Category Archives: Economy

Teachers Demand Extra $3,200 From Each Kentucky Household To Fund Busted Pension Ponzi For 2 Years

We have written frequently over the past couple of weeks about the disastrous public pension funds in Kentucky that are anywhere from $42 – $84 billion underfunded, depending on which discount rate you feel inclined to use. As we’ve argued before, these pensions, like the ones in Illinois and other states, are so hopelessly underfunded that they haven’t a prayer of ever again being made whole.

That said, logic and math have never before stopped pissed off teachers and/or clueless legislators from throwing good money after bad in an effort to ‘kick the can down the road’ on their pension crises. As such, it should come as no surprise at all that the Lexington Herald Leader reported today that Kentucky’s 365,000 teachers and other public employees are now demanding that taxpayers contribute a staggering $5.4 billion to their insolvent ponzi schemes over the next two years alone. To put that number in perspective, $5.4 billion is roughly $3,200 for each household in the state of Kentucky and 25% of the state’s entire budget over a two-year period. 

Kentucky’s General Assembly will need to find an estimated $5.4 billion to fund the pension systems for state workers and school teachers in the next two-year state budget, officials told the Public Pension Oversight Board on Monday.

That amount would be a hefty funding increase and a painful squeeze for a state General Fund that — at about $20 billion over two years — also is expected to pay for education, prisons, social services and other state programs.

“We realize this challenge is in front of us. That’s obviously part of the need for us to address pension reform,” said state Sen. Joe Bowen, R-Owensboro, co-chairman of the oversight board.

“In the short-term, yeah, we’re obligated to find this money,” Bowen said. “And everybody is committed to do that. We have revealed this great challenge. We have embraced this great challenge, as opposed to previous members of the legislature, perhaps.”

In presentations on Monday, the pension oversight board was told that total employer contributions for KRS in Fiscal Years 2019 and 2020 would be an estimated $2.47 billion each year, up from $1.52 billion in the current fiscal year. Nearly $995 million of that would be owed by local governments. The remaining $1.48 billion is what the state would owe.

The Teachers’ Retirement System estimated that it would need a total of $1.22 billion in Fiscal Year 2019 and $1.22 billion in Fiscal Year 2020. That would include not only an additional $1 billion to pay down the system’s unfunded liabilities but also $139 million to continue paying the debt service on a pension bond that won’t be paid off until the year 2024.

Of course, the $5.4 billion will do absolutely nothing to avoid an inevitable failure of Kentucky’s pension system but what the hell…

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/26/Pension%20Grenade_0.png

As we’ve said before, the problem is that the aggregate underfunded liability of pensions in states like Kentucky have become so incredibly large that massive increases in annual contributions, courtesy of taxpayers, can’t possibly offset liability growth and annual payouts.  All the while, the funding for these ever increasing annual contributions comes out of budgets for things like public schools even though the incremental funding has no shot of fixing a system that is hopelessly “too big to bail.”

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/08/29/2017.08.29%20-%20Kentucky%202.JPG

So what can Kentucky do to solve their pension crisis?  Well, as it turns out they hired a pension consultant, PFM Group, in May of last year to answer that exact question.  Unfortunately, we suspect that PFM’s conclusions, which include freezing current pension plans, slashing benefit payments for current retirees and converting future employees to a 401(k), are somewhat less than palatable for both pensioners and elected officials who depend upon votes from public employee unions in order to keep their jobs…it’s a nice little circular ref that ensures that taxpayers will always lose in the fight to fix America’s broken pension system.

Be that as it may, here is a recap of PFM’s suggestions to Kentucky’s Public Pension Oversight Board courtesy of the Lexington Herald Leader:

An independent consultant recommended sweeping changes Monday to the pension systems that cover most of Kentucky’s public workers, creating the possibility that lawmakers will cut payments to existing retirees and force most current and future hires into 401(k)-style retirement plans.

If the legislature accepts the recommendations, it would effectively end the promise of a pension check for most of Kentucky’s future state and local government workers and freeze the pension benefits of most current state and local workers. All of those workers would then be shifted to a 401(k)-style investment plan that offers defined employer contributions rather than a defined retirement benefit.

PFM also recommended increasing the retirement age to 65 for most workers.

