Why pensions are going broke

April 13, 2012

By John Seiler

Why are government pensions going broke? Wayne Lusvardi wrote about recently it in one of our Special Series on municipal bankruptcy, “California counties are more at risk of going belly up.”

In one sentence, he wrote, “No one knows what rates of return pension funds will yield in the future”

In a reply, “Truthsquad” referred to that sentence, and commented,

“Exactly — but we can look at the past and lifetime of the pension systems in our state. Historically the returns have been well over 8 percent. Framing the picture to say returns will be as low as they are during an economic downturn is bogus, and thus undermines the ‘sky is falling premise of the information provided here.”

But look at the following chart.

It shows the performance of the Dow Jones Industrial Average since 1900, but adjusted for inflation. Pension funds generally mirror the stock market.

Look on the right side. The DJIA has shown essentially no growth for about 13 years, since the dot-com bust of 1999-2000. There was “growth” in the mid-2000s, but it was fake growth from the real estate boom — which quickly became the real estate bust.

This dismal record occurred under both Republican President George W. Bush and Democratic President Barack Obama, as well as under Congress when it was controlled, alternately, by Democrats or Republicans. So there’s plenty of blame to go around. And today’s “gridlock” — the Dems controlling the White House and the U.S. Senate, and Reps controlling the U.S. House — isn’t any better, either.

The assumption by “TruthSquad” and other defenders of the existing pension system is that growth will resume, zoom upward, and make up for the recent stagnation. But how can it make up for 13 years of stagnation?

Basically, you would need another Ronald Reagan to come in and cut taxes and regulations. Check out the chart: After he did that in 1981, growth rose sharply and lasted two decades. Bill Clinton, contrary to popular belief, did not revoke Reagan’s policies, but continued them. Clinton did increase taxes once; but he also cut taxes twice. So it basically was a wash — that is, a continuation of Reagan’s policies.

The Bush “tax cuts” of 2003 were temporary, leading to the ongoing extension crises. That means nobody knows what next year’s tax levels will be, thus scrambling business and personal tax and spending calculations. The economy only will grow when taxes are stabilized — with no new taxes; and when the Federal Reserve Board ends its inflationary, low-interest policies.

Moreover, “TruthSquad” doesn’t point out that even CalPERS doesn’t hold to that 8 percent figure. It recently cut its retrun expectations rate from 7.75 percent to 7.5 percent.

And CalPERS itself pays only 3.8 percent for “terminated pension plans” — those seeking to get out of its system. That’s the real amount that ought to be used in its own calculations.

Federal debt rising

Meanwhile, the U.S. government’s debt is $16 trillion and rising. And that doesn’t even include the debt for federal civilian and military pensions, Medicare, Medicaid and Social Security.

Look at this chart from an article on LewRockwell.com:

There’s nothing but economic disaster that can come from such a heavy load of debt. The fedeeral government will have to continue its recent policies of inflating the currency, meaning more economic stagnation.

Imposing President Obama’s “Buffett tax” won’t help. Assuming it works, it would raise at most $160 billion over 10 years, or $16 billion a year, according to the liberal Center for American Progress. But the budget deficit is more than $1 trillion a year. With interest on the $16 trillion debt also compounding, that $16 billion (note the “b) a year is like spitting in the Pacific Ocean.

Another ‘lost decade’

“TruthSquad” expects economic growth to pick up substantially  because it has in the past. But why should it? Japan already is in its third “lost decade.” America has had one “lost decade,” 1999 to 2009; and now is well into its second, 2010-2012. American economic polices, as outlined above, are as dismal as ever.

Unless you believe Mitt Romney is the reincarnation of the Gipper (I don’t), then there’s nothing but more doom and gloom.

The pension funds will cut more deeply into state and local budgets.

If you disagree with me, then there’s something simple to do: Work to end the taxpayer guarantee for pension payments to retirees. Currently, state and local taxpayers are on the hook for shortfalls in pension performance.

Well, if these pension funds are expected to rise by an average of 8 percent per year, then there’s no problem; there’s no need for a taxpayer guarantee.

