U.S. Pension Nightmare Has Begun

by: Jeff Nielson

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.