The 401 (k)-style plans would require a mandatory employee contribution of 3 percent of their salary and a guaranteed employer contribution of 2 percent of their salary. The state also would provide a 50 percent match on the next 6 percent of income contributed by the employee, bringing the state’s maximum contribution to 5 percent. The maximum total contribution from the employer and the employee would be 14 percent.

For those already retired, the consultant recommended taking away all cost of living benefits that state and local government retirees received between 1996 and 2012, a move that could significantly reduce the monthly checks that many retirees receive. For example, a government worker who retired in 2001 or before could see their benefit rolled back by 25 percent or more, PFM calculated.

The consultant also recommended eliminating the use of unused sick days and compensatory leave to increase pension benefits.

Meanwhile, PFM warned that the typical “kick the can down the road approach” would not work in Kentucky and that current retiree benefits would have to be cut.

“This is the time to act,” said Michael Nadol of PFM. “This is not the time to craft a solution that kicks the can down the road.”

“All of the unfunded liability that the commonwealth now faces is associated with folks that are already on board or already retired,” he said. “Modifying benefits for future hires only helps you stop the hole from getting deeper, it doesn’t help you climb up and out on to more solid footing going forward.”

Of course, no amount of math and logic will ever be sufficient to convince a bunch of retired public employees that they have been sold a lie that will inevitably fail now or fail later (take your pick) if drastic measures aren’t taken in the very near future. 

Source: ZeroHedge

 

Advertisements

Trump Wants To Add More Water To The Swamp

If you’re wondering what’s dragging the dollar down to 32-month lows, perhaps you should add this to the calculus…

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/06/20170907_trump.jpg

Politico reports that President Donald Trump suggested to congressional leaders on Wednesday morning that votes to raise the debt ceiling could be done away with altogether, according to three people familiar with the conversation.

In a meeting with GOP and Democratic leaders, in which Trump sided with the Democrats on a fiscal deal to raise the debt ceiling, the president said he believes the votes are unproductive, those people said.

With Congress set to lift the debt ceiling into December as part of the deal, Trump floated the idea that the next time Congress votes to raise the debt ceiling, it could be the last.

He said conversations should happen over the next three months, according to people in the room.

President Trump has now added his thoughts, telling reporters “we have great respect for the sanctity of the debt ceiling,” as he meets with Emir of Kuwait. “There are a lot of good reasons” to get rid of debt ceiling altogether, Trump says, adding that he discussed it with congressional leaders yesterday, and adding that “there will never be a problem” on the debt ceiling.

The Dems, are of course, delighted by Trump’s shocking U-turn:

Schumer said such a move could not be accomplished now, but indicated he would talk to his caucus about considering structural changes to the debt limit in December, a conversation Trump supported.

House Minority Leader Nancy Pelosi (D-Calif.) also appeared interested in the deal but was noncommittal. The debt ceiling is a key leverage point for members of the minority, particularly because it can be filibustered in the Senate and require 60 votes.

As WaPo confirms, President Trump and Senate Minority Leader Chuck Schumer have agreed to pursue a deal that would permanently remove the requirement that Congress repeatedly raise the debt ceiling, three people familiar with the decision said.

Trump and Schumer discussed the idea Wednesday during an Oval Office meeting. Schumer, Trump, and House Minority Leader Nancy Pelosi (D.–Calif.) agreed to work together over the next several months to see if they can finalize a plan, which would need to be approved by Congress.

One of the people familiar described it as a “gentlemen’s agreement.”

https://peopledotcom.files.wordpress.com/2017/09/chuck-schumer-donald-trump.jpg?w=530&h=361

We suspect Reps won’t be so happy…

Freedom Caucus legislators, angry about Wednesday’s deal, promised a spirited fight in December over the debt ceiling.

Conservatives are unhappy that the White House and congressional leaders have agreed to raise the debt ceiling without spending cuts.

However, Orrin Hatch – Republican Senator for Utah and Chair of Senate Finance Committee – says he wants to abolish debt ceiling votes.

Translated: Trump suggests that there should be no constraint at all, not even the fiscally conservative pretense of the debt ceiling law, over how much debt the government can pile on the backs of future generations of Americans. If Obama can add $10 trillion, we are sure Trump can do “better.”

Source: ZeroHedge

A Major Shift From West To East Is Occurring As The Dollar Dies. Are You Prepared?

Americans need to shake off their FUD (fear, uncertainty and doubt) and start taking real steps to protect their wealth before the $USD is no longer the world’s dominant reserve currency. This involves converting USD denominated paper assets into physical Gold, Silver and a little Cryptocurrency to preserve your purchasing power … before the multi-polar world of tomorrow arrives.  