Memo to “TruthSquad”: As we say in America, Put your money where you mouth is.





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  1. Beelzebub
    Beelzebub 13 April, 2012, 11:23

    I already explained most of this to “Truthsquad”. He never replied. Figures. One thing is clear if you examine the economic data: We are the NEW JAPAN. Make no mistake about it. Look at the Nikkei 225 chart that I posted. The 8% ROI is a total crack pipe dream. And without significant advances in the US investment markets the pension funds are dead in the water. You will only see REAL PENSION REFORM when the truth can no longer be squelched or squashed. By that time it will require DRASTIC ACTION to avert a total financial and political collapse of our so-called Republic. And based upon the current general financial dilemma faced by the global markets – there is a better chance for eventual financial armageddon than not.

    “Why are government pensions going broke?”

    That’s easy. Because our fearless sworn leaders accepted bribes to make promises before the masses that were absolutely impossible to deliver upon. They knew this when they accepted the bribes and moved their plans forward. Never, never, never accept the excuse that it would have all been different if only they had known then what they know now. That’s complete BS. Dismiss it! BTW, just because contributions are LEGAL does not diminish the fact that they were and are still bribes. It’s all a matter of simple semantics. Paying someone to provide a favorable personal outcome is a bribe. Legal bribes and illegal bribes seek the same outcomes.

    Reply this comment
  2. Rex The Wonder Dog!
    Rex The Wonder Dog! 13 April, 2012, 11:32

    Basically, you would need another Ronald Reagan to come in and cut taxes and regulations. Check out the chart: After he did that in 1981, growth rose sharply and lasted two decades.

    Here is the problem with Raygun,he started running GIANT budget deficits and trade deficits.

    Under Ronnie Raygun America went from the LARGEST CREDITOR nation in the world to the largest debtor nation in the world, which is a title we still own.

    So as much as people say Raygun made the economy grow fron tax cuts- the budget deficits-printing money like toilet paper- was the biggest reason we had growth. Take out the Raygun deficit spending and the growth would not be nearly as great as it was. So the tax cuts were not the major part of the growth IMO.

    Don’t get me wrong, we are way over taxed, but we need a minimal amount of taxes to run government.

    Reply this comment
  3. Beelzebub
    Beelzebub 13 April, 2012, 12:40

    Personally I think Reagan was (is) way overrated.

    But I guess the serfs and debt slaves need a deceased psuedo hero to slobber over since we haven’t had any real heroes since Audie Murphy. 🙂 Human beings are perpetually in seach of heroes and if none exist will create them in their imaginations. It’s part of the human condition.

    It’s sort of like what George Bernard Shaw once said: “Love consists of greatly over-exaggerating the differences between one woman and another.”

    I remember when Reagan gave the illegals ‘amnesty’ back in the 80’s. I wrote him off at that time and never looked back. He was no different from all the rest.

    Reply this comment
  4. Beelzebub
    Beelzebub 13 April, 2012, 13:29

    Shiela Bair, former head of the FDIC, was a club member of the Oligarchy and certainly not a friend of the common man.

    But here she writes a nice piece of satire that is worth a read. It emphasizes the wide, wide rift of favors and benefits showered upon the serfs and the Oligarchy by mother government.

    “Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on……

    Think of what we can do with all that money. We can pay off our underwater mortgages and replenish our retirement accounts without spending one day schlepping into the office. With a few quick keystrokes, we’ll be golden for the next 10 years”


    You see, this is one of the REAL drivers that has resulted in a stale and stagnant economy. It’s one of the problems that few self-proclaimed ‘conservatives’ want to discuss. Some thing are better left unsaid, I guess.

    Reply this comment
  5. MerriAnn McLain
    MerriAnn McLain 13 April, 2012, 14:52

    Simple economics: fewer jobs = fewer taxes = no more money for over-payment to public employees (read: welfare whores)

    Reply this comment
  6. Wayne Lusvardi
    Wayne Lusvardi 13 April, 2012, 15:32

    Look at it this way – if inflation skyrockets the public pension funds will soon be fully funded.

