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The Suddenly Poor Life: Millions Will Lose Their Pensions

Discussion in 'Coffee Shack (Daily News/Economy)' started by Goldhedge, Mar 4, 2016.



  1. Goldhedge

    Goldhedge Modal Operator/Moderator Site Mgr Site Supporter

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    PHYSICAL GOLD – THE ONLY PENSION FUND TO SURVIVE
    Posted on September 21, 2017
    by Egon von Greyerz


    There are probabilities in markets and there are certainties. It is very probable that investors will lose a major part of their assets held in stocks, bonds and property over the next 5-7 years. It is also probable that they will lose most of their money held in banks, either by bank failure or currency debasement.

    WHO BUYS A BOND THAT WILL GO TO ZERO?
    What is not probable, but absolutely certain, is that investors who buy the new Austrian 100-year bond yielding 2.1% are going to lose all their money. Firstly, you wonder who actually buys these bonds. No individual investing his own money would ever buy a 100-year paper yielding 2% at a historical top of bond markets and bottom of rates.

    [​IMG]

    The buyers are of course institutions who manage other people’s money. These will be the likes of pension fund managers who will be elated to achieve a 2% yield against negative short yields and not much above zero for anything else. These managers will hope to be long gone before anyone finds out the disastrous decision they have taken with pensioners’ money.

    But the danger for them is that the bond will be worthless long before the 100 years are up. It could happen within five years.

    There are a number of factors that will guarantee the demise of these bonds:

    • Interest rates are at a 5,000-year low and can only go up
    • Inflation will surge leading to hyperinflation
    • Sovereign states are bankrupt and will default
    • The Euro will go to zero not over 100 years but in the next 5-7
    But pension fund managers will not be blamed for their catastrophic performance. No conventional investment manager could ever have forecast the events I am predicting above. (They are not that smart). Thus, they are totally protected, in spite of poor performance, since they have done what every other manager does which is to make the pensioners destitute. The average institutional fund is managed based on mediocracy. It is never worth taking a risk and do something different to your peer group. But if you do the same as everybody else you will be handsomely rewarded even if you lose most of the money.

    $400 TRILLION PENSION GAP
    Most people in the world don’t have a pension so they won’t be concerned. But for the ones who are covered by pensions, they won’t be much better off. Most pension funds are massively underfunded and the amount they are underfunded by is absolutely astounding. We are looking at a staggering $400 trillion gap by 2050 according to the World Economic Forum. The biggest gap is of course the US with $137 trillion. The 2015 US deficit was “only” $28 trillion which is 150% of GDP.

    PENSION DEFICITS – There will be no pensions for anyone

    [​IMG]

    The reasons are quite straightforward; an ageing population, inadequate savings and low expected returns. These calculations don’t take into account the coming collapse of all the assets that pension funds invest in such as stock, bonds and property. It is a virtually certain prediction that there will be no conventional pensions paid out in any country over in 5 to 10 years and longer. The consequences are clearly catastrophic. The only country with a well-funded private pension system is India. Most families in India hold gold and as gold appreciates, this will protect an important part of the Indian population.

    $2.5 QUADRILLION GLOBAL DEBT
    Global debt and unfunded liabilities are continuing to run out of control. With total debt at $240 trillion, pension liabilities at $400 trillion (by 2050), other liabilities such as medical care at say $250 trillion and derivatives at $1.5 quadrillion, we are looking at a total global debt including liabilities of around $2.5 quadrillion.

    The US is doing its part to grow debt exponentially. With the debt ceiling lifted temporarily, US federal debt has swiftly jumped by $321 billion to $20.16 trillion. Over the last year US debt has gone up by $685 billion. Over the next few years, US debt is forecast by to increase by over $1 trillion per year. When trouble starts in financial markets in the next couple of years, we will see that debt level increase dramatically by $10s or even $100s of trillions. By 2020, the US will have run real budget deficits every single year for 60 years. That is an astounding record and will guarantee a dollar collapse.

    [​IMG]

    INTEREST RATES WILL BE 15-20%
    As the long-term interest chart above shows, rates are at a historical bottom and the 35-year cycle also bottomed last year. Rates are now in an uptrend and at some point, in the next year or two, will start to accelerate. Within less than 5 years, rates are likely to be in the teens or higher like in the 1970s. Bonds will collapse, including the 100-year Austrian issue, leading to major defaults. With global debt in the $100s of trillions, more and more money will need to be printed just to finance the interest costs. Still more will be printed to prop up failing banks and government deficits. And that is how hyperinflation will start. In parallel, currencies will collapse and finish their move to zero which started in 1913 when the Fed was created.

    THE SWISS NATIONAL BANK – THE WORLD’S BIGGEST HEDGE FUND
    The Fed is a private bank, created by private bankers for their own benefit giving them total control of money. The Swiss National Bank (SNB) is also a private bank, quoted on the Swiss stock exchange. But it is not owned by investment bankers but 45% is held by the Swiss Cantons (States) and 15% by the Cantonal Banks. The rest is held by private shareholders. The shares of the SNB have gone up 2.5x in the last 12 months.

    [​IMG]

    This is the biggest hedge fund in the world with a balance sheet of CHF 775 billion ($808B). This is bigger than Swiss GDP. For comparison, the Fed’s balance sheet is 25% of US GDP. The SNB holds shares for almost CHF100 billion including $80 billion of US stocks. The rest of the SNB holdings is currency speculation with the majority in Euros and dollars. Hardly the purpose of a central bank to speculate in currencies or stocks. Their justification is that buying foreign assets keeps the Swiss Franc low. Imagine when the US stock market turns down and the Euro and dollar weaken. At that point, the chart of the SNB stock will look very different. This is likely to happen in the next few years. Swiss banking and particularly the National Bank used to be conservative, now they are as bad or even worse than the rest of the world. The problem with the Swiss banking system is also that it is too big for the country, being 5 times Swiss GDP. I wouldn’t keep any major capital in the Swiss banks, nor in any other banks for that matter. But the political system in Switzerland is by far the best in the world. Too bad that the banks are not!

    GOLD $5,800 TO $8,500 BASED ON PREVIOUS BULL MARKETS
    Gold and silver are making a temporary pause. The uptrend is clear and acceleration is likely to start this autumn. The chart below shows various projection alternatives compared to previous gold bull markets in the 1970s and in the 2000s. Whichever option we choose, they all lead to a much higher gold price from here between $5,800 and $8,500. Those targets are still well below my long-standing target of $10,000 in today’s money. But as I have stated many times, we won’t have today’s money since with hyperinflation money will become virtually worthless. The eventual dollar price of gold is likely to be multiples of $10,000, depending on how much worthless money will be printed.

    [​IMG]

    Jim Rickards talks about a massive dollar devaluation against gold to solve the US debt problem. He suggests that gold would be revalued to $5,000 which is 4x from today. That is of course one possibility although I doubt the Chinese like many of us believe that the US still owns 8,000 tonnes of gold. China would probably ask the Americans for proof of their holdings and at the same time declare the amount of gold that China holds. Whoever starts first doesn’t really matter. Because any official revaluation of gold, or just major market price appreciation, will lead to the paper shorts running for cover. At that point, $5,000 will just be a short-lived stop on the way too much higher prices.

    Although all this sounds very exciting for gold and silver holders, we must always remind ourselves why we hold precious metals. We are not holding gold for spectacular gains. No, gold is held as insurance for wealth preservation purposes. The risks in the world today are unprecedented in history as I outlined in last week’s article. Therefore, we are holding gold to protect against these risks which are both economic, financial and geopolitical. We are facing the dual risk of a financial crisis with a failing banking system, as well as insolvent sovereign states, leading to all currencies being debased to zero. That is why investors must hold an important amount of physical gold and silver and not worry about daily price fluctuations.




