Don’t Assume Any Government Pension Will Ever Be Paid
Could the country’s pension mess be more widespread than we even realize?
Martin Armstrong of Armstrong Economics thinks so. He says, “under no circumstances assume that any government pension will actually be paid.”
And he means even government pensions in states now considered economically sound.
We’ve been following the budget debacle in Illinois. Even with a budget that includes a $5 billion tax increase, Moody’s may still downgrade the state’s credit rating to junk. The pension system in the Land of Lincoln is a big part of the problem. It currently has a shortfall of at least $130 billion.
Of course, Illinois isn’t alone. Government pension systems have drug a number of states into a fiscal black hole, pulling municipalities down with them. On Tuesday, S&P Global Ratings downgraded Hartford, Connecticut’s credit rating to junk. The city teeters on the brink of bankruptcy and the state can’t do a thing to help, as Forbes recently reported.
With state pension obligations already consuming half of their state budget, the state is beyond a weak position to bail out any municipality.”
In 2015, Connecticut Gov. Dan Malloy signed a budget that included $1.1 billion in tax hikes. More than $700 million of the new tax burden fell on businesses and the middle class.
It didn’t help.
Illinois and Connecticut aren’t the exception to the rule. Across the US, public pensions are woefully underfunded. Forbes put the situation in stark terms.
Between 2001 and 2015, state and local governments only contributed 88 percent of the required contributions. In total, according to the Pew Charitable Trusts, the state public pension plans are underfunded by $1.1 trillion. And, this shortfall does not even include the shortfalls associated with local pension funds. Worse, even these estimates likely understate the necessary contributions, so the actual funding shortfalls are possibly even greater.”
It’s easy to think the pension crisis is limited to just a handful of states. After all, a number of states remain on solid financial footing. But Armstrong asserts problems loom on the horizon even in states like Florida and Texas. He says the problem is nationwide and constitutes a sovereign debt crisis that is inevitable and irreversible. It’s a simple matter of demographics.
The way states have operated (internationally) is that they simply assumed that there was a never-ending bucket of taxpayers to squeeze for money. The problem is that the population growth has declined, the pensions systems have been a Ponzi schemes from day-one, and they are running out of other people’s money.”
This represents a major problem for millions of Americans counting on their pension for their retirement. But it’s even worse than that. As we’re already seeing Illinois, Connecticut and other states, the pension mess is dragging the entire state budget down the drain.
Americans have made a huge mistake in thinking that government debt is “safe.” It isn’t. In fact, it’s a millstone around the economy’s neck threatening to pull us all under. The impending collapse of the country’s pension systems is not only turning many Americans’ retirement dreams into nightmares, it’s also jeopardizing the country’s economic stability.
In fact, the extreme debt load in America today is among the underlying economic fundamentals that simply can’t be ignored. The looming pension crisis serves as a vivid reminder of the impact of debt – personal, corporate, and national – and the fact that it is a ticking time bomb that is eventually going to explode.
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