Pension Blues

[Caption/Credit for above photo: Politician: Trust Me–I’ll Protect Your Pension (courtesy Google Images)] published “The Next Greece May be In the U.S.”.  According to that article,

“When Chicago Public Schools announced on June 24 that it would borrow $1 billion to make a $600 million-plus pension payment due June 30 an eerie feeling spread across bond investors and taxpayers alike.”

Get that?  The Chicago Public School system has undoubtedly already collected hundreds of millions of dollars (probably billions) from the teachers to fund the teacher pension plan.  The School system is therefore a debtor to those teachers.  And yet, that debtor sought to borrow another $1 billion to pay the part of the debt that’s due on June 30th.  How much more will be due on July 30th, August 30th and December 30th?  How much will be due this year, next year and next decade?

By borrowing $1 billion to pay existing debt, the Chicago teachers’ pension fund demonstrates that it’s already broke.  Where’s the money going to come from to pay future pension obligations?

The School system’s attempt to borrow more money to pay an existing debt is analogous to an ordinary man using his Visa to pay off his MasterCard that he’d already used to pay off his American Express.   Going deeper into debt to repay existing debt is evidence of desperation and gross mismanagement of funds.

Borrowing more to pay an existing debt may buy some time, but the result is virtually inevitable:  bankruptcy.

If you don’t believe me, ask Greece.

“It was the same eerie feeling that gripped investors when Moody’s Investors Service downgraded Chicago’s credit rating to junk based almost entirely on the city’s pension problems.

“The fear was that elevated pension costs, in cities like Chicago, might push these public entities into insolvency, wiping out much of the holdings of municipal-bond investors.”

 “Might”?!  Might push these public entities into insolvency?  That’s pretty much like saying the sun “might” rise in the east tomorrow.  There’s no “might” about it—only when.

•  The MarketWatch article surprised me because it focused on the investors who’ve purchased municipal bonds to fund teacher’s retirement plans rather than on the retirees who expect to receive those funds.

Up until now, I’ve been inclined to think of growing pension problems in terms of the losses that will be suffered by retirees.

However, evidence indicates that, at least initially, the pensioners who are scheduled to receive money from the city are not the first victims of city insolvency.  The first victims are the bondholders—the creditors who loaned money to the city to pay existing pension debts.

The creditors believed that it was supremely safe to lend to governmental entities because government, by means of its coercive taxing power, could always squeeze more money out of taxpayers to repay the bonds.

Silly creditors.

Didn’t they know that if government went broke (as seen in Greece), government would rather rob the creditors (by repudiating the bonds) than rob the retirees (by refusing to provide pensions) or rob the taxpayers by raising taxes?

It’s simple politics.  Bondholders may be relatively wealthy but they are few in number.  Of the three groups (bondholders, retirees, and taxpayers) bondholders are the smallest group.  Therefore, they have the least political clout.  If somebody has to be robbed, the smallest group will be the first victims because they will make the least political noise.  Besides, who really objects to robbing the relatively rich?

Later, government will rob the second smallest group—retirees—by “restructuring” or even repudiating their pension plans.  Finally, government will try to extort every last dime out of the multitude of taxpayers by subjecting them to “austerity”.

It’s just like Greece.  First, Greece robbed their creditors (bondholder) by refusing to pay the debts owed.  Next, they’ll rob the Greek retirees by restructuring or repudiating the pension plans.  Finally, they’ll rob the Greek people by subjecting the nation to austerity and economic depression.

You can expect to see a similar series of thefts in this country in the near future.

•  Willy Sutton was a famous bank robber during the Great Depression. When finally arrested and asked why he robbed banks, he answered “Because that’s where the money is.”  The same principle animates today’s financial system.

Why does our government always rob creditors?  Because that’s where the money is.  Lending to the government is like lending to Al Capone.   Ultimately, you’re gonna get robbed.

Our modern financial system has depended on inflation (theft) at least since WWII.  Any financial system based on theft is immoral and ungodly.