    Egon von Greyerz
    Founder and Managing Partner
    Matterhorn Asset Management AG
     
  2. searcher

    searcher Mother Lode Found Site Supporter ++ Mother Lode

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    U.S. Retirement Market Ponzi Fueled By Record Concentration In Stocks By Young Americans


    -- Published: Monday, 25 September 2017

    By Steve St. Angelo

    For the U.S. Retirement Market Ponzi Scheme to continue, there must be a new group of suckers to pay for the individuals who are receiving benefits. Without a new flow of funds, the Ponzi Scheme comes crashing down. Such was the case for the individuals who invested in the $65 billion Bernie Madoff Ponzi Scheme that came crashing down in 2008.

    Interestingly, the U.S. Securities & Exchange Commission (SEC) that investigated Madoff Securities in 1999, 2000, 2004, 2005, and 2006, found no evidence of fraud or the need for legal action by the commission. The failure of the SEC to find any wrong-doing by Bernie Madoff should provide Americans with plenty of reassurance and confidence that their 401k’s are the highest quality sound investments in the market.

    Regardless, the concentration in equities by young Americans reached a record high since the 2008 financial crisis. According to the most recent data put out by the Investment Company Insititute (ICI), Americans in their twenties who participated in 401k plans, 75% of the group invested more than 80% of their funds into equities in 2015 versus 48% of the group in 2007:

    [​IMG]

    In just eight years, Americans in the 20’s age group invested in 401k’s, increased their equity exposure (80+%) from less than a half to three-quarters. Furthermore, those in the 30’s age group increased their equity concentration from 55% to 70% in the same period.

    All this means is that younger Americans participating in the 401k Retirement Market have considerably increased their exposure to stocks while net benefits paid out have now gone into the red. I wrote about this in my article, Something Big, Bad and Ugly Is Taking Place In The U.S. Retirement Market:

    [​IMG]

    As we can see in the chart, the Private Defined Contribution (DC) Plans paid out $28.7 billion more than they took in in 2014…. the last year the Investment Company Institute provided data. Simply, Private DC Plans are mostly 401K’s.

    Unfortunately, the ICI only has data on 401k net benefit withdrawals up until 2014. However, young Americans invested in the 401k Market have no idea that their funds are being used to pay off those who are retired. Moreover, the record concentration of 20-30’s age group into equities hasn’t been enough to support the 401k Retirement Market as more money is going out than is coming in. That is extremely bad news.

    Regrettably, nowhere in the ICI’s new report on the U.S. 401k Market do they include the data showing the net benefit withdrawals in 2014 were more than benefits paid. Instead, they included the following information in the “Key Findings” area at the beginning of the report:

    [​IMG]

    This is an alarming trend. More 4o1k plan participants held equities at the end of 2015 than they did before the financial crisis in 2007. What is even more troubling is the percentage of young Americans who have “ZERO” exposure to equities in the 401k Market.

    According to the ICI data, Americans in their 20’s participating in the 401k Market with zero exposure to equities fell from 19% in 2007 to 7% in 2015:

    [​IMG]

    What this chart is telling us is that young American 401k plan participants with no exposure to equities (stocks) before the 2008 financial crisis were much higher than it was in 2015. While the 30’s age group change shown in the chart above change is much less, we can still see that younger Americans are putting more of their 401k funds into stocks than ever before.

    This next chart from the ICI report shows the different age groups and their equity concentration in the 401k Market:

    [​IMG]

    While Americans in their 50’s-60’s have decreased their (80+% in BLUE) exposure to equities since 2007, the overall trend, shown as “All” on the right-hand side of the chart, has increased from 43.5% to 47.5%. Furthermore, the 50’s-60’s age group with “zero percentage” exposure to equities (in DARK BLUE at the bottom) has decreased since 2007. Thus, older Americans participating in the 401k Market have increased their exposure to stocks when they should be more conservative.

    I look at what is taking place in the U.S. Retirement Market as the final stage of the Greatest Ponzi Scheme in history. Unfortunately, Americans invested in the 401k Market have no idea they are apart of just another Bernie Madoff Ponzi Scheme, but 100 times larger. If the SEC couldn’t find any fraud in the Madoff Securities Investments via ongoing investigations between 1999-2007, what kind of reassurance does that say about protecting Americans in the U.S. Retirement Market?

    The Federal Reserve and Wall Street have done an excellent job steering Americans away from sound physical investments like precious metals and into the largest Paper Retirement Market Ponzi Scheme in history. Even though Americans in the 401k Market have increased their exposure to equities, it hasn’t been enough to offset the net deficit as more money is now being paid out than is coming in.

    What happens when the stock market finally cracks? Falling stock prices will motivate 401k plan participants to either cut back funds they invest or reduce their equity exposure. Thus, the collapse of the U.S. Retirement Market will be swift as Americans finally get Precious Metals Religion.

    Check back for new articles and updates at the SRSrocco Report.

    http://news.goldseek.com/GoldSeek/1506343920.php
     
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  3. Goldhedge

    Goldhedge Modal Operator/Moderator Site Mgr Site Supporter

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    1 million Ohio public employees, retirees may see pension cut
    5:50 p.m Wednesday, Sept. 20, 2017

    Columbus


    Ohio’s biggest public pension system is considering cutting the cost of living allowances for its 1-million members as a way to shore up the long-term finances of the fund.

    Ohio Public Employees Retirement System trustees on Wednesday discussed options that could affect all current and future retirees, including tying the cost of living allowance to inflation and capping it and delaying the onset of the COLA for new retirees.

    No decision has been made and trustees will discuss the options again in October. So far, some 72,000 members responded to an OPERS survey about possible changes. OPERS spokesman Todd Hutchins said 70 percent of retirees responding to the survey report that they prefer that the COLA be capped, rather than frozen.

    Related: Ohio public pension systems shift health care costs to retirees

    OPERS is the latest of the five public pensions systems in Ohio to consider benefit cuts.

    The State Teachers Retirement System of Ohio in April voted to indefinitely suspend the COLA for retired teachers. Trustees said they weren’t certain that the cut would be enough to shore up the finances of the $72-billion fund.

    Related: Retired teachers to lose cost of living increase

    Ohio Police & Fire Pension Fund is expected to hire a consultant to help restructure its health care benefits. OP&F announced in May it would switch in January 2019 to issuing stipends to each retiree, who can then use the money to purchase coverage.

    Related: Retiree health care cuts looming for cops and firefighters in Ohio

    School Employees Retirement System, which covers janitors, bus drivers and cafeteria workers, is taking steps to link its cost of living allowance to inflation, cap it at 2.5 percent, and delay its onset for new retirees.

    Related: School employees protest proposed pension cuts at Statehouse

    Combined, Ohio’s five public pension systems have 1.9 million members, beneficiaries and retirees and have nearly $200 billion in investments.
     
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  4. GOLDBRIX

    GOLDBRIX God,Donald Trump,most in GIM2 I Trust. OTHERS-meh Site Supporter Platinum Bling

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    When I was working with Dept. Corrections and Rehabilitation. OHIO had one of the strongest Retirement Plans in the country.
    Glad I cashed out.
     
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  5. Goldhedge

    Goldhedge Modal Operator/Moderator Site Mgr Site Supporter

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    Teachers Demand $3,200 From Each Kentucky Household To Fund Pension Ponzi For 2 Years

    We have written frequently over the past couple of weeks about the disastrous public pension funds in Kentucky that are anywhere from $42 - $84 billion underfunded, depending on which discount rate you feel inclined to use. As we've argued before, these pensions, like the ones in Illinois and other states, are so hopelessly underfunded that they haven't a prayer of ever again being made whole.

