So it’s no surprise that any sort of economic relief package presented to Congress would include funds for pensions. Especially since a “bailout” culture seems to have taken root in America.
The recent $1.9 trillion COVID-19 stimulus billapproved by the House is no exception to this “bailout culture.”
The New York Times reported that it contains $86 billion for struggling pensions:
The $86 billion is a taxpayer bailout for about 185 union pension plans that are so close to collapse that without the rescue, more than a million retired truck drivers, retail clerks, builders and others could be forced to forgo retirement income.
The article continued: “The trend predated the pandemic and is a result of fading unions, serial bankruptcies and the misplaced hope that investment income would foot most of the bill so that employers and workers wouldn’t have to.”
Leaving aside the fact that “hope” is shaky ground to base any economic decision on, this appears as another signal that pensions are going the way of the dodo bird.
Artificially suppressed interest rates and low birth rates have their consequences. From Bill Blain at morningporridge.com:
“We may choose our paths, but we can’t choose the consequences that come with them.”
This morning: Consequences are unavoidable. Pension savers are crushed by interest rate repression and the changing demographics of Covid, while the deluge of debt fuelled by low rates does nothing for economic sustainability.
One of the things any investor must understand is that everything has consequences. There are always consequences. They are unavoidable. 13 years of monetary experimentation by central banks has profound consequences. For everybody.
A few days ago my colleague, Mike Hollings, CIO of Shard, and I put together a vlog on shifting market conditions. I’ve known Mike for decades, and we both agree it’s the consequences of the last 13 years of monetary distortion (since the beginning of the Global Financial Crisis that began in 2007) that present the greatest long-term challenges for markets. (You should be able to see some highlights of our chat in the latest Shard Lite-Bite video later today.)
One of the issues we covered was the effect of repressed interest rates on savings – and how challenging these will be to the expectations of current pension plans. Sure enough, bang on time, there are two stories in the market this morning that throw our concerns into stark reality.
Illinois has been run by the Democrats forever, but according to its Democrat governor, it’s the Republicans fault the state is the deepest and darkest of deep, dark fiscal black holes. From Mark Glennon at wirepoints.cog:
Despair, as best as we can tell, is the emotion growing most rapidly in Illinois, and yesterday, February 17, was particularly dispiriting.
Three stories told those who believe Illinois is on the wrong track that the state’s political establishment cannot care less about their concerns. Disdain and even hatred about those concerns prevail.
First was Gov. JB Pritzker’s State of the State and Budget Address. It’s not just that it was more of the same refusal to undertake the major reforms needed to solve the fiscal crisis, which we are writing about separately. It was the extreme rhetoric Pritzker used to attack a political obstacle that doesn’t exist.
That political obstacle, Pritzker said, is Illinois Republicans. Their purposeful destructiveness has undermined the mission of putting Illinois on the right path, Pritzker would have us believe. “In essence, they eliminated the fire department, burnt down the house, and poured gas on the flames — and now they’re asking why we’re not doing more to prevent fires,” he said. “In a normal year, I might have more patience for their hypocrisy. But this is not a normal year,” he added.
In truth, however, Republicans have been unable to pass or block a single thing of any consequence during the Pritzker Administration because Pritzker’s party has held a supermajority in the General Assembly for years. Nor do Republicans hold even one statewide office. He has faced no political obstacle from those he excoriated.
When I was dating my wife Jo, her 10-year-old daughter Holly learned I was a glutton for chocolate chip cookies.
This adorable little lady grinned, loaded in the chocolate chips and baked an entire batch by herself. As she put the cookies on the cooling rack, I began to devour them. They were soft, moist and yummy!
Holly yelled, “Mom he is eating them faster than I can bake them.” Not surprising, I soon gained 25 pounds.
Today Holly owns a small business. Over the holidays she complained. Much like Dennis and chocolate chips, our wealth is being gobbled up faster than it can be created. She is spot on.