A big part of life on the other side of this event will involve dealing with wide spread shortages (including food) that accompany the high cost of imported goods that follow a credit and currency collapse, until America’s domestic manufacturing base can be brought back up. Think decades, not months or years to fully recover. This means you should be accumulating resources necessary to more easily stretch through this period while they are relatively cheap and plentiful in today’s dollars. Otherwise, you might find yourself living like the 99% are in Venezuela today.  

Enjoy the show …

 

The Elites Are Privately Warning About a Crash

Many everyday citizens assume powerful global financial elites operate behind closed doors in secret conclaves, like the scene of a Spectre board meeting in the recent James Bond film.

Actually, the opposite is true. Most of what the power elite does is hidden in plain sight in speeches, seminars, webcasts and technical papers. These are readily available from institutional websites and media channels.

It’s true that private meetings occur on the sidelines of Davos, the IMF annual meeting and G-20 summits of the kind just concluded. But the results of even those secret meetings are typically announced or leaked or can be reasonably inferred based on subsequent policy coordination.

What the elites rely on is not secrecy but lack of proficiency by the media.

The elites communicate in an intentionally boring style with lots of technical jargon and publish in channels non-experts have never heard of and are unlikely to find. In effect, the elites are communicating with each other in their own language and hoping that no one else notices.

Still, there are some exceptions. Mohamed A. El-Erian is a bona fide member of the global power elite (a former deputy director of the IMF and president of the Harvard Management Co.). Yet he writes in a fairly accessible style on the popular Bloomberg website. When El-Erian talks, we should all listen.

In a recent article he raises serious doubts about the sustainability of the bull market in stocks because of reduced liquidity resulting from simultaneous policy tightening by the Fed, European Central Bank (ECB) and the Bank of England.

He says stocks rose on a sea of liquidity and they may crash when that liquidity is removed. This is a warning to other elites, but it’s also a warning to you.

But it’s not just El-Erian who’s sounding the alarm…

You’ve heard the expression “the big money.” This is a reference to the largest and most plugged-in investors on Earth. Some are mega-rich individuals and some are large banks and institutional investors with a dense network of contacts and inside information.

At the top of the food chain when it comes to big money are the sovereign wealth funds. These are funds sponsored by mostly wealthy nations to invest a country’s reserves from trade or natural resources in stocks, bonds, private equity and hedge funds.

As a result, sovereign wealth fund managers have the best information networks of any investors. The chief investment officer of a sovereign wealth fund can pick up the phone and speak to the CEO of any major corporation, private equity fund or hedge fund in the world.

Among sovereign wealth funds, the Government of Singapore Investment Corp. (GIC) is one of the largest, with over $354 billion in assets. So what does the head of GIC say about markets today?

Lim Chow Kiat, CEO of GIC, warns that “valuations are stretched, policy uncertainty is high” and investors are being too complacent.

GIC allocates 40% of its assets to cash or highly liquid bonds and only 27% of its assets to developed economy equities.

Meanwhile, the typical American small retail investor probably has 60% or more of her 401(k) in developed economy equities, mostly U.S.

But it may be time for everyday investors to listen to the big money. They are the ones who see financial crashes coming first.

The bottom line is, a financial crisis is certainly coming. In my latest book “The Road to Ruin,” I use 2018 as a target date primarily because the two prior systemic crises, 1998 and 2008, were 10 years apart. I extended the timeline 10 years into the future from the 2008 crisis to maintain the 10-year tempo, and this is how I arrived at 2018.

Yet I make the point in the book that the exact date is unimportant. What is most important is that the crisis is coming and the time to prepare is now. It could happen in 2018, 2019, or it could happen tomorrow. The conditions for collapse are all in place.

It’s simply a matter of the right catalyst and array of factors in the critical state. Likely triggers could include a major bank failure, a failure to deliver physical gold, a war, a natural disaster, a cyber–financial attack and many other events.

The trigger itself does not really matter. The exact timing does not matter. What matters is that the crisis is inevitable and coming sooner rather than later in my view. That’s why investors need to prepare ahead of time.

The new crisis will be of unprecedented scale. This is because the system itself is of unprecedented scale and interconnectedness. Capital markets and economies are complex systems. Collapse in complex systems is an exponential function of systemic scale.