    That said, logic and math have never before stopped pissed off teachers and/or clueless legislators from throwing good money after bad in an effort to 'kick the can down the road' on their pension crises. As such, it should come as no surprise at all that the Lexington Herald Leader reported today that Kentucky's 365,000 teachers and other public employees are now demanding that taxpayers contribute a staggering $5.4 billion to their insolvent ponzi schemes over the next two years alone. To put that number in perspective, $5.4 billion is roughly $3,200 for each household in the state of Kentucky and 25% of the state's entire budget over a two-year period.

    Kentucky’s General Assembly will need to find an estimated $5.4 billion to fund the pension systems for state workers and school teachers in the next two-year state budget, officials told the Public Pension Oversight Board on Monday.

    That amount would be a hefty funding increase and a painful squeeze for a state General Fund that — at about $20 billion over two years — also is expected to pay for education, prisons, social services and other state programs.

    “We realize this challenge is in front of us. That’s obviously part of the need for us to address pension reform,”said state Sen. Joe Bowen, R-Owensboro, co-chairman of the oversight board.

    “In the short-term, yeah, we’re obligated to find this money,” Bowen said. “And everybody is committed to do that. We have revealed this great challenge. We have embraced this great challenge, as opposed to previous members of the legislature, perhaps.”

    In presentations on Monday, the pension oversight board was told that total employer contributions for KRS in Fiscal Years 2019 and 2020 would be an estimated $2.47 billion each year, up from $1.52 billion in the current fiscal year. Nearly $995 million of that would be owed by local governments. The remaining $1.48 billion is what the state would owe.

    The Teachers’ Retirement System estimated that it would need a total of $1.22 billion in Fiscal Year 2019 and $1.22 billion in Fiscal Year 2020. That would include not only an additional $1 billion to pay down the system’s unfunded liabilities but also $139 million to continue paying the debt service on a pension bond that won’t be paid off until the year 2024.​

    Of course, the $5.4 billion will do absolutely nothing to avoid an inevitable failure of Kentucky's pension system but what the hell...


    [​IMG]

    As we've said before, the problem is that the aggregate underfunded liability of pensions in states like Kentucky have become so incredibly large that massive increases in annual contributions, courtesy of taxpayers, can't possibly offset liability growth and annual payouts. All the while, the funding for these ever increasing annual contributions comes out of budgets for things like public schools even though the incremental funding has no shot of fixing a system that is hopelessly "too big to bail."

    [​IMG]

    So what can Kentucky do to solve their pension crisis? Well, as it turns out they hired a pension consultant, PFM Group, in May of last year to answer that exact question. Unfortunately, we suspect that PFM's conclusions, which include freezing current pension plans, slashing benefit payments for current retirees and converting future employees to a 401(k), are somewhat less than palatable for both pensioners and elected officials who depend upon votes from public employee unions in order to keep their jobs...it's a nice little circular ref that ensures that taxpayers will always lose in the fight to fix America's broken pension system.

    Be that as it may, here is a recap of PFM's suggestions to Kentucky's Public Pension Oversight Board courtesy of the Lexington Herald Leader:

    An independent consultant recommended sweeping changes Monday to the pension systems that cover most of Kentucky’s public workers, creating the possibility that lawmakers will cut payments to existing retirees and force most current and future hires into 401(k)-style retirement plans.

    If the legislature accepts the recommendations, it would effectively end the promise of a pension check for most of Kentucky’s future state and local government workers and freeze the pension benefits of most current state and local workers. All of those workers would then be shifted to a 401(k)-style investment plan that offers defined employer contributions rather than a defined retirement benefit.

    PFM also recommended increasing the retirement age to 65 for most workers.

    The 401 (k)-style plans would require a mandatory employee contribution of 3 percent of their salary and a guaranteed employer contribution of 2 percent of their salary. The state also would provide a 50 percent match on the next 6 percent of income contributed by the employee, bringing the state’s maximum contribution to 5 percent. The maximum total contribution from the employer and the employee would be 14 percent.

    For those already retired, the consultant recommended taking away all cost of living benefits that state and local government retirees received between 1996 and 2012, a move that could significantly reduce the monthly checks that many retirees receive. For example, a government worker who retired in 2001 or before could see their benefit rolled back by 25 percent or more, PFM calculated.

    The consultant also recommended eliminating the use of unused sick days and compensatory leave to increase pension benefits.

    Meanwhile, PFM warned that the typical "kick the can down the road approach" would not work in Kentucky and that current retiree benefits would have to be cut.

    “This is the time to act,” said Michael Nadol of PFM. “This is not the time to craft a solution that kicks the can down the road.”

    “All of the unfunded liability that the commonwealth now faces is associated with folks that are already on board or already retired,” he said. “Modifying benefits for future hires only helps you stop the hole from getting deeper, it doesn’t help you climb up and out on to more solid footing going forward.”

    Of course, no amount of math and logic will ever be sufficient to convince a bunch of retired public employees that they have been sold a lie that will inevitably fail now or fail later (take your pick) if drastic measures aren't taken in the very near future.
     
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  6. southfork

    southfork Mother Lode Found Mother Lode

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    And Im quite sure they all continue to lie about how large the shortfall really is, a day of awakening and reckoning is coming. People still using houses as ATM, paying 6/7 year car loans, student loans defaults grow daily.
     
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  7. Hystckndle

    Hystckndle Daguerreotype Fanatic Site Mgr Site Supporter ++

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    " We are obligated to find the money "

    Thats a good one.
    Lol !!!
    Lemme know how that works Mr .Gov type.
    Most of the rocks they turn over have a TAXPAYER hiding under them trying to avoid the anal probe.
     
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  8. southfork

    southfork Mother Lode Found Mother Lode

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    The truth is what i say it is. (quote from Shooter) from the usual corrupt politician
     
  9. edsl48

    edsl48 Silver Member Silver Miner

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    Amazingly the same politicians that caused the mess continue to get re-elected
     
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  10. gringott

    gringott Killed then Resurrected Midas Member Site Supporter

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    You can't get there from here.
    As for KY, at least half my property taxes goes to the schools. In addition, every bill I get has a school tax attached.
    They will be facing a taxpayer revolt around here if they try to squeeze any more money out of us.
     
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  11. southfork

    southfork Mother Lode Found Mother Lode

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    But they will raise all your taxes and probably start new ones, it's what .gov does.
     
  12. southfork

    southfork Mother Lode Found Mother Lode

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    Real inflation continues to exceed wage growth, contributions to retirement funds will continue to decrease, its not if but when this ponzi stock market collapses, nothing has changed in 9 years to support a 22k dow from the 7k it was.
     
  13. searcher

    searcher Mother Lode Found Site Supporter ++ Mother Lode

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  14. searcher

    searcher Mother Lode Found Site Supporter ++ Mother Lode

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    "This Is A Crisis Greater Than Any Government Can Handle": The $400 Trillion Global Retirement Gap

    [​IMG]
    by Tyler Durden
    Oct 1, 2017 12:36 AM

    Submitted by John Mauldin of Mauldin Economics

    Today we’ll continue to size up the bull market in governmental promises. As we do so, keep an old trader’s slogan in mind: “That which cannot go on forever, won’t.” Or we could say it differently: An unsustainable trend must eventually stop.

    Lately I have focused on the trend in US public pension funds, many of which are woefully underfunded and will never be able to pay workers the promised benefits, at least without dumping a huge and unwelcome bill on taxpayers. And since taxpayers are generally voters, it’s not at all clear they will pay that bill.

    Readers outside the US might have felt smug and safe reading those stories. There go those Americans again, spending wildly beyond their means. You are correct that, generally speaking, we are not exactly the thriftiest people on Earth. However, if you live outside the US, your country may be more like ours than you think. Today we’ll look at some data that will show you what I mean. This week the spotlight will be on Europe.

    First, let me suggest that you read my last letter, “Build Your Economic Storm Shelter Now,” if you missed it. It has some important background for today’s discussiion.