Q:  Who, primarily, is robbed by inflation?

A:  Those who have savings.  Creditors.

Yes, I know that the biggest creditors get special breaks (“too big to fail”).  But ordinary creditors/savers are always the Number One Victim of government extortion.  Taxes.

But.  If push comes to shove, government will rob anyone including taxpayers, bondholders, pension recipients and even future generations (by borrowing now and leaving the debt to our children).  Unfortunately, under current economic conditions, the taxpayers (a/k/a “voters”) have already been robbed of so much that there’s not much left to take without collapsing the entire economy.

Fleecing taxpayers is like feeding slaves.  As a slave owner, you can save a lot of money by refusing to feed your slaves, but after 30 days or so, they’ll die and then who’ll be left to do the work?   Who’ll have to work then?  Your wife?  Your kids?  You’d never hear the end of it.

The government can’t tax its slaves (taxpayers) into abject poverty unless government is prepared to collapse the economy.  For the system to continue to function and avoid a violent revolution, the government’s slaves must be treated like house niggers who are allowed to have their own homes, cars and clothes.

Government’s growing need to rob future generations (by means of borrowing) is evidence that today’s taxpayers have already been robbed/taxed to the limit.  Evidence is seen in the national debt which first started to go exponential back about A.D. 1973 (just after the US dollar became a pure fiat/immoral currency).  That inflection point arguably marked the maximum tax rate that could be imposed on the American people without degrading the economy.

Since then, government has tried to sustain the economy by not raising taxes significantly on current taxpayers while raising taxes considerably on future generations.  Tax increases on future generations (who aren’t here to defend themselves and their lives from government confiscation) is seen in the growth of the national debt which is officially, about $18 trillion, but believed by some to be over $200 trillion.

Recently, government passed the FATCA law in order to raise taxes on US citizens who live, work or bank in foreign countries. Some see FATCA as evidence of government’s growing power.  I see FATCA as evidence of government’s growing desperation.  Where will they find enough revenue to hold this racket together?  Who will they tax next?  The Greeks?

Sooner or later, even future taxpayers (borrowing) will be unable to fund the government’s debt?

Then what?

The inevitable will no longer be postponed.

•  All of which is more-or-less consistent with the warnings I’ve given you for the past four or five years:

 1) What can’t be paid, won’t be paid.

2)  One man’s debt is another man’s asset.

3) When the debts can’t be paid, the correlative paper-assets (bonds) become worthless.

As with Greece, the federal, state and local governments of the U.S. have made deceptive, irrational, and overly-generous, pension-promises to government workers.  Greedy government workers and public employee unions delighted in the promise of fat future pensions.  But, until now, no one has bothered to seriously consider the fact that the pensions promised are not only unearned but also unpayable.

Which brings us back to:  1) What can’t be paid, won’t be paid.  That means the retirees won’t get their pensions, and the bondholders won’t be repaid on their investments.

The various federal, state and local governments will go through a predictable series of steps (thefts) such as the lunacy of borrowing more money from future generations (who aren’t here to defend their interests) to pay existing debts.  But the fact remains that, sooner or later, we’ll have to face the truth:  What can’t be paid, won’t be paid.  Government creditors (bondholders) are already not being paid.  Soon, even government pension plans will be too broke to pay retirees in full, and therefore won’t pay retirees in full (if at all).

It might take another year or three for cities like Chicago to face and publicly admit that they’re insolvent.  But, like Greece, government’s excessive pension plan promises are on a collision course with mathematical reality—especially when the economy is in a recession and tax revenues are down.  When pension promises and fiscal reality collide, government retirees are going to lose their expected payments.  They’ll scream and shout—but it won’t matter.  They’re either going to lose a lot of their pensions, or—if they refuse to “voluntarily” take a big “haircut” in pension promises—they’ll suffer the involuntary loss of all of their pensions

Written by Alfred Adask
Full report at Adask’s Law

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