself should be turned into a library or some other socially useful edifice.

Wake up America. We can take this nation back. Violence is NOT necessary. Follow the examples of the great ones: MLK, Ghandi, etc. Nonviolence, nonviolence. But also noncooperation with the mutherfvckers. Steo 1 is to stop contributing to a 401k or an IRA as they are money traps. Government will lock that money away from you and then crank up the inflation knob. Store your excess wealth in physical gold and silver. Stay away from any sort of paper asset because they are all controlled by the government.

You have no idea how quickly it would put the Keynesians out of business if we cut off their money supply like that because without we the people those mfers are NOTHING.

Think! Educate yourself! Resist! And whatever you do, don't believe one word that any of them says no matter how smooth and compelling the delivery because they are lying through their gritty teeth.


On May 20 11:27 AM xedge wrote:

> I see it like this, we have two options. One, grasp that this nation
> is Roman, and the empire will need to expand to have circuses and
> free bread! Or two, own up, spill the beans, the gov. new of 911,
> and all the powers that control everthing, are covering up these
> lies with distractions and crisis. I wont live in fear, I speak the
> truth!
>
> David

May 20 02:26 PM

[Mlynn:]

The article was excellent. The responses are scary at best. I have one thought regarding health care. The insurance companies have long been behind this health care fiasco. They have bled this country dry. They will be the next big investigation in this country. Most of us who have worked all our lives to have what we have are terrified. Our healthcare insurance is our new mortgage payment! Wake up America. We need to quit expecting our employers to take care of us. Those are dreams of the past. If you need some stitches in your finger, pay for it yourself. You have a little cold - go to the doctor and pay for it yourself. We have used health insurance to death. Take some personal responsibility for your own health. Use catastrophic health insurance policies for the big bad things and pay for the little things yourself. Did you know you get a 40% discount for cash? That is all the insurance companies give you anyway. The money you save in excessive premiums well take care of the little things and you have some extra cash in your pocket.

Also, one other thing. Employers need to quit giving out 1099s to employees who work on a contract basis only. Look how much money this country is losing by employers not taking out the taxes from these people. That goes for the illegals too. It is a sad day in America when an illegal can come here, work, pay no taxes, have their babies (who then become Americans) and get free health care and prescriptions. We cannot afford to take care of all the people who don't pay any taxes in this country anymore. They have already bankrupted this Country and they just keep coming!!

May 21 08:14 AM

[Freedom/Truth:]

It is time to face the truth in America. We are not the saviors of the world. We can no longer feed the world while others sit their and wait for the handout. How can we finance the world debts when we are morgaging our childrens and grandchildrens freedom. It is time for Congress to stop bickering like grammar school children and unite and forget the partizonship and do what the people elected them to do.
If we stopped giving the foreign aid away for one year and used the money to repay the I O Y'S that our congrees has placed in the SSN fund to pay for their giveaway programs then the system would be in sound shape. If they will not do this then I suggest that the Congress not have a special retirement fund to drow their retirement out of but that they drow their big retirement checks out of the SSN account fund. I promise you America that if their retirement checks were coming out of the SSN fund then they would pass legislation that would instantly fix the solventry of the fund.
Wake up American people and forget what party is running for what office and lets start electing some people with common sense that will bring respect to the American people from the rest of the world.
We have always been their for the rest of the world with open arms and a kind heart to help. Now that America is in need I do not see any foreign countries offering foreign aid to us or to repay their war debts to us.
I wonder how long our household would last if we were spending more money than we were making? If only we could not pay the payroll taxes and then at the end of the year we could just simply tell the IRS that we were sorry but the money has been spent and we will give you an IOY for it and never have to worry about paying the IOU back. Congress wake up and quite spending more than the country can make. I believe the American people have had all they want of the failed campaign promises.

May 22 09:53 AM

[Did U Think...:]

Wow that sure sounds great. Too bad it is only half the truth. Who is financing whose prosperity here? We have a massive debt and a monster trade deficit. THEY have been financing OUR lifestyle, not the other way around. They work their asses off and we get the benefit of it because we have conned them into accepting worthless green paper in exchange for their goods and services.

They are the patsies in the biggest con game in the history of man. Any money that we "give" back to them in big public displays was conned from them in the first place. There is no room for argument here because the trade deficit tells the whole story. They supply us with more real value than we supply them. Without them recycling our green paper back into treasury debt our federal government would cease to have massive dollars to spread around buying favors, passification, and compliance with our demands. The minute they stop doing this is when the great fall of the US begins because our lifestyles are not supported by the amount of industry and economic production currently taking place in this country.

Be careful about reading headlines and believing them because they always gloss over the real economic truth. It is all part of the confidence scheme which is why the government continues to urge everyone to have confidence. When the confidence runs out, the con game is over.
~~~~~~~~~~~~~~~~~

On May 22 09:53 AM Freedom/Truth wrote:

> It is time to face the truth in America. We are not the saviors of
> the world. We can no longer feed the world while others sit their
> and wait for the handout. How can we finance the world debts when
> we are morgaging our childrens and grandchildrens freedom.

May 23 06:00 PM