    Global Shortfall

    I wrote a letter last June titled “Can You Afford to Reach 100?” Your answer may well be “Yes;” but, if so, you are one of the few. The World Economic Forum study I cited in that letter looked at six developed countries (the US, UK, Netherlands, Japan, Australia, and Canada) and two emerging markets (China and India) and found that by 2050 these countries will face a total savings shortfall of $400 trillion. That’s how much more is needed to ensure that future retirees will receive 70% of their working income. This staggering figure doesn’t even include most of Europe.

    [​IMG]

    This problem exists in large part because of the projected enormous increase in median life expectancies. Reaching age 100 is already less remarkable than it used to be. That trend will continue. Better yet, I think we will also be healthier at advanced ages than people are now. Could 80 be the new 50? We’d better hope so, because the math is pretty bleak if we assume people will stop working at age 65–70 and then live another quarter-century or more.

    That said, I think we’ll see a great deal of national variation in these trends. The $400 trillion gap is the shortfall in government, employer, and individual savings. The proportions among the three vary a great deal. Some countries have robust government-provided retirement plans; others depend more on employer and individual contributions. In the aggregate, though, the money just isn’t there. Nor will it magically appear just when it’s needed.

    WEF reaches the same conclusion I did long ago: The idea that we’ll enjoy decades of leisure before our final decline simply can’t work. Our attempt to live out long and leisurely retirements is quickly reaching its limits. Most of us will work well past 65 whether we want to or not, and many of us will not have our promised retirement benefits to help us through our final decades.

    What about the millions who are already retired or close to retirement? That’s a big problem, particularly for the US public-sector workers I wrote about in my last two letters. We should also note that we’re all public-sector workers in a way, since we must pay into Social Security and can only hope Washington gives us something back someday.

    Let’s look at a few other countries that are not much better off.

    UK Time Bomb

    The WEF study shows that the United Kingdom presently has a $4 trillion retirement savings shortfall, which is projected to rise 4% a year and reach $33 trillion by 2050. This in a country whose total GDP is $3 trillion. That means the shortfall is already bigger than the entire economy, and even if inflation is modest, the situation is going to get worse. Further, these figures are based mostly on calculations made before the UK decided to leave the European Union. Brexit is a major economic realignment that could certainly change the retirement outlook. Whether it would change it for better or worse, we don’t yet know.

    A 2015 OECD study (mentioned here) found that across the developed world, workers could, on average, expect governmental programs to replace 63% of their working-age incomes. Not so bad. But in the UK that figure is only 38%, the lowest in all OECD countries. This means UK workers must either build larger personal savings or severely tighten their belts when they retire. Working past retirement age is another choice, but it has broader economic effects – freezing younger workers out of the job market, for instance.

    UK employer-based savings plans aren’t on particularly sound footing, either. According to the government’s Pension Protection Fund, some 72.2% of the country’s private-sector defined-benefit plans are in deficit, and the shortfalls total £257.9 billion. Government liabilities for pensions went from being well-funded in 2007 to having a shortfall 10 years later of £384 billion (~$500 billion). Of course, that figure is now out of date because, just a few months later, it’s now £408 billion – that’s how fast these unfunded liabilities are growing. Again, that’s a rather tidy sum for a $3 trillion economy to handle.

    [​IMG]

    UK retirees have had a kind of safety valve: the ability to retire in EU countries with lower living costs. Depending how Brexit negotiations go, that option could disappear.

    Turning next to the Green Isle, 80% of the Irish who have pensions don’t think they will have sufficient income in retirement, and 47% don’t even have pensions. I think you would find similar statistics throughout much of Europe.

    A report this summer from the International Longevity Centre suggested that younger workers in the UK need to save 18% of their annual earnings in order to have an “adequate” retirement income – which it defines as less than today’s retirees enjoy. But no such thing will happen, so the UK is heading toward a retirement implosion that could be at least as damaging as the US’s.

    Swiss Cheese Retirement

    Americans often have romanticized views of Switzerland. They think it’s the land of fiscal discipline, among other things. To some extent that’s true, but Switzerland has its share of problems, too. The national pension plan there has been running deficits as the population grows older.

    Earlier this month, Swiss voters rejected a pension reform plan that would have strengthened the system by raising women’s retirement age from 64 to 65 and raising taxes and required worker contributions. From what I can see, these were fairly minor changes, but the plan still went down in flames as 52.7% of voters said no.

    Voters around the globe generally want to have their cake and eat it, too. We demand generous benefits but don’t like the price tags that come with them. The Swiss, despite their fiscally prudent reputation, appear to be not so different from the rest of us. Consider this from the Financial Times:

    Alain Berset, interior minister, said the No vote was “not easy to interpret” but was “not so far from a majority” and work would begin soon on revised reform proposals.

    Bern had sought to spread the burden of changes to the pension system, said Daniel Kalt, chief economist for UBS in Switzerland. “But it’s difficult to find a compromise to which everyone can say Yes.” The pressure for reform was “not yet high enough,” he argued. “Awareness that something has to be done will now increase.”

    That description captures the attitude of the entire developed world. Compromise is always difficult. Both politicians and voters ignore the long-term problems they know are coming and think no further ahead than the next election. The remark that “Awareness that something has to be done will now increase” may be true, but there’s a big gap between awareness and motivation – in Switzerland and everywhere else.

    Switzerland and the UK have mandatory retirement pre-funding with private management and modest public safety nets, as do Denmark, the Netherlands, Sweden, Poland, and Hungary. Not that all of these countries don’t have problems, but even with their problems, these European nations are far better off than some others.

    (Sidebar: low or negative rates in those countries make it almost impossible for their private pension funds to come anywhere close to meeting their mandates. And many of the funds are by law are required to invest in government bonds, which pay either negligible or negative returns.)

    Pay-As-You-Go Woes

    Pay-As-You-Go WoesThe European nations noted above have nowhere near the crisis potential that the next group does: France, Belgium, Germany, Austria, and Spain are all pay-as-you-go countries (PAYG). That means they have nothing saved in the public coffers for future pension obligations, and the money has to come out of the general budget each year. The crisis for these countries is quite predictable, because the number of retirees is growing even as the number of workers paying into the national coffers is falling. There is a sad shortfall of babies being born in these countries, making the demographic reality even more difficult. Let’s look at some details.

    Spain was hit hard in the financial crisis but has bounced back more vigorously than some of its Mediterranean peers did, such as Greece. That’s also true of its national pension plan, which actually had a surplus until recently. Unfortunately, the government chose to “borrow” some of that surplus for other purposes, and it will soon turn into a sizable deficit.

    Just as in the US, Spain’s program is called Social Security, but in fact it is neither social nor secure. Both the US and Spanish governments have raided supposedly sacrosanct retirement schemes, and both allow their governments to use those savings for whatever the political winds favor.

    The Spanish reserve fund at one time had €66 billion and is now estimated to be completely depleted by the end of this year or early in 2018. The cause? There are 1.1 million more pensioners than there were just 10 years ago. And as the Baby Boom generation retires, there will be even more pensioners and fewer workers to support them. A 25% unemployment rate among younger workers doesn’t help contributions to the system, either.

    A similar dynamic may actually work for the US, because we control our own currency and can debase it as necessary to keep the government afloat. Social Security checks will always clear, but they may not buy as much. Spain’s version of Social Security doesn’t have that advantage as long as the country stays tied to the euro. That’s one reason we must recognize the potential for the Eurozone to eventually spin apart. (More on that below.)

    On the whole, public pension plans in the pay-as-you-go countries would now replace about 60% of retirees’ salaries. Further, several of these countries let people retire at less than 60 years old. In most countries, fewer than 25% of workers contribute to pension plans. That rate would have to double in the next 30 years to make programs sustainable. Sell that to younger workers.

