Th3 Core
Why We Are Here => Economics & Investing => Topic started by: Mackin USA on June 14, 2017, 11:22:05 AM
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Some experts think it will be the trigger for the next financial collapse. Others call it a “national crisis” of unprecedented proportions.
But what all of them agree on is that there’s no way US pension funds can keep their promises to the next wave of retirees.
Right now, millions of Americans are hard at work believing their pensions will be their saving grace for retirement. But the predicament pension funds across the United States find themselves in does not just spell trouble for the distant future.
The crisis is happening as we speak.
Though the challenges are well known by now, many believe that public-sector pension funds will be maintained and the gaps filled by strong investment returns, increasing employee contributions, raising taxes, or some combination of the three. They hope with these measures and ongoing strong asset returns, liabilities can be reduced and pensions salvaged. Unfortunately, this is wishful thinking at best.
Even though the facts are on the table, state and local governments continue to underestimate the crisis at hand.
http://www.zerohedge.com/news/2017-06-14/disturbing-trend-will-end-full-fledged-pension-crisis
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I remember one business (I think it was ULine that sells shipping supplies) some years back had a full page article about how they had moved their business because they did not want to be doing business in a district with big unfunded pension liabilities for basic service (so state and local levels). ULine is in WI.
Personally, my only defined pension is from the state of WI, for which I am glad.
Why does WI come up twice here:
https://projects.jsonline.com/news/2016/9/26/wisconsins-fully-funded-pension-system-is-one-of-a-kind.html
Unfunded pension liability is like the federal debt or climate change - it's a slow-moving catastrophe that is easy to ignore, but which is going to be real hard to fix if you wait until it is an urgent problem. Sadly, as a species, we just aren't good about thinking about the future. (And as a historian, I have to add that we aren't good at thinking about the past either, which provides many examples of slow-moving problems that became fast-moving problems why that, to use the technical historical term, is "bad").
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And the pension crisis is after the mother of all asset bubbles.
https://twitter.com/michaelbatnick/status/859455315137441792
Fix the scams in healthcare by treating it like any other market (enforcing competition rules, transparent pricing, etc.) and most the pension funding problems disappear in a day.
https://www.lifezette.com/polizette/lesson-of-epipen-scandal-government-is-not-your-friend/
Mylan's actions and our government's inaction show that two issues exist. Not only is current law not enforced, but we can't trust the federal government to follow its own rules.
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And the pension crisis is after the mother of all asset bubbles.
https://twitter.com/michaelbatnick/status/859455315137441792
"For the last 40 years, a conservative U.S. portfolio of 30% stocks & 70% bonds grew 9% a year."
Well, how much savings do you have when compound the interest on $0 of stocks, $0 of bonds and $16,048 in credit card debt? And that number isn't random. Among American households that carry credit card debt (less than 40%, perhaps a lot less), that is the *average*
https://www.usatoday.com/story/money/personalfinance/2016/10/12/average-credit-card-debt/91431058/
>>transparent pricing
This is such a big one. Most people, including providers, have no idea what stuff costs.
Providers often act like it's an affront to them if you treat their services like a business, like a plumber or mechanic, but sometimes you see the bottom line. Some years ago, my wife was getting terrible care from an orthopedist who had turned her over to a clearly incompetent resident (like we explained the situation to the receptionist over the phone and she said I was lying because they would never do such a stupid thing, so I read off the from the documents and she said "Oh my").
So I said, "Listen, we know several excellent orthopedists in the area and we're happy to go there if you prefer not to take our case. If we don't hear from Dr Balinas in the next two hours, we'll just change doctors" (and it was in that tone, not ranting). 23 minutes later we had the doc on the phone.
Meanwhile, in the same incident, the neurosurgeon was a heroic, caring person who kept in touch for years even though she was no longer his patient and not a penny changed hands for those followup conversations. So not trying to knock a whole profession, but the pricing and incentive system is screwy.
