Guest Contributor The Tap Blog
Guest Contributor The Tap Blog
Guest Contributor John Rolls
“There are folks that are saying you know what, I don’t care, I’m going to lock in my retirement now and get out while I can and fight it as a retiree if they go and change the retiree benefits,” he said. – Executive Director for the Kentucky Association of State Employees, Proposed Pension Changes Bring Fears Of State Worker Exodus
The public awareness of the degree to which State pension funds are underfunded has risen considerably over the past year. It’s a problem that’s easy to hide as long as the economy is growing and State tax receipts grow. It’s a catastrophe when the economic conditions deteriorate and tax revenue flattens or declines, as is occurring now.
Quote above references a report of a 20% jump in Kentucky State worker retirements in August after it was reported that a consulting group recommended that the State restructure its State pension system. I personally know a teacher who left her job in order to cash completely out of her State employee pension account in Colorado (Colorado PERA). She knows the truth.
The problem with under-funding is significantly worse than reported. Pensions are run like Ponzi schemes. As long as the amount of cash coming in to the fund is equal to or exceeds beneficiary payouts, the scheme can continue. But for years, due to poor investment decisions and Fed monetary policies, beneficiary payouts have been swamping investment returns and fund contributions.
Pension funds have notoriously over-marked their illiquid risky investments and understated their projected actuarial investment returns in order to hide the degree to which they are over-funded. Most funds currently assume 7% to 8% future rates of return. Unfortunately, the ability to generate returns like that have been impossible with interest rates near zero.
The quest to compensate for low fixed income returns, pension funds have plowed money into stocks, private equity funds and illiquid and very risky investments, like subprime auto loan securities and commercial real estate. Some pension funds have as much as 20% of their assets in private equity.
When the stock market inevitably cracks, it will wipe pensions out.
An example of pensions over-estimating their future return calculations, the State of Minnesota adjusted the net present value of its future liabilities from 8% down to 4.6% (note: this is the same as lowering its projected ROR from 8% to 4.6%). The rate of under-funding went from 20% to 47%.
I can guarantee you with my life that if an independent auditor spent the time required to implement a bona fide market value mark-to-market on that fund’s illiquid assets, the amount of under-funding would likely jump up to at least 70%. “Bona fide mark-to-market” means, “at what price will you buy this from me now with cash upfront?”
At some point current pension fund beneficiaries are going to seek an upfront cash-out. If enough beneficiaries begin to inquire about this, it could trigger a run on pensions and drastic measures will be implemented to prevent this.
Similarly, per the sleuthing of Wolf Richter, ECB is seeking from the European Commission the authority to implement a moratorium on cash withdrawals from banks at its discretion. The only reason for this is concern over the precarious financial condition of the European banking system.
And it’s not just some cavalier Italian and Spanish banks. I would suggest that Deutsche Bank, at any given moment, is on the ropes.
But make no mistake. The U.S. banks are in no better condition than their European counter-parts. If Europe is moving toward enabling the ECB to close the bank windows ahead of an impending financial crisis, the Fed is likely already working on a similar proposal.
All it will take is an extended 10-20% draw-down in the stock market to trigger a massive run on custodial assets – pensions, banks and brokerages.
This includes the IRA’s. I would suggest that one of the primary motivations behind the Fed/PPT’s no-longer-invisible hand propping up the stock and fixed income markets is the knowledge of the pandemonium that will ensue if the stock market were allowed to embark on a true price discovery mission.
Every other attempt throughout history to control the laws of economics and perpetuate Ponzi schemes, the current attempt by Central Banks globally will end with a spectacular collapse. I would suggest that this is one of the driving forces underlying the repeated failure by the western Central Banks to drive the price of gold lower since mid-December 2015.
I would also suggest that it would be a good idea to keep as little of your wealth as possible tied up in banks and other financial “custodians.” The financial system is one giant “Roach Motel” – you check your money in but eventually you’ll never get it out.
MrCati connects the dots between the 93 Society, Twin Towers event of 9/11, Flight 93, the 93 new findings of information and other sinister events that all connect back to this most secret of societies.
He also discusses George H. Bush Sr. and the upcoming Total Solar Eclipse of August 21, 2017 and how they too, are entangled in this web of evil.
United Airlines Flight 93 was a domestic scheduled passenger flight that was hijacked by four Al-Qaeda terrorists on board, as part of the September 11 attacks. It crashed into a field in Somerset County, Pennsylvania, during an attempt by the passengers and crew to regain control. All 44 people aboard were killed, including the four hijackers, but no one on the ground was injured.
Music: Cheeky, by Matt Harris, Courtesy of You Tube Audio Library
Thomas Gilbert Sr, 70, founder of Wainscott Capital Partners, was shot in the head during a violent encounter in his multimillion-dollar New York flat (Picture: Reuters)
Thomas Gilbert Jr, 30, a Princeton graduate, allegedly fled the scene on foot, before barricading himself inside his flat (Picture: Reuters)