    The Wall Street Journal recently did a rather bleak report on public pension funds in Europe. Quoting:

    Europe’s population of pensioners, already the largest in the world, continues to grow. Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. By comparison, the U.S. has 24 nonworking people 65 or over per 100 workers, says the Bureau of Labor Statistics, which doesn’t have a projection for 2060. (WSJ)

    While the WSJ story focuses on Poland and the difficulties facing retirees there, the graphs and data in the story make clear the increasingly tenuous situation across much of Europe. And unlike most European financial problems, this isn’t a north-south issue. Austria and Slovenia face the most difficult demographic challenges, right along with Greece. Greece, like Poland, has seen a lot of its young people leave for other parts of the world. This next chart compares the share of Europe’s population that 65 years and older to the rest of the regions of the world and then to the share of population of workers between 20 and 64. These are ugly numbers.

    [​IMG]
    Source: WSJ

    The WSJ continues:

    Across Europe, the birthrate has fallen 40% since the 1960s to around 1.5 children per woman, according to the United Nations. In that time, life expectancies have risen to roughly 80 from 69.

    In Poland birthrates are even lower, and here the demographic disconnect is compounded by emigration. Taking advantage of the EU’s freedom of movement, many Polish youth of working age flock to the West, especially London, in search of higher pay. A paper published by the country’s central bank forecasts that by 2030, a quarter of Polish women and a fifth of Polish men will be 70 or older.

    [​IMG]
    Source: WSJ

    Next week we will look at the unfunded liabilities of the US government. It will not surprise anyone to learn that the situation is ugly, and there is no way – zero chance, zippo – that the US government will be able to fund those liabilities without massive debt and monetization.

    Now, what I am telling you is that every bit of analysis about the pay-as-you-go countries in Europe suggests that they are in a far worse position than the United States is. Plus, the economies of those countries are more or less stagnant, and they are already taxing their citizens at close to 50% of GDP.

    The chart below shows the percentage of GDP needed to cover government pension payments in 2015 and 2050. But consider that the percentage of tax revenues required will be much higher. For instance, in Belgium the percentage of GDP going to pensions will be 18% in about 30 years, but that’s 40–50% of total tax revenues. That hunk doesn’t leave much for other budgetary items. Greece, Italy, Spain? Not far behind.

    [​IMG]

    And there is other research that makes the above numbers seem optimistic by comparison. The problem that the European economies have is that for the most part they are already massively in debt and have high tax rates. And they can’t print their own currencies.

    Many of Europe’s private pension companies and corporations are also in seriously deep kimchee. Low and negative interest rates have devastated the ability of pension funds to grow their assets. Combined with public pension liabilities, the total cost of meeting the income and healthcare needs of retirees is going to increase dramatically all across Europe.

    Macron, the new French president, really is trying to shake up the old order, to his credit; and this week he came out and began to lay the foundation for the mutualization of all European debt, which I assume would end up on the balance sheet of the ECB. However, that plan still doesn’t deal with the unfunded liabilities. Do countries just run up more debt? It seems like the plan is to kick the can down the road just a little further, something Europe is becoming really good at.

    In this next chart, note the line running through each of the countries, showing their debt as a percentage of GDP. Italy’s is already over 150%. And this is a chart based mostly on 2006 and earlier data. A newer chart would be much uglier.

    [​IMG]

    I could go on reviewing the retirement problems in other countries, but I hope you begin to see the big picture. This crisis isn’t purely a result of faulty politics – though that’s a big contributor – it’s a problem that is far bigger than even the most disciplined, future-focused governments and businesses can easily handle.

    Look what we’re trying to do. We think people can spend 35–40 years working and saving, then stop working and go on for another 20–30–40 years at the same comfort level – but with a growing percentage of retirees and a shrinking number of workers paying into the system. I’m sorry, but that’s magical thinking. And it’s not what the original retirement schemes envisioned at all. Their goal was to provide for a relatively small number of elderly people who were unable to work. Life expectancies were such that most workers would not reach that point, or would at least live just a few years beyond retirement.

    As I have pointed out in past letters, when Franklin Roosevelt created Social Security for people over 65 years old, US life expectancy was about 56 years. If the retirement age had kept up with the increase in life expectancy, the retirement age in the US would now be 82. Try and sell that to voters.

    Worse, generations of politicians have convinced the public that not only is a magical outcome possible, it is guaranteed. Many politicians actually believe it themselves. They aren’t lying so much as just ignoring reality. They’ve made promises they aren’t able to keep and are letting others arrange their lives based on the assumption that the impossible will happen. It won’t.

    How do we get out of this jam? We’re all going to make big adjustments. If the longevity breakthroughs I expect happen soon (as in the next 10–15 years), we may be able to adjust with minimal pain. We’ll work longer years, and retirement will be shorter, but it will be better because we’ll be healthier.

    That’s the best-case outcome, and I think we have a fair chance of seeing it, but not without a lot of social and political travail. How we get through that process may be the most important question we face.

    I haven’t even thrown in the complications that are going to arise because of changes in the nature of employment and the future of work that will be caused by technological change in the next 10–20 years. That will mean even fewer workers for each retiree. Facebook’s Zuckerberg talks about a basic minimum income. I think that is the wrong thing to do. It is the nature of human beings to need to do things that contribute meaningfully to the lives of their family and society. But the reality is that increasing numbers of people are already having trouble finding that sort of work.

    Maybe we should think about basic minimum employment. FDR put a generation of people to work building public projects that helped get us through the Great Depression. Our world is going to change in ways that we don’t yet understand and that we are not prepared for, psychologically, socially, politically, or economically.

    In the US and much of Europe we have developed social echo chambers in which we talk just to ourselves and those who are like-minded, ignoring or demonizing the other side. We have lost the ability to disagree rationally and productively. When the children’s books written by Dr. Seuss are considered by some to have been written by a white racist and are therefore deemed unacceptable to be in a public library, you know the quality of civil discourse has spiraled downward.

    I do not like that, Sam I am.

    http://www.zerohedge.com/news/2017-...can-handle-400-trillion-global-retirement-gap
     
  15. searcher

    searcher Mother Lode Found Site Supporter ++ Mother Lode

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    Which American Cities Will File Bankruptcy Next?

    [​IMG]
    by Tyler Durden
    Oct 6, 2017 3:50 AM


    We harp on the massive, unsustainable, yet largely unnoticed, debt burdens of American cities, counties and states fairly regularly because, well, it's a frightening issue if you spend just a little time to understand the math and ultimate consequences. Here is some of our recent posts on the topic:
    Luckily, for those looking to escape the trauma of being taxed into oblivion by their failing cities/counties/states, JP Morgan has provided a comprehensive guide on which municipalities haven't the slightest hope of surviving their multi-decade debt binge and lavish public pension awards.

    If you live in any of the 'red' cities below, it just might be time to start looking for another home...

    [​IMG]





    To add a little context to the map above, JP Morgan ranked every major city in the United States based on what percentage of their annual budgets are required just to fund interest payments on debt, pension contributions and other post retirement benefits.

    The results are staggering. To our great 'shock', Chicago residents win the award of "most screwed" with over 60% of their tax dollars going to fund debt and pension payments. Meanwhile, there are a dozen municipalities where over 50% of their annual budgets are used just to fund the maintenance cost of past expenditures.

    As managers of $70 billion in US municipal bonds across our asset management business (Q2 2017), we’re very focused on credit risk of US municipalities.

    The chart below shows our “IPOD” ratio for US states, cities and counties. This measure represents the percentage of a municipality’s revenues that would be needed to pay interest on direct debt, and fully amortize unfunded pension and retiree healthcare obligations over 30 years, assuming a conservative return of 6% on plan assets. While there’s no hard and fast rule, municipalities with IPOD ratios over 30% may eventually face very difficult choices regarding taxation, non-pension spending, infrastructure investment, contributions to unfunded plans and bond repayment.

    [​IMG]

    So, what will it take to fix the mess in these various municipal budgets? How about massive tax hikes of ~30% or a slight 76,121% increase in worker pension contributions in Honolulu...