In complex dynamic systems that reach the critical state, the most catastrophic event that can occur is an exponential function of scale.

This means that if you double the system, you do not double the risk; you increase it by a factor of five or 10.

Since we have vastly increased the scale of the financial system since 2008, with larger banks, greater concentration of banking assets in fewer institutions, larger derivatives positions, and over $70 trillion of new debt, we should expect the next crisis to be much worse than the last.

For these reasons the next crisis will be of unprecedented scale and damage.

The only clean balance sheet and source of liquidity left in the world will be the International Monetary Fund, which can make an emergency issuance of Special Drawing Rights, which you can think of as world money.

Countries around the world are acquiring gold at an accelerated rate in order to diversify their reserve positions. This trend, combined with the huge reserves held by the U.S., Eurozone and the IMF amount to a shadow gold standard.

On the level of the individual investor, losers will fall into two groups when the next crisis strikes…

The first are those who hold wealth in digital form, such as stocks, bonds, money-market funds and bank accounts. This type of wealth is the easiest to freeze in a panic. You will not be able to access this wealth, except perhaps in very small amounts for gas and groceries, in the next panic. The solution is to have hard assets outside the digital system such as gold, silver, fine art, land and private equity where you rely on written contracts and not digital records.

The second group are those who rely on fixed-income returns such as life insurance, annuities, retirement accounts, social security and bank interest. These income streams are likely to lose value, since governments will have to resort to inflation to deal with the overwhelming mountain of debt collapsing upon them.

The solution to this is to allocate 10% of your investable assets to physical gold or silver. That will be your insurance when the time comes.

Meanwhile, demand for secure vaulting space in major financial centers like London and Frankfurt is soaring. There are plenty of bank safe deposit boxes in those cities, but investors are insisting on non-bank vaults because investors understand that the banks cannot be trusted in a panic. As a result, proprietors of non-bank vaults can’t build them fast enough.

This is one indicator that reveals three important facts. The first is that investors feel a panic may be near and the time to act is now. The second is that investors don’t trust banks. And the third is that investors are buying gold to protect themselves since that’s the main tangible that people put in their private vaults. Don’t wait until the panic hits to secure your gold and make arrangements for safe storage.

The time to act is now.

Source: Daily Reckoning

This Might Have Been The Biggest Theft In History

 

… and how the biggest heist ever (central banking) might be facing the beginning of the end.

The following is a highly educational discussion with Bill Holter and Lynette Zang about Janet Yellen, monetary policy, principles of finance, a declining dollar, the future of pensions, precious metal hedges, and TONS of charts and data!

https://www.itmtrading.com/blog/wp-content/uploads/2017/07/7-12-17-Bill-Holter-Brian-Interview-Loss-of-Purchasing-Power-shopping-cart-and-nominal-confusion.jpg

The Broken States of the Union

https://i0.wp.com/thegreatrecession.info/blog/wp-content/uploads/Great-Depression-Farmer-and-Wife-768x544.jpg

At the end of the day, a broken state is a broken you.

For the first time in US history a handful of US states is teetering on the edge of bankruptcy. Illinois is about to be downgraded to junk bond status, which will turn its financial problems catastrophic overnight. Illinois cannot possibly pay its accumulated debt, its unpaid medicaid expenses and its future retirement obligations, so bankruptcy almost certainly will be its only way out.

Main, Connecticut, Kentucky and California are also caught in chronic budget deadlocks that may lead to bankruptcy as a solution for dodging their entitlement obligations. Bear in mind they’re called “entitlements” because it’s money promised to you that you already put in the work to earn. It’s your retirement. Illinois, for example, has over $200 billion in pension obligations that will never be paid … or that can only be paid at a greatly diminished level worked out in some form of effective bankruptcy.

That’s a problem that is only solved by turning it into a worse problem for others. Illinois will end its problems by making certain that for the next quarter century, a good portion of the now retiring baby-boom population is dirt poor and must be carried by the younger population as dead wait (if not exterminated) because the retirement they planned in order to responsibly carry themselves through their final years isn’t there.

Instead of the state not being able to pay its bills, bankruptcy means that hundreds of thousands of retirees won’t be paying theirs, which means the people they owe money to will be going broke, and so the problem trickles down. State bankruptcy merely shifts the burden so that legislators don’t have to deal with it but you do. And it’s inevitable because the alternative is that you pay for it through much higher taxes. The state is you.