The Big Heist
On 1/1/2000 10-year treasuries were paying over 6% interest. 21 years later, they paid .93%. They are guaranteed wealth destroyers.
The government spends recklessly, bails out banks and debt soars.
Bank borrow and lend cheap money; commercial loans have skyrocketed. Untold billions went to binge-borrowing corporations buying back their stock to hype the market price, yet their debts remain.
Social Security is a lost cause but the Biden administration thinks it can “reform” it. From MN Gordon at economicprism.com:
Are you an accidental dependent of Washington? Many people are. And many people don’t even realize it.
Systems of elaborate folly have been erected with the most impossible of promises. That wealth can be created without production. That stimmy checks can be paid without taxes. That everyone can get free solar power at the expense of their neighbors.
Central to these promises are the central government and central planning authorities. They promise ease and comfort and, in return, they make you a dependent. They promise a secure retirement, and free drugs, while running a scheme that’s beyond Charles Ponzi’s wildest dreams.
Social Security, no doubt, is a tempting idea. The government confiscates part of your paycheck every two weeks. Then, in return, and after putting in 45 years, your retirement is subsidized. You can enjoy your golden years in comfort.
“[Social Security’s] America’s favorite entitlement program, and part of the reason it’s so popular is it’s not solvent.”
Indeed, the most popular programs are those that promise people they’ll get out more than they put in. The promise is so appealing people trust that by hook or crook their government leaders will deliver. Alas, those counting on Social Security may suffer a grave disappointment.
Any government that pays tree trimmers 200 grand deserves to go bankrupt, and the voters who voted for the clowns signing the checks deserve their misery. From Adam Andrzejewski at forbes.com:
The Los Angeles area comprises the Hollywood movie studios, Beverly Hills, Muscle Beach, and a previously booming economy that trailed only New York City and Tokyo.
The city is also home to powerful politicians such as U.S. Rep. Adam Schiff, Chairman of House Judiciary Committee; U.S. Rep. Maxine Waters, Chief Deputy Whip; and Mayor Eric Garcetti, the National Co-Chairman of Biden for President.
However, LA itself is in trouble. Whenever we open the books, the city consistently ranks among the worst tax and spend offenders.
Last year, there were 20,000 highly compensated city employees whose average pay exceeded $147,000 and cost taxpayers $3 billion. All of them made more than $100,000 and nearly 2,000 out-earned California Governor Gavin Newsom ($202,000).
Our auditors at OpenTheBooks.com found painters making $113,943; “tree surgeons” trimming $207,058; police officers with an arresting $325,942; legislative analysts earning $399,631; firefighters hosing down $486,674; and “harbor boat pilots” swimming in $515,000.
Mayor’s Office – Mayor Garcetti cost taxpayers $269,375 in salary – $67,000 more than Gov. Newsom. Seven “deputy mayors” earned $1.44 million with individual salaries each exceeding $200,000. Chief of staff, Ann Guerrero, made $232,205– compensation out earning the mayor of Chicago ($216,000).
Garcetti has an executive staff larger than 48 of the 50 state governors. The mayor employed 261 people last year for $20+ million in salary cost.
While permanent staff enjoy handsome salaries, Garcetti also relies on unpaid labor. Although intern positions are available in dozens of departments working on issues such as homelessness, sustainability, and immigration, those internships are not compensated.
You just never know when a cash-strapped government might dip into your retirement fund. From Jeff Thomas at internationalman.com:
As a general principle, I’ve always tended to avoid entrusting others with my money. I’ve avoided funds, as they are often based upon investments that are peaking or close to peaking. I’ve avoided pension funds, as they’re often structured in a similar manner.
And whenever by law I’ve been required to be invested in such funds, they’ve rarely been successful over the long term. In the end, I would invariably have made more money by pursuing those investments that had great promise but at the time were unpopular (and therefore underpriced).