    But each pension will be worth maybe 50 percent of what they were promised in real purchasing power.

    So inflation may kick in and exact its revenge — not stingy taxpayers or Tea Partiers or Republicans.

    Reply this comment
  7. Beelzebub
    Beelzebub 13 April, 2012, 15:57

    But they can’t inflate their way out of it this time. That’s not an option. With the outstanding accumulated debt it will blow the bond markets sky high. The Zimbavwe solution won’t work in this country. No can do. The only option they have is an orderly default. If they let it ride until it becomes a disorderly default we’re done.

    Reply this comment
  8. Beelzebub
    Beelzebub 13 April, 2012, 16:02

    Btw, all that I can assume is that Shiela Bair got backstabbed by the Wall Street kings and queens after she stepped down from the FDIC. For some reason she was denied a corner office in lower Manhattan. Probably got into a peeing contest with the wrong thief. So I assume that her satirical piece represents sour grapes. But it is still comical nonetheless. One of the few times I’ve ever seen a queen turn viscious on the Oligarchy.

    Reply this comment
  9. Rex The Wonder Dog!
    Rex The Wonder Dog! 13 April, 2012, 17:45

    If they let it ride until it becomes a disorderly default we’re done.

    We have that disorder right now, OWS. It is a powder keg waiting for someone to light the match.

    Did you see the sheriff deputy and lock smith that were gunned down in Modesto yesterday????? That is going to be come all the more common as people cannot pay for a place to live or for food or medical, because there are no jobs.

    Reply this comment
  10. Beelzebub
    Beelzebub 13 April, 2012, 18:59

    “We have that disorder right now, OWS. It is a powder keg waiting for someone to light the match”

    Yes, rex. Civil disorder is a distinct possibility. But when I wrote “a disorderly default” I was referring to a full-on bond market dislocation – in an economic sense. By an “an orderly default” I meant slowly taking the air out of the bubble economy by balancing the budget (eliminating deficit spending) and bringing back ‘rule of law’ so that financial criminals cannot practice their trade with immunity from prosecution.

    If we suffer a bond market dislocation I suppose that civil disorder would follow shortly thereafter. It would be a mess for sure.

    Reply this comment
  11. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 13 April, 2012, 20:07

    you people are whacked out Beckian bunker-dwellers! Godspeed Republitools!

    Reply this comment
  12. Beelzebub
    Beelzebub 13 April, 2012, 21:14

    May the fleas of a thousand camels infest your shorts.

    Reply this comment
  13. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 13 April, 2012, 21:31

    Beelzebub– you little devil you!

    Reply this comment
  14. queeg
    queeg 14 April, 2012, 07:56

    This pension thingee really gets the trolls under the bridge to nowhere foaming from the gills!!!!

    Reply this comment
  15. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 14 April, 2012, 11:15

    it’s true Queeg—— They don’t seem bright enough to question the defense budget, immigration, or the no tax status of the wealthy! LOl— God Bless em—-without these folks who consistently vote against the interests of the middle class (who ironically they are!) — the Republicans would be out of biz !!!

    Reply this comment
  16. queeg
    queeg 14 April, 2012, 23:02

    You forgot all the natty little groups ….the nonproducers, government workers…..sucking all of us dry……hmmmm

    Reply this comment
  17. Beelzebub
    Beelzebub 15 April, 2012, 08:35

    And what’s so productive about crooked banksters who borrow 0% interest government loans only to reinvest those loans back into treasuries for a cheap and easy 2% gain that they don’t have to pay taxes on? 😀

    Grow up.

    Reply this comment
  18. queeg
    queeg 15 April, 2012, 23:08

    Called net worth building……any educated person understands if you BK the banks…end of credit to middle class….massive unemployment riiots and mayhem.

    Lets grow up….banks are trillions in hole…slow reflate of cash flow and net worth…bad loans worked out or there will be net worth available to charge off bad loans.

