Category Archives: Pensions

One thing Congress gets right: funding their own pensions, by Simon Black

There are two classes in America: the class with some sort of in with the government, and everyone else. From Simon Black at sovereignman.com:

Turns out Congressmen make a lot of money…

A study found that while the average American’s net worth increased 3.7% per year between 2004-2012, members of Congress averaged 15.4% annual gains.

That high level of pay means half the members of Congress are millionaires today… and continue to collect their $174,000 annual salary.

Of course it’s you, the taxpayer, paying that cushy salary.

But did you know the taxpayer also foots the bill for insane retirement benefits for Congress?

Each retired member can start collecting a pension at age 62 if they’ve spent just five years in Congress.

And they’ll collect 80% of their $174,000 annual salary.

That’s almost $140,000 a year, for the rest of their lives… for five years of service.

Where can I sign up?

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The Fed’s “Wealth Effect” Has Enriched the Haves at the Expense of the Young, by Charles Hugh Smith

The young have been, when it comes to their elders, more sinned against than sinning. From Charles Hugh Smith at oftwominds.com:

The Fed is the mortal enemy of the young generations, and thus of the nation itself.
“The wealth effect” generated by rising stock and housing prices has long been a core goal of the Federal Reserve and other central banks. As Lance Roberts noted in his recent commentary So, The Fed Doesn’t Target The Market, Eh?(Zero Hedge), Ben Bernanke added a “third mandate” to the Fed – the creation of the “wealth effect”–in 2010, the reasoning being that higher asset prices “will boost consumer wealth and help increase confidence” which will then lead to higher spending and all the wonderfulness of endless economic expansion.
But as Chris Hamilton explains in his recent essay Economic Doom Loop Well Underway, “the wealth effect” has enriched the already rich at the expense of the young who didn’t get the opportunity to buy the assets the Fed has pushed to the moon at pre-bubble prices. That privilege was largely reserved for those who bought a decade or two ago, before the Fed made boosting asset prices the implicit goal of all its policies.
Take a look at the chart of household net worth below. Household worth has soared from around $40 trillion in 2000 to $100 trillion in 2018–a gain of $60 trillion while the economy grew at a much more modest pace. Household net worth has leaped from $55 trillion in 2010 to $100 trillion in 2018–$45 trillion in gains for those who already owned stocks and houses.
As Chris observed,“non-discretionary items like homes, rent, education, healthcare, insurance, childcare, etc. are skyrocketing versus wages.” This is visible in the second chart of wage growth, which has hobbled along at 2% or 3% while stocks and housing have doubled or tripled.
The wealth effect has benefited the haves at the expense of the have-nots, the young who can no longer afford to buy homes or start families unless Mom and Dad provide the capital.

 

Even Warren Buffett gets it: They’re coming for your money, by Simon Black

Governments take people’s money until people stop them. From Simon Black at sovereignman.com:

By the year 1380, the Hundred Years’ War between England and France had already been raging for decades.

And the war wasn’t going very well for England.

France had managed to recapture most of the territories they had lost early in the war; meanwhile French naval fleets were ravaging the coastline of southern England and destroying English commercial vessels.

To make matters worse, England had recently been devastated by the Bubonic Plague, which killed nearly a third of the population.

Most of England’s military leadership was dead. And the country’s new King was just a 13-year old boy known as Richard II.

The costs of the war were mounting, and England was rapidly running out of money.

The government had previously borrowed enormous sums to finance the war effort, pledging the Crown’s jewelry as collateral. They were close to being forfeit.

Taxes had continually been raised in England throughout the previous decade to help pay for the war, including a poll tax in 1377, and a second poll tax in 1379.

That second poll tax was an early form of progressive taxation in that the wealthy paid a much higher amount.

As an example, archival English tax records from 1379 show that, in the town of Thuxton in Norfolk county, the wealthiest resident (Sir Roger de Wylasham) paid FAR more tax than everyone else COMBINED.

Elizabeth Warren, Bernie Sanders, and AOC would probably say this is still not enough…

And it wasn’t. Because England still needed money.

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Trifecta: Pritzker Administration’s Pension Plan For Illinois Will Center On Three Strokes Of Folly, by Mark Glennon

A gang that can’t shoot straight takes Illinois from bad to worse. From Mark Glennon at wirepoints.org:

Deputy Governor Dan Hynes today released the first details of the Pritzker Administration’s plan for addressing Illinois’ pension crisis.

The administration will pursue three of the worst ideas available:

•  First, the state will borrow to pay off pension debt by offering a $2 billion pension obligation bond. We and many others have already written very extensively on why pension obligation bonds are irresponsible.  One credit card to another solves nothing and adds risk.

