American Pension Systems Looking Increasingly Greek

Could America go the way of Greece?

Most people don’t seem to think so. In fact, proposing that US policy could lead to a Greek-like meltdown will still elicit incredulous eye-rolls in most circles. But some of the structural problems that led Greece down her road to ruin already exist in the United States, especially when we look at state pension systems.

Greece has actually improved its pension system. It now ranks as the eighth worst in the world. That’s up from dead last. According to Eurostat, Greece spends 17.5% as a proportion of GDP on pensions, the most in the European Union. The size of the deficit in the pension system stands at 9% of GDP or $24 billion. On top of all that, as the Guardian reported, “pensions are now the main – and often only – source of income for just under 49% of Greek families, compared to 36% who rely mainly on salaries.” Those workers earning salaries ultimately have to support not only themselves, but the masses drawing off the indebted system.

Clearly, the burden placed on the Greek economy by this unsustainable pension system has contributed to the financial woes. Throw in a welfare state that discourages work, and you have a recipe for the economic meltdown we see playing out on the news today.

So, what does that have to do with the United States? Well, a close look at pension systems across the country reveals some troubling structural problems, and it looks Greek.

As CNN reports, a recently released report by Pew Charitable Trusts reveals the depth of the problem. Consider these facts.

• States are short $968 billion for their pension systems.
• The shortfall increased $54 billion in just one year.
• Including debts from local programs boosts the shortfall to over $1 trillion
• Three states — Illinois, Kentucky and Connecticut — have less than half of their pension programs funded.

Clearly this isn’t sustainable.

Some analysts believe the uptick in the stock market will reduce the shortfalls, but it seems pretty foolish to count on a stock market bubble that will eventually burst to save the pension system. In fact, odds are it will ultimately exacerbate the problem. Even if the stock market remains strong, it won’t be enough.

“State and local policymakers cannot count on investment returns over the long term to close this gap and instead need to put in place funding policies that put them on track to pay down pension debt,” according to the Pew report.

But politicians have proved over and over that they lack the political will to take the steps necessary to fix the system, and like the Greek people, Americans won’t stand for the hit their pocketbooks must take in order for states to make their pension systems solvent. It’s only a matter of time before these states come looking for bailouts.

The United States appears to be treading along a similar path as Greece. America hasn’t walked as far down the road, but all of the structural problems appear to be in place – underfunded pensions, an aging workforce retiring in increasing numbers and drawing more out of the system, fewer employed workers, and an ever expanding welfare state. And don’t forget the growing student loan bubble, which could leave future generations destitute and more dependent on government largesse than ever.

There may still be time to turn things around in the US, but central planners seem content to continue the same policies that led us to this point. We would all be wise to plan for the possibility of a Greek-style meltdown. One way to do that is invest in physical gold and silver. Precious metals historically hold their value and protect wealth in times of economic turmoil.

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