    [​IMG]

    Anyone else feel like the winters in South Dakota are suddenly looking much more manageable...

    http://www.zerohedge.com/news/2017-...depict-which-cities-will-file-bankruptcy-next
     
    gringott likes this.
  16. searcher

    searcher Mother Lode Found Site Supporter ++ Mother Lode

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    Uncle Sam’s Unfunded Promises


    -- Published: Sunday, 8 October 2017

    By John Mauldin

    Doubled Debt
    Yes, Trillions
    The $210 Trillion Gap
    A Tax, Not a Promise
    How Will We Fund the Deficit?
    San Francisco, Denver, Lugano, Hong Kong
    Prime Rib: The Recipe

    Here’s a surprisingly profound question: What is a promise? Dictionaries offer various definitions. I like this one: “An express assurance on which expectation is to be based.”

    [​IMG]
    Image: Simon James via Flickr

    That definition captures the two-sided nature of a promise. One party offers an assurance, which the other converts into an expectation. You deposit money in your checking account, and the bank assures you that you can have it back on demand. You expect that the bank will fulfill its promise when you visit an ATM.

    Governments likewise make promises, but those are different. Government is the ultimate enforcer of promises, but we have no recourse if it chooses to break them – except at the ballot box. As we’ve seen in recent weeks regarding public pensions, that’s ineffective when the promises were made long ago by officials who are no longer in office.

    The federal government’s keeping its promises is important for everyone in the US, because almost all of us are part of the largest public pension system: Social Security. We pay taxes our whole working lives and expect the government to give us retirement benefits. But what happens if it can’t?

    Three weeks ago we visited the problems with local and state pensions. Last week we looked at European pensions. This week we are going to take a hard look at the unfunded liabilities and debt of the US government. And even though the federal unfunded pension liabilities dwarf those of state and local pensions, I want to make it clear that I believe the state and local problems will be far more intractable.

    I have to warn you: You may be hopping mad when you finish reading this.

    read about it on their website, updated daily. Presently it looks like this:

    • Debt held by the public: $14.4 trillion

    • Intragovernmental holdings (the trust funds): $5.4 trillion

    • Total public debt: $19.8 trillion

    Total GDP is roughly $19.3 trillion, so the federal debt is about equal to one full year of the entire nation’s collective economic output. In fact, it’s even more when you consider that GDP counts government spending as “production,” even when Uncle Sam spends borrowed money. Of course, that total does not count the $3 trillion-plus of state and local debt, which in almost every other country of the world is included in their national debt numbers. Including state and local debt in US figures would take our debt-to-GDP above 115%. And rising.

    You can quibble over the calculations, but there’s no doubt the numbers are astronomically huge and growing. And we haven’t even mentioned the huge and growing private debt.

    Just wait. We’re only getting started.

    FY 2016 edition is 274 enlightening pages that the government hopes none of us will read.

    [​IMG]

    Among the many tidbits, it contains a table on page 63 that reveals the net present value of the US government’s 75-year future liability for Social Security and Medicare. That amount exceeds the net present value of the tax revenue designated to pay those benefits by $46.7 trillion. Yes, trillions.

    Where will this $46.7 trillion come from? We don’t know. Future Congresses will have to find it somewhere. This is the fabled “unfunded liability” you hear about from deficit hawks. Similar promises exist to military and civil service retirees and assorted smaller groups, too. Trying to add them up quickly becomes an exercise in absurdity. They are so huge that it’s hard to believe the government will pay them, promises or not.

    Now, I know this is going to come as a shock, but that $46.7 trillion of unfunded liabilities is pretty much a lie. My friend Professor Larry Kotlikoff estimates the unfunded liabilities to be closer to $210 trillion. When presidential candidate Ben Carson last year quoted Kotlikoff’s numbers, the Washington Post, New York Times, and other mainstream media immediately attacked him. Of course, the journalists doing the attacking had agendas, and none of them were economists or accountants. None. Zero. Zip.

    Larry responded in an article in Forbes, since Carson was using his data:

    The fiscal gap is the present value of all projected future expenditures less the present value of all projected future taxes. The fiscal gap is calculated over the infinite horizon. But since future expenditures and taxes far off in the future are being discounted, their contribution to the fiscal gap is smaller the farther out one goes. The $210 trillion figure is based on the Congressional Budget Office’s July 2014 Alternative Fiscal Scenario projections, which I extended beyond their 75-year horizon.

    The journalists used a very poorly researched analysis, which fit their political bias (shocking, I know). Apparently they take that fabricated analysis more seriously than they do the views of 17 Nobel Laureates in economics and over 1200 PhD economists from MIT, Harvard, Stanford, Chicago, Berkeley, Yale, Columbia, Penn, and lesser known universities and colleges around the country. Each of these economists has endorsed The Inform Act, a bi-partisan bill that requires the CBO, GAO, and OMB to do infinite horizon fiscal gap accounting on a routine and ongoing basis.

    Now why would 17 Nobel Laureates and over 1200 US economists, all listed by name at www.theinformact.org, including many, like Jeff Sachs, who lean to the left, and others, like Glenn Hubbard, who lean to the right, endorse infinite horizon accounting. Because they understand something that I told Michelle repeatedly and have also told Bruce Barlett repeatedly. The fiscal gap is the only measure of our fiscal position that is mathematically well-defined.

    Every other fiscal measure, including fiscal gaps calculated over any finite horizon, such as the CBO’s 25-year fiscal gap Michelle references, are not mathematically well defined. The infinite horizon is mathematically well defined because it is the same number no matter what choice of internally consistent fiscal words we use to label government receipts and payments. Moreover, the infinite horizon fiscal gap is the only measure of our fiscal policy’s sustainability that puts everything on the books. It is also the only measure of our fiscal policy’s sustainability that is invariant to the choice of words.

    Congress’s choice of fiscal labels determines what gets put on and what gets kept off the books. I told Michelle that her grandparents’ Social Security benefits, for which she is now paying taxes, are not on the books because the government chose to call those payments “transfers” paid in exchange for “FICA contributions” not “return of principal plus interest” paid in exchange for “purchase of government bonds.”

    Every mathematical model of the economy’s dynamic transition path incorporates the infinite horizon fiscal gap, which is called the government’s infinite horizon intertemporal budget constraint. This constraint has to hold, which means the infinite horizon fiscal gap must be zero. Our country’s infinite horizon fiscal gap is far from zero. It would take an immediate and permanent 59 percent increase in all federal taxes or an immediate and permanent 33 cut in all federal expenditures (including official debt service) to eliminate our fiscal gap. The longer we wait to fix our fiscal system, the larger the adjustment needs to be. This means that (the journalist), and others her age, will need to pay even more for all the “assets,” including my own Medicare and Social Security benefits that have been left off the books.

    Yes, something will have to give.

    The $210 Trillion Gap

    I will admit that I’m not worried about the $210 trillion in unfunded liabilities. Long before we ever get to having to fund those liabilities, the country will be in a massive crisis.

    Using the CBO’s own numbers, the projected total US debt will be $30 trillion within 10 years, but the CBO also makes the rosy assumptions that there will be no recessions and that GDP will grow at a 4% nominal rate. Now, that’s possible; but I’m inclined to haircut it a bit.

    If you asked me to bet the “over/under” on the debt in 2027, I would bet the over at $35 trillion. After the next recession the deficit will be $30 trillion within 4–5 years and then grow from there at a rate of anywhere from $1.5 to $2 trillion per year. Note: That is not the CBO’s projected debt. It does not count the off-budget deficit that still ends up having to be borrowed. Last year the deficit was well over $1 trillion – but we were told it was in the neighborhood of $600 billion. If any normal company tried to use accounting like the US Congress does, the SEC would rightly declare it fraudulent and shut it down immediately. .