•  Second, the state will kick the can on its ramp for taxpayer pension contributions out seven years. The new goal for reaching 90% funding (which is still inadequate) will be 2052. Your grandchildren will fully understand why pensions are called “intergenerational theft.

•  Third, the state will gift public assets to the pensions. The particular assets and their value remain to be identified, but speculation has centered on the Illinois Tollway, the Illinois Lottery and government office buildings. The concept goes by the name “asset transfer.” We explained why it’s a sham in an article just yesterday. A pension actuary writing in Forbes did the same.

The combined effect of the first two is odd. All $2 billion from the bond offering will go immediately to the pensions, but the regularly scheduled pension contribution for the upcoming fiscal year will drop by $800 million.

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This problem is 10,000 times bigger than the border wall, by Simon Black

The cost of the proposed border wall is a rounding error in terms of total government spending or the US national debt. From Simon Black at sovereignman.com:

We are in the midst of the longest government shutdown in history.

Don’t get me wrong, I like having the government shut down. As I’ve said before, I believe it is my moral duty to pay as little taxes as possible.

The government does some really stupid things with your tax dollars. I’d rather not pay for a $2 billion Obamacare website that doesn’t work, or to defend Congressmen against sexual assault allegations.

So, by starving the beast, I at least ensure they’re not squandering my money.

But I think it’s ridiculous that this government posturing is financially crippling the 800,000 government workers (and millions of contractors) who are now out of work – or being forced to work without pay.

To be fair, last night the president signed a law guaranteeing they would be paid for past work – a month into this fiasco. It’s a step in the right direction, as there’s a word for forcing people to work without pay – slavery.

That’s why I offered to pay the rent of any government workers hurt by the shutdown. I am using my tax savings to bail out some of these government workers the feds left high and dry.

But at its core, this whole shutdown comes down to a disagreement over $5 billion. That is how much money Trump wants to build the border wall between the US and Mexico. And Congress refuses to fund it.

Granted, that’s a lot of money to you and me. And it should be a lot of money to the government, too.

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Debt, dope and casinos: Chicago is circling the drain, by Simon Black

All that’s left for Chicago is the bankruptcy filing. From Simon Black at sovereignman.com:

While the federal government is slowly careening toward permanent, fiscal disaster, many state governments (which don’t have the power of the printing press) are already staring into the abyss…

Take Illinois, for example. It’s the most broke state in the US with nearly $250 billion in debt. And it only brings in enough in taxes each year to cover 92% of its expenses… so the problem is getting worse.

Good thing Rahm “you never want a serious crisis to go to waste” Emmanuel is the current Mayor of Chicago. You may remember, the above quote was from Rahm’s days as Obama’s Chief of Staff, as told to the Wall Street Journalduring the depths of the Great Financial Crisis…

What followed was the greatest monetary experiment known to man.

Now Rahm has another crisis on his hands – Chicago’s woefully underfunded pensions. And he’s reaching into his old bag of tricks.

Governments can only kick the can down the road for so long. Eventually, they’ve got to make some tough decisions – like who they’re going to default on. Despite the promises made by certain political representatives, it’s impossible for everyone to have everything…

And today, Rahm must choose…

Either Chicago defaults on the pension promises it’s made to city workers or it defaults on its massive debt. It’s simple arithmetic.

Rahm, it seems, has chosen the latter.

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An Open Letter on the Next Great Crisis wrought by the Fed, by Stephanie Pomboy

Stock markets have staged a vigorous rally and the economy has expanded since the financial crisis of 2008-2009. Paradoxically, pension funds have become more underfunded. From Stephanie Pompoy of Macro Mavens at nebula.wsimg.com:

Actions have consequences. Even for the Fed.

That’s not a reference to the market’s grumpy reaction to the central bank’s continued rate hikes and quantitative tightening. No. The impact of both on financial assets were as obvious as they were inexorable. To be sure, Wall Street’s resident soothsayers had a good run spinning tales that ‘this time’ was different. A tightening Fed, we were assured, was a good thing—a ringing endorsement of the economy’s indefatigable strength. But, in the end, there was simply no way around the basic fact: Just as rate cuts and QE were designed to expand the pool of credit and incent the embrace of risk, so would rate hikes and QT necessarily beget the reverse. And so they have.

But while the impact of receding liquidity and the reduced reward for reckless speculation and risk-taking have finally begun to play out on Bloomberg screens everywhere, the real devastation has yet to be revealed. In the ensuing weeks and months the full and lugubrious legacy of the Fed’s great monetary experiment of the last decade will finally come into view. Beyond inflating and bursting a bubble in corporate debt (with leveraged loans acting as posterchild), the Fed’s decade-long financial repression has had a far larger and more sinister impact. It has silently bankrupted the US pension system.

Sound overly-dramatic??

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