The Federal government won’t be solving the state budget problems either because it plans on dumping heavier medicaid expenses back on all states as it repeals Obamacare to help solve its own budget problems amid its own deadlock. Like the states, its own Social Security funds are going broke, so it faces its own massive entitlement problems. And, if it bails out one failing state, it will be expected to bail out all others that face such problems.

With Illinois effectively reaching bankruptcy and a likely catastrophic credit downgrade this summer, the problem finally starts coming to a head where everyone is forced to see how decades of government debt accumulation end, and that end looks something like this in real terms:

Illinois, as the bellwether example, has already stopped paying the contractors who fix roads and other infrastructure. That means the contractors will now stop fixing the roads and won’t be paying their employees, and broken roads don’t get corn and beef to market. Illinois has stopped paying doctors. That means the doctors will stop fixing people. Illinois has refused to pay its lottery winners (even though it took the money from all the suckered ticket buyers). That means there will no more lottery to raise state money because there will be no more ticket buyers. That means the state’s budget problems just got worse, so Illinois soon won’t be paying state employees or pensioners.

It sucks when your entire state goes broke. You see, you can keep kidding yourself — as our entire nation has for the decades that I’ve been complaining about this — that you’re going to take care of everyone on welfare with endless debt spending or that you’re going to maintain huge military power to control the world with debt spending; but eventually you pile up state or federal debts so high that you wind up not paying anyone, including the welfare recipients or the soldiers in your military.

Like the US government, the State of Illinois has been operating without a real budget for more than two years, operating dysfunctionally during that time by court-ordered stop-gap measures because the legislature is deadlocked as politicians refuse to accept reality; so, Illinois has now reached the same financial status as Puerto Rico.

Illinois is grappling with a full-fledged financial crisis and not even the lottery is safe – with Republican Gov. Bruce Rauner warning the state is entering “banana republic” territory…. Reports have suggested the state could be the first to attempt to declare Chapter 9 bankruptcy — but under the law, that’s impossible unless Congress gets involved….. “Illinois is the fiscal model of what not to do,” Rep. Peter Roskam, R-Ill., told Fox News, while not commenting on the bankruptcy question. “This avoidance in behavior toward dealing with our challenges is what leads to the devastating impacts we are seeing today.” (Fox News)

And, for Illinois, the problem is that they cannot kick the can down the road any further because the next credit downgrade will make it impossible for them afford their current debt, which is really already impossible. Creditors will become much fewer and more expensive when Illinois becomes the first state of the union to hit junk-bond status and maybe the first to declare bankruptcy since the Great Depression, when Arkansas found itself “plain flat broke” and became the only state to ever default on its bonds (showing it can happen), effectively declaring its own bankruptcy, even if not sorted out through the federal courts. (Eventually, years later, Arkansas paid their bond holders.) Already, the Illinois ten-year bond yields are at 5.2%; but the world becomes exponentially worse when you hit junk-bond status and entire large institutions become outlawed from financing you.

“We have a very real deadline looming,” Senate Republican Leader Christine Radogno told Fox News. “The alternative to not finding a compromise will be devastating to Illinois.”

With or without bankruptcy, the state is already badly defaulting on its obligations. Bankruptcy is just a more orderly way of deciding who is not going to get paid and by how much. But the not getting paid part? Already here, and nearly a dozen states are falling into this kind of severe condition. The issue with state bankruptcy is that bankruptcy court is federal, putting state budgetary sovereignty under state’s rights under federal determination; but it can be done:

David Skeel, a law professor at the University of Pennsylvania … wrote outright that, “The constitutionality of bankruptcy-for-states is beyond serious dispute.” The key, as he sees it, is that bankruptcy would be entirely voluntary, which should eliminate any concerns about Federal intrusion on state sovereignty. (Zero Hedge)

And it has been done … long ago … and is now here again.

Economic denial is about to square up to economic reality, and reality always wins! Eventually, economic reality forces your hand in a catastrophic solution because of your profligate ways. Eventually, you end up as a truly cashless society. This summer, we get to watch that play out in Illinois to get a sense of what it will look like elsewhere.

At the end of the day, a broken state is a broken you.

The motto of the State of Illinois, Land of Lincoln, who held this great national union together, is “”State Sovereignty, National Union.”

Illinois is all of us.

By David Haggith | The Great Recession