    Here’s another chart from the Treasury’s annual financial report, projecting government receipts and spending:

    [​IMG]

    Note that this chart expresses the various items as percentages of GDP, not dollars. So the relatively flat spending categories simply mean they are forecasted to grow in line with the economy, or just a little faster. But the space representing net interest grows much faster than GDP does – fast enough to make total federal spending add up to one-third of GDP by 2090.

    Obviously, this chart is based on all kinds of assumptions, and reality will be far different. I doubt we will make it to 2090 (or even 2050) without at least one global depression or other calamity that radically resets all the assumptions. Beneficial changes are also possible – biotech breakthroughs that reduce healthcare expenditures, for instance.

    Still, looking at the demographic reality of longer lifespans and lower birthrates, it’s hard to believe Social Security can survive over the long run in anything like its present form. But any major change will mean that the government is breaking its promise to workers and retirees.

    Well, guess what: They backtracked on that promise decades ago. Few people noticed it at the time, and even fewer remember it now.

    A Tax, Not a Promise

    There’s a big difference between that federal government financial statement and similar ones from private companies. “Liabilities” for a business represent contracts it has signed – the long-term lease on a building, for instance. The company agrees to pay so many dollars a month for the next 20 years. That obligation is enforceable in court. Even if the company enters bankruptcy, the court will award creditors damages from whatever assets it can recover.

    The federal government doesn’t work that way. It signs contracts all the time – but often with escape clauses that private businesses could never get away with. Social Security is a good example.

    Many Americans think of “their” Social Security like a contract, similar to insurance benefits or personal property. The money that comes out of our paychecks is labeled FICA, which stands for Federal Insurance Contributions Act. We paid in all those years, so it’s just our own money coming back to us.

    That’s a perfectly understandable viewpoint. It’s also wrong.

    A 1960 Supreme Court case, Flemming vs. Nestor, ruled that Social Security is not insurance or any other kind of property. The law obligates you to make FICA “contributions.” It does not obligate the government to give you anything back. FICA is simply a tax, like income tax or any other. The amount you pay in does figure into your benefit amount, but Congress can change that benefit any time it wishes.

    Again, to make this clear: Your Social Security benefits are guaranteed under current law, but Congress reserves the right to change the law. They can give you more, or less, or nothing at all, and your only recourse is the ballot box. Medicare didn’t yet exist in 1960, but I think Flemming vs. Nestor would apply to it, too. None of us have a “right” to healthcare benefits just because we have paid Medicare taxes all our lives. We are at Washington’s mercy.

    I’m not suggesting Congress is about to change anything. My point is about promises. As a moral or political matter, it’s true that Washington promised us all these things. As a legal matter, however, no such promise exists. You can’t sue the government to get what you’re owed because it doesn’t “owe” you anything.

    This distinction doesn’t matter right now, but I bet it will someday. If we Baby Boomers figure out ways to stay alive longer, and younger generations don’t accelerate the production of new taxpayers, something will have to give.

    If you are depending on Social Security to fund your retirement, recognize that your future is an unfunded liability – a promise that’s not really a promise because it can change at any time.

    How Will We Fund the Deficit?

    And now we come to the really uncomfortable part. Notice that Larry Kotlikoff said we would need an immediate approximately 50% increase in taxes to fund our future deficits. That’s what we would need to create a true entitlements “lockbox” with the funds actually in it. But surely everybody knows by now that there is no lockbox with Social Security funds in it. That money was spent on other government programs and debts. And so when the CBO doesn’t count the trust funds as part of the national debt, they are not only being disingenuous, I think they are committing financial fraud. The money that will actually pay for Social Security and Medicare down the road is going to have to come out of future taxes, just as for any other debt of the US.

    So at some point – even though Republicans are jawboning hard about cutting taxes now – we are going to have to raise taxes in order to fund Social Security and Medicare. I personally think it will have to be done with a value-added tax (VAT), because the necessary increase in income taxes would totally destroy the economy and potential growth.

    (And yes, I know some of you will write back and say we had much higher tax rates in the 50s and we had good growth then, but our demographics and productivity levels were completely different in that era. Plus, nobody actually paid the highest tax levels. I remember that in the 80s, before Reagan cut the tax rate, I had so many deductions that my effective tax rate was about 15%. The irony is that after the Reagan tax cuts, my total tax payments went up, not down – I lost all of my cool deductions! Aaah, the good old days…)

    But the simple fact of the matter is that no Congress is going to fund Social Security and Medicare through tax hikes. Before they ever go there, they will means-test Social Security and increase the retirement age – which they should.

    Of course, Congress could always authorize the Treasury Department to authorize the Federal Reserve to monetize a certain amount of the Social Security and Medicare debt, which is essentially what Japan is doing (and seemingly getting away with it). I think we should all be grateful to the Japanese for being willing to undertake such a fascinating experiment in monetary and fiscal policy.

    Let me close with a quick sidebar note. I think the Fed’s mad rush to raise rates and reduce its balance sheet at the same time is unwise. I mean, seriously, is the Federal Reserve balance sheet making that much of a difference to the US economy? Perhaps when that extraordinary balance was created, it did – but not today. This is one of those times when I think our policy makers should go slowly and tread carefully. Just saying…

    San Francisco, Denver, Lugano, and Hong Kong

    My few days in Portugal were not long enough. My hosts, the Soares dos Santos family, showed me a marvelous time. The conference I participated in was truly mentally exhilarating, but I came back exhausted and have picked up some bug that has given me a low-grade fever and stomach issues. I’m sure I’ll kick it soon. The good news is, it has also killed my appetite, so I am working off some of the calories that I picked up in Portugal.

    I will be going to San Francisco (technically, to Marin County) to visit the Buck Institute, which is the premier antiaging research center in the world. I have been invited join their Buck Advisory Council, which will afford me the privilege of receiving once or twice yearly updates on where antiaging research is going. I will give you a report when I return. Then on November 7 I will be speaking to the Denver CFA Society. A week later I will fly to Lugano, Switzerland, for a presentation to a conference – and I’ll try not to push myself quite so hard on this next trip across the Pond. I will also be in Hong Kong for the Bank of America Merrill Lynch conference in early January.

    I come back from Lugano the day before Thanksgiving, when in theory I will be cooking for 40–50 friends and family. And I will again be making my special prime rib. Recently I’ve been cooking it regularly when I host dinners for brokers and advisers who are interested in my new Mauldin Smart Core Program. I also make chili. And while people often say it’s the best chili they’ve ever had, trying to claim you make the best chili in Texas will get you into trouble. There is really only very good chili; there is never the best. Chili is a very personal, very subjective taste experience.

    Prime Rib: The Recipe

    On the other hand, there is universal acclaim that my prime rib is the best ever. Over the years, I’ve had hundreds of people ask me for the recipe; and so today, well in advance of Thanksgiving, I’m going to share it with you. Those of you who are not interested should just stop right here, because this is about 20% of the letter; and while I’ve been told I need to write shorter letters, you cannot abbreviate a great recipe. The details are critical.

    First, the most crucial ingredient is a great piece of meat. You simply cannot skimp on the quality. And this is going to surprise people, but I have found that the best-quality prime rib comes from Costco. You can get a delicious 12- to 13-pound, already boned prime for about $120–$130. Which is about 40% of what it costs at Whole Foods or Central Market. And frankly, the quality is better and more consistent. I was on a plane with the national food buyer for Walmart and asked him about that, and he claimed that Walmart has stepped up its game in order to compete with Costco. I have never put that claim to the test, but if any of you do, let me know how it turns out.

    About four hours before you’re going to cook the prime, take it out of the refrigerator and bring it up to room temperature. And then make the hand rub. Finely chop up two onions and place in a fairly large bowl. Then grab some fresh rosemary. It’s best if you can actually pick it off a plant somewhere near you, but most good Whole Foods or other organic grocers have relatively fresh rosemary. Take off the leaves and discard the stems. Chop the rosemary finely. I probably use six to eight long stems of rosemary. Honestly, don’t worry about using too much rosemary – just make sure to chop it finely.