    Some on this site think this financial misery thwarts their lot in life….hardly….pity parties are ruining your attitude and life possibilties…

    Reply this comment
    JIM MC KINLEY 16 April, 2012, 11:28


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  20. nowsane
    nowsane 16 April, 2012, 11:44

    I think there is one more very small opportunity to slay the pension dragon, and that is if Moonbeam and other leaders at local levels develop some backbone and divest their bureaucracies of non-essential employees, those functions that could be performed by contractors. Mr. Lusvardi’s original article that “TruthSquad” commented on noted that the city of Laguna Niguel has such a small government workforce that the city doesn’t face any risk of pension costs absorbing the city budget.I know, most leaders and tied the unions, so this is extremely unlikely, so why am I wasting time commenting?

    Reply this comment
  21. Tough Love
    Tough Love 16 April, 2012, 12:22

    Outsourcing with ONLY contractually required payouts (NOT early retirement packages or enhanced Severance Pay) is certainly the quickest way to deal with this financial crisis. It also has the least issue with legal challenges to MATERIAL pension & benefit reductions

    Reply this comment
  22. Beelzebub
    Beelzebub 16 April, 2012, 14:52

    “Lets grow up….banks are trillions in hole…slow reflate of cash flow and net worth…bad loans worked out or there will be net worth available to charge off bad loans”

    Hey, that’s a plan. Reward criminals because if you don’t they’ll blow up the economy!!!

    As a matter of fact – let’s take it a step further…..let the banksters gamble with huge wagers – if they win let them keep the winnings – if they lose force the common man to bail them out and save them.

    And keep paying them those gigantic bonuses because we need to fill Wall Street up with the best and the brightest!!!

    Nice plan. Stay in lockstep! 😀

    Reply this comment
  23. Rex The Wonder Dog!
    Rex The Wonder Dog! 17 April, 2012, 05:06

    Hey, that’s a plan. Reward criminals because if you don’t they’ll blow up the economy!!!

    They should ALL have bee FORCED to go BK. All of them, TARP was a friggen scam.

    Same with the public employee pensions-F’ the tax hikes, let then go BK. These gov employees already make 2-20 times more than they would at market rates, with bullet proof job security, and WE get stuck paying their multi million dollar pensions??? Sorry, let them go BK.

    Reply this comment
  24. Truthsquad
    Truthsquad 17 April, 2012, 09:54

    Ah, the irony: right-wing editorial writers bashing the stock market. Gotta love that. Where, oh where, do you think that the conservative alternative to defined benefit retirement gets its funding. That would be the STOCK MARKET. And as study after study shows, 401k plans are more expensive to administer and have even lower returns that defined benefit plans (which are guided by professional investors instead of amateurs).

    As for putting my money where my mouth is, it’s in the stock market — the foundation of capitalism in the United States. And like most Americans (and defined benefit pensin administrators), I believe the market (and our economy) will continue to grow. Always has, always will. It’s unfortunate that the naysaying from the ultra-right now has even lost faith in the private sector as well as tphe public sector.

    Reply this comment
  25. CalWatchdog
    CalWatchdog Author 17 April, 2012, 11:04

    Truthsquad wrote: “I believe the market (and our economy) will continue to grow. Always has, always will.”

    That’s what the Japanese thought in 1989, and they’ve had more than two “lost decades” since.

    And as I indicated in my article, America’s massive debt problems, combined with the retirement of the baby boomers, has brought stagnation to America’s economy. There hasn’t been any real growth here for 13 years — and counting.

    As to my “bashing the stock market,” the market primarily is influenced by the government, which devours 40 percent of the economy. Only when government frees the economy will the market grow again.

    At this point, the only thing that could produce the robust growth Truthsquad expects would be to sharply cut government, especially the pension overload and the union contracts, cut taxes like Reagan did to stimuluate growth, and stabilize the currency with the gold standard.

    But none of that is going to happen. It will, eventually, after the banks stop loaning to the U.S. and state and local governments. Then they’ll have to make sharp cuts. But that probably won’t happen for about 5-10 years.

    So it’s Stagnation Nation for a long time.

    — John Seiler

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