As dubious as I tend to be of conventional investment schemes (and those who broker them), I am doubly dubious of any government-run scheme. Governments, historically, have proved to be poor money managers, and politicians tend to place more value on big promises that garner votes than on delivering on those promises.
And so, I’m predictably biased as to the likelihood of any form of fund that any government may be involved in. Even if it’s structured well, which it may well not be, governments, if they have the power to do so, will tap into the fund, draining it of the intended recipient’s contributions, leaving the fund exposed, should a crisis occur.
Social Security is flush with its one asset—the federal government’s debt! From Dennis Miller at theburningplatform.com:
A friend sent me the recent announcement about the Social Security Cost-of-Living Adjustment (COLA) for 2021.
“Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 1.3 percent in 2021.
The 1.3 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2021.”
Brian Anderson tells us, “The average Social Security benefit was $1,503 per month in January 2020.”
The average recipient is going to get a $19.54/month COLA increase. I sarcastically responded with “whoopee!”
They make a great fanfare out of telling recipients about their increases.
Since January 2010, COLA increases have averaged 1.375%.
As a 15-year Social Security recipient, I know in December they send out the notification about how much you will receive the following month. Most, if not all, of the increase is taken back with increases in Medicare Premiums.
Brian Anderson continues:
“Social Security benefits have lost 33% of buying power since 2000. TSCL’s (The Senior Citizens League) analysis found that, over a 10-year period, average Social Security benefits of $1,075 per month in 2009 lost a total of $15,258 in financial growth from 2010 to 2019 when compared to the previous decade when COLAs averaged 3%.”
Perhaps overlooked in the controversy over the presidential election is the importance of Georgia’s two run-off races for the Senate. From Patrick J. Buchanan at buchanan.org:
“In victory, magnanimity… in defeat, defiance.”
That counsel about human conflict comes from Winston Churchill.
And President Donald Trump, given all he has endured for five years from those piously pleading now for a “time of healing,” cannot be faulted for his defiant resolve to unearth any and all high crimes or misdemeanors committed in the counting of ballots in the election of Tuesday last.
Trump owes his people this, and he owes the establishment nothing.
Yet, in making this his priority, Trump should be mindful of several realities. From what we have seen so far, the prospect that the decision in the battleground states of Wisconsin, Michigan, Pennsylvania, Nevada, Arizona or Georgia will be overturned does not appear high.
Indeed, it seems a certainty that not enough electoral votes could be flipped from Biden to Trump to overturn Joe Biden’s electoral vote victory.
And Trump should realize that in alleging fraud, he is creating an imperative upon himself and his team to provide the evidence to prove it.
In politics as in poker, there comes a time when you have to show your cards or fold your hand. Are the cards there?
Politicians have been buying votes with pension promises to government employees for decades. Now, in Illinois and other states, the bill is coming due. From John Rubino at dollarcollapse.com:
Somewhere back in the depths of the 20th century, a bunch of governors, mayors, and public sector union leaders got together and cooked up one of history’s greatest financial scams. They would offer teachers, cops, and firefighters extremely generous pensions but would avoid raising taxes to fund the resulting future obligations. Grateful workers would vote to re-elect their benefactors, while taxpayers would appreciate the combination of excellent public services and low taxes.
The beauty of the scheme flowed from its demographics: Most of the original public sector workers were young and therefore decades away from retirement, so the crime wouldn’t be discovered until long after the architects retired rich and revered.
Now, however, those baby boomer workers are retiring and the scam is revealed for all to see. Even in the absence of a pandemic lockdown, mass defaults on state and city obligations would be inevitable in the coming decade. But with the lockdown, they’re coming next year.
So what do the worst offenders do? What they’ve always done, of course, which is to look for ways to paper over the mess for one more election cycle. Illinois is the poster child for state financial mismanagement, with unfunded liabilities that have grown from virtually nothing to $137 billion in just the past two decades.
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