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how much savings do you have when compound the interest on $0
right.
but with pensions (and life insurance companies) the issue is not the individual actions of individuals who immediately blow what they make, but what happens with the set asides they did not have availability to blow.
those set asides compounded quickly BUT medical costs compounded more quickly due to the absurd amount of fraud in the health industry.
one can certainly argue the issue is not even related to doctors, but bloated pharma scams, insurance scams & administration jobs.
there are even NYT articles about the fate of unneeded jobs of healthcare administrators if Obamacare gets nuked - they pitch those b/s jobs as our "job engine"
https://www.nytimes.com/2017/05/06/business/health-act-repeal-would-strike-economys-engine.html
that goes right back to Bastiat
there's no lasting solution to any of the fiscal issues so long as a segment of the economy which is around 20% of the total economy has heavily-subsidized cost-shifted fraud all over it & is growing at 3 times the rate of the economy.
part of the reason wages are going nowhere is the healthcare industry is eating most economic growth.
health expenses growing at 5.6% from 20% of the economy = 5.6% / 5 = 1.15% growth across whole economy.
https://www.usnews.com/news/articles/2016-12-02/us-sees-historic-jump-in-health-cares-share-of-the-economy
real GDP growth rate is close to 2%
https://www.bea.gov/newsreleases/glance.htm
and there is debt leverage on top of the cost spiral.
http://nypost.com/2017/04/30/the-health-care-industry-is-bound-to-collapse-soon-experts-say/
- Health care company debt is up 308 percent since 2009.
- The number of hospitals in health systems has expanded by 26 percent since 1999.
- The yearly medical costs for a family of four have jumped 189 percent since 2002, from $9,000 to $26,000. (189% over 14 years is 7.88%/yr)
and, even worse than the above is the point you made about people spending everything they make, because when they realize they can't rely on their pension & need to save, then whatever savings they have is someone else's lost income. And if they are so hungry for work they refuse to retire then that creates an even greater imbalance between labor and capital. the gig economy is already 34% of the domestic workforce
http://money.cnn.com/2017/05/24/news/economy/gig-economy-intuit/
monopoly platforms with monopoly margins opt to work with shell companies to outsource their core business functions & then end those businesses outright & refresh them with new ones to ensure the monopoly is not responsible to pay any of the benefits which were typically associated with employment. so a bunch of low-wage part-time employees must figure out how to pay for them or get cross-subsidized by more prosperous self-employed people who lack monopoly leverage needed to effectively restructure the economy while self-exempting from the associated costs.
https://arstechnica.com/features/2017/04/the-secret-lives-of-google-raters/
“Hi guys... this is not a change we are able to control,” Jackson typed. “We are not looking forward to this.” He added that the change was due to “risk mitigation” related to “regulations,” but Jackson would not elaborate. In the e-mail, however, the Leapforce Team claimed the change was driven by “circumstances that are somewhat out of our control, but will ensure Leapforce is compliant with federal and state regulations including the FLSA [Fair Labor Standards Act] and the ACA [Affordable Care Act].”
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A manager named LFEditorCat told the raters in chat that the pay cut had come at the behest of “Big G’s lawyers,” referring to Google. Later, a rater asked Jackson, “If Google made this change, can Google reverse this change, in theory?” Jackson replied, “The chances of this changing are less than zero IMO.”
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>>issue is not the individual actions of individuals
True, but those individual actions of a minority of individuals are symptom let's say. But yes, as your list shows... one of many symptoms. Mostly the cause is that we are very bad at evaluating present cost and present risk against future cost and future risk.
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A bit - OFF TOPIC but
Official warns Illinois finances in 'massive crisis mode'
http://hosted.ap.org/dynamic/stories/A/APFN_US_ILLINOIS_PAYING_THE_BILLS?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2017-06-17-11-53-44
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https://www.zerohedge.com/news/2018-02-24/former-calpers-board-members-shocking-admission-calpers-near-insolvency-it-needs
CalPERS board voted to change the period for recouping future investment losses from 30 years to 20 years. While this may not sound like much, the bottom line is that it would require the California state government and thousands of local government agencies and school districts "to ramp up their mandatory contributions to the huge trust fund."
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>The crisis is happening as we speak.
Illinois governor merges pension funds in cost-cutting move
https://abcnews.go.com/US/wireStory/illinois-governor-merges-pension-funds-cost-cutting-move-67812208
"But the change doesn't affect nine Chicago and Cook County pension accounts underfunded by $44 billion, or five state employees' programs that are $134 billion short."
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BILLION with a "B"
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Chance of pension fund bailout by Feds is nearly 100%. Add it to the national debt. Everything will be fine.
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"100%"
We are about due for a CIVIL WAR
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We are about due for a CIVIL WAR
I fear that too. People don't realize how fragile civil democracy is. Everything seems totally FUBAR but "fine," and then someone raises the subway fare by 3.5% and all hell breaks loose.
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"People don't realize how fragile civil democracy is"
Just look at France attempting to raise the retirement age from 62 to 64.
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