    Add some form of coarse salt. At least one cup. More if you like your meat a little salty. Remember, this rub is going to go mostly on the outside. Then add 6–8 ounces of coarse-ground pepper. Lately, I have found smoked coarse-ground pepper at Whole Foods. It really does seem to add a little extra kick. Then throw in a generous amount of Cavender’s Greek Seasoning. I might use 1/3 of one of their larger containers. Now slowly add a decent-quality olive oil to the bowl and stir until you get a consistent paste. (Over the course of time, you will develop your own sense of how you want your ingredients combined, and how much of what.)

    And now we have to prepare the prime itself for seasoning. Take a sharp knife and essentially butterfly the prime, leaving maybe a 1-½ inch connection at the back. Then score the meat on both the inside and the outside every inch and and a half or so with a ½-inch-deep cut. Then take the rub and apply it on first the inside of the prime, working the rub into those scores you have made, so that more of the flavor can seep into the meat. Then fold the prime back together, and repeat the process on both the top and bottom of the meat. Place the prime in a roasting pan that has a grill that stands at least about ½ inch off the base of the pan. You want to convection cook the roast, not the metal of the pan.

    Now, this is important. Get a good meat thermometer, preferably one that is electronic and that will alert you when the meat is at the proper temperature. (You can get a really good electric cordless meat thermometer at Bed, Bath & Beyond for under $40.) Have your oven preheated to 200° – yes, we are going to slow-cook it. Cooking a prime too fast will end up making it not as tender.

    When the prime is not bone-in, it will generally take about two to three hours to cook, depending on size. When the meat gets to 120°, take it out of the oven. That should mean it is about medium rare on the inside. If it will be more than 30 minutes before you eat, put it in an oven that is at about 100°, just to keep it warm (but not to cook it further). Fifteen minutes before you are ready to serve it, put the prime back into the oven, which has now been preheated to 500°. We are going to sear the outside of the meat to hold in the flavor and to have it at the perfect temperature for eating. Leave it in there for 10 minutes, then take it out of the oven, put it on your large wooden chopping board, cut it into the sizes you want to serve, and take it immediately to the table. And be prepared for people to tell you that you’re a culinary genius. You don’t even have to tell them you got the recipe from a financial newsletter.

    If I get a sufficient response from this, next week I will even lay out my mushroom recipes. (Yes, there are two of them, and I generally make about 10 pounds of mushrooms to accompany the prime.)

    And with that, I will hit the send button. Have a great week and start planning your Thanksgiving dinner early. And yes, ours does include several different types of turkeys, not to mention cakes and pies (I make the cakes if I have the time) and all the usual trimmings. Remember, there are no calories on Thanksgiving Day.

    Your thinking he is going to see Blade Runner 2045 tonight analyst,

    [​IMG]
    John Mauldin
    subscribers@MauldinEconomics.com

    Copyright 2017 John Mauldin. All Rights Reserved.

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    Forget the scary pension future; study confirms the crisis is hitting now
    By Steven Greenhut
    October 10, 2017

    Sacramento — Debates about California’s pension crisis almost always focus on the big numbers – the hundreds of billions of dollars (and, by some estimates, more than $1 trillion) in unfunded liabilities that plague the public-pension funds. For instance, the California Public Employees’ Retirement System is only 68 percent funded – meaning it only has about two-thirds of the money needed to pay for the pension promises made to current and future retirees.

    CalPERS and its union backers insist that there’s nothing to worry about, that future bull markets will provide enough returns to cover this taxpayer-backed debt. Pension reformers warn that cities will go bankrupt as pension payments consume larger chunks of municipal budgets. They also warn that pensioners are at risk if the shortfalls become too great. The fears are serious, but they mainly involve predictions about what will happen a decade or more into the future.

    What about the here and now? California municipalities and school districts are facing larger bills from CalPERS and from the California State Teachers’ Retirement System (CalSTRS) to pay for sharply rising retirement costs. Most of them can come up with the money right now, but that money is coming directly out of their operating budgets. That means that California taxpayers are paying more to fund the pension system, and getting fewer services in return.

    The “bankruptcy” word garners attention. This column recently reported on Oroville, where the city’s finance director warned about possible bankruptcy during a recent hearing in Sacramento. The Salinas mayor also has been waving the bankruptcy flag. The b-word understandably gets news headlines, especially after the cities of Stockton, Vallejo and San Bernardino emerged from bankruptcies caused in large part by their pension situation.

    But there’s a huge, current problem even for the bulk of California cities that are unlikely to face actual insolvency. They are instead facing something called “service insolvency.” It means they have enough money to pay their bills, but are not able to provide an adequate level of public service. Even the most financially fit cities are dealing with service cutbacks, layoffs and reductions in salaries to make up for the growing costs for retirees.

    A new study from Stanford University’s prestigious Institute for Economic Policy Research has detailed the depth of this ongoing problem. For instance, the institute found that over the past 15 years, employer pension contributions have increased an incredible 400 percent. Over the same time, operating expenditures have grown by only 46 percent – and pensions now consume more than 11 percent of those budgets. That’s a tripling of pension costs since 2002. Contributions are expected to continue their dramatic increases.

    “As pension funding amounts have increased, governments have reduced social, welfare and educational services, as well as ‘softer’ services, including libraries, recreation and community services,” according to the study, “Pension Math: Public Pension Spending and Service Crowd Out in California, 2003-2030” by former Democratic Assemblyman Joe Nation. In addition, “governments have reduced total salaries paid, which likely includes personnel reductions.”

    These are not future projections but real-world consequences. The problem is particularly pronounced because “many state and local expenditures are mandated, protected by statute, or reflect essential services,” thus “leaving few options other than reductions in services that have traditionally been considered part of government’s core mission.” Many jurisdictions have raised taxes – although they never are referred to as “pension taxes” – to help make ends meet, but localities have a limited ability to grab revenue from residents.

    The report’s case studies are particularly shocking. The Democratic-controlled Legislature and Gov. Jerry Brown often talk about the need to help the state’s poorest citizens.Yet, the Stanford report makes the following point regarding Alameda County (home of Oakland): Pension costs now consume 13.4 percent of the county’s operating budget, up from 5.1 percent 15 years ago. These increases have “shifted up to $214 million in 2017-18 funds from other county expenditures to pensions,” which “has come mostly at the expense of public assistance, which declined from a 33.6 percent share of expenditures in 2002-03 to a 27 percent share in 2017-18.”

    The problems are even more stark in Los Angeles County. As the study noted, pension costs have shifted approximately $1 billion from public-assistance programs including “in-home support services, cash assistance for immigrants, foster care, children and family services, workforce development and military and veterans’ affairs.”

    It’s the same, basic story in all of the counties and cities analyzed by the report. For instance, “the pension share of Sacramento’s operating expenditures has increased over time, from 3.2 percent in 2002-03 to 12.5 percent in the current year.” That percentage has gone from 3 percent to 12 percent in Stockton, and from 3.1 percent to 15.2 percent in Vallejo.

    These are current problems, not future projections. But the future isn’t looking any brighter. “The case studies demonstrate a marked increase in both employer pension contributions and unfunded pension liabilities over the past 15 years, and they reveal that in almost all cases that costs will continue to increase at least through 2030, even under the assumptions used by the plans’ governing bodies – assumptions that critics regard as optimistic,” Nation explained.

    So, yes, the public-sector unions and pension reformers will continue to argue about when – or even if – the pension crisis will cause a wave of California bankruptcies. But overly generous pension promises are destroying public services and harming the poor right now.

    Steven Greenhut is a contributing editor for the California Policy Center. He is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.
     
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