Image source: Pixabay.com
NEW YORK — There is a ticking financial time bomb that could devastate America’s economy and leave governments unable to provide basic services – and most investors and Americans don’t even realize it.
The bomb is underfunded government pensions, which at the moment total $1.3 trillion, an amount that governments simply cannot pay, according to an investigation by Real Vision TV.
“We’re seeing this surge of people trying to retire early and take the money, because they see it’s not going to be there.” Federal Reserve Advisor Danielle DiMartino Booth told Real Vision TV. “And if that dynamic and that belief spreads — forget all the other problems. The pension fund — underfunding is Ground Zero.”
The worst-case scenario would be rioting and civil unrest like that which occurred in Greece six years ago, Real Vision TV reported in an article at MSN.com. Some communities are already beginning to feel the pinch as governments cut services like police and schools in order to meet pension obligations.
America’s Pension Crisis
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The $1.3 trillion pension deficit includes state and municipal obligations and assumes an 8 percent promised return and funds compounding at 3 percent
“The average state pension in the last fiscal year returned something south of 1 percent. You cannot fill that gap with a bulldozer, impossible,” DiMartino Booth said. “Anyone who knows their compounding tables knows you don’t make that up. You don’t get that back unless you get some miracle.”
One problem is an aging population.
“The Baby Boomers are no longer an actuarial theory,” she said. “They’re a reality. The checks are being written.”
The Hoover Institute, a research body, found that governments owe $4.798 trillion in pensions but they only have $3.7 trillion to cover the obligations. Although those figures differ slightly from Real Vision TV’s data, the theme remains the same: Unpaid pensions could wreck the economy.
‘Riot In The Streets’
“Where’s the money going to come from?” DiMartino Booth asked. “And the answer is, for now, they cut services. I worry about the ambulance not getting there in time. I worry about firefighters being cut to the bone and policemen.”
This is already happening in San Jose, California, where the city council had to declare a state of emergency because there were not enough cops to patrol the streets. The department is so short-staffed that officers are being forced to work mandatory overtime. Around 485 officers have left San Jose’s department since 2012 because of changes to pensions, but the city might be forced to cancel the police academy because of a budget shortfall, The San Jose Mercury News reported. Cops are working so much overtime that they are sleeping in vehicles in the police station parking lot, and Chief Eddie Garcia was forced to reassign detectives to patrol duty.
Elsewhere, in Illinois, pension plans were running a $111 billion shortfall in 2015, The Chicago Tribune reported.
“If the actuaries are going to force the checks to be written and reduce the rate of returned assumptions to anything remotely related to reality, then we won’t be laughing anymore looking in the rearview mirror at the riots in the streets of Athens a few years back,” DiMartino Booth warned.
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