Swelling State Debt and “Pension Tidal Wave” May Engulf Economy

Friday, June 19, 2015
By Paul Martin

Mac Slavo
June 18th, 2015

The housing market and the student loan bubble are not the only financial bombs set to go off.

Pension liabilities swelled drastically over the decades since they were set up, as politicians conceded greater and greater benefits to workers, and passed off the burden on taxpayers.

Investing in risky stocks, and now derivatives, these pensions have become a millstone around the necks of dozens of socialized cities and states across the country – with locales like Detroit, New Jersey and California as the worst offenders.

Irresponsible funding by local authorities was compounded by pressure from unions for state and municipality workers, and now, according to the Washington Examiner, it is threatening to create a “tidal wave” that is not only creating bankruptcies and threatening to leave pensioners stranded, but could engulf the larger economic picture as well:

Over time, elected officials came to promise workers politically popular new benefits without setting aside the money to pay for them, declared “holidays” from contributions into pension systems and changed their own accounting systems midstream to make the systems seem better funded — all just ways of passing obligations on to future taxpayers. In the process, government pension systems became one of the chief vehicles that state and local politicians used to massage their budgets.

Years of gimmicks and politically motivated benefit increases for government workers have left America’s states and municipalities with pension funds that are short at least $1.5 trillion — and possibly as much as $4 trillion if the investment returns of these funds don’t live up to expectations in coming years.

Retirement debt has even played a crucial role in high-profile government bankruptcies — including in Detroit; Stockton, California; and Central Falls, Rhode Island. Fixing the problem is proving expensive, and it won’t happen quickly in places with the worst debt.

Now we face the consequences. Our elected representatives played a deceptive game of chicken with pension funds. And now the chickens have come home to roost.

The Rest…HERE

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