U.S. Pension Fund Collapse Isn’t a Distant Prospect. It Could Come in 5 Years
Warnings about looming public pension disasters have regularly cropped up since the 1950s, pointing to problems 25 years or more down the line. To politicians and union leaders, 1 the troubles were someone else’s predicament. Then crisis fatigue set in as the big problem remained down the road.
Today, the hard stop is five to 10 years away, 2 within the career plans of current officials. 3 In the next decade, and probably within five years, some large states are going to face insolvency 4 due to pensions, absent major changes. 5
There are some reassuring facts. 6 Many states are in pretty good shape, and many others still have time and resources to fix things. 7 There is no serious chance of retirees being impoverished. What’s in doubt is whether states will pay promised benefits to retirees with large pensions or significant outside income or assets. 8 Also, although most of the problem is created by politicians and union leaders cutting deals to promise future unfunded benefits to keep voters 9 happy, there are also plenty of stories of politicians and union leaders risking their careers to stand up for honest pensions. 10
It’s important to distinguish between actuarial problems (the present value of projected future benefit payments exceeds the funds set aside to pay them plus projected future contributions) and cash problems (not having the money to send out this month’s checks). Actuarial problems are always debatable and usually involve the distant future. Cash shortfalls are undeniable and immediate.
By 2023, America Will Be In Worse Fiscal Shape Than Italy, Mozambique And Burundi
You all know that America’s fiscal situation is deteriorating rapidly, right?
Sure you do. And you’re probably also aware that Larry Kudlow’s protestations notwithstanding, the CBO is likely correct to suggest that Trump’s tax cuts are going to be seen in hindsight as a catastrophic mistake from the perspective of fiscal rectitude. Here’s what Kudlow told state TV on Tuesday about the CBO:
They’re always wrong, especially with regards to tax cuts, which they never score properly because they don’t understand the growth, the incentives and the encouragements to reward success.
Ok, Larry. I guess no one else (besides maybe Kudlow and Trump) “understands” this either because according to pretty much everyone who isn’t part of the administration, Trump’s fiscal policies are not only anomalous (in terms of the timing of fiscal stimulus), but are destined to balloon the deficit on the way to catapulting the U.S. into unchartered fiscal territory. Recall this chart from Goldman, for instance:
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The US is doubling its debt every eight years, it can’t last forever. The longer reality is put off the worse its going to be. Trumps increasing that rate, with his tax cuts.
When this bomb goes off there will super inflation and everything is going to get looted, Greek style austerity. There could even be war from all the countries we ripped off. Basically the US is going to go through what Russia did after the USSR collapsed. Its going to happen.
AC