July 12, 2013
During the summer of 2011, as Ben Bernanke and his mainstream propaganda arm convinced Americans that green shoots were cropping up all over the nation, warnings of the coming destruction of America’s pension funds had begun to emerge.
Government employees may currently enjoy higher salaries and benefits than the private sector, but they have been given a false sense of security.
Whether you are a police officer, fireman, school teacher, or utility worker, you could have serious problems down the road.
Chances are that every major metropolitan area in the country is heavily in the red. This means that the jobs and retirement futures of millions of people are under threat.
[The only] option will be for ex-Federal governments to start reducing benefits and firing workers.
Just two years on we’re seeing the warnings manifest in the real world.
Once again, we focus the microscope on Detroit, which to those paying attention, is America’s canary in the coal mine signaling what’s to come for the rest of the country.
With the threat of a city bankruptcy looming, Detroit city workers and retirees are pushing back against the state-appointed emergency manager, filing lawsuits to limit his options and refusing to accept demands to keep details of their discussions secret.
One lawsuit, filed in Ingham County Circuit Court in the state capital Lansing, seeks to stop Governor Rick Snyder from allowing the emergency manager, Kevyn Orr, to file Chapter 9 municipal bankruptcy. That lawsuitclaims Orr’s plan to significantly cut vested pensions would violate strong protections in the Michigan constitution for retirement benefits of public-sector workers.
In his June 14 proposal to creditors, Orr listed pensions as unsecured debt of the city. Payment on pensions, retiree healthcare and $641 million of general obligation bonds all would be made from the city’s proceeds from $2 billion of notes Orr plans to sell as part of his restructuring plan.
The plan, if enacted, would be expected to result in significant cuts in pension payments. Although the city currently lists $643.7 million in unfunded pension liabilities, Orr in his report said the number is closer to $3.5 billion if “more realistic assumptions” are taken into account.
Pensions generally are considered off limits in bankruptcies, Nicholson said. “It’s very, very rare for any entity to go after people’s pensions because it puts people in the poor house,” he said.
The push back from labor groups is a new front in a growing resistance to Orr’s efforts.
Notice that everyone assumes the unfunded liabilities are $640 million, but in reality, once you start looking at the numbers, the city owes five times as much – $3.5 billion! That’s a significant miscalculation.
It’s very simple to figure out what happens here using basic arithmetic.
Labor unions and city employees can sue the city to their heart’s content. This will not change the facts:
There’s no money.
See, this is the problem at its root. The unions bargained in bad faith, either knowing factually or being in possession of enough information to know that what they were asking for couldn’t be provided. It was fiscally impossible given the projected increase in cost over the retiree lifetimes.
They didn’t care and they bludgeoned the city and its people into approving these “contracts” anyway.
The problem is that the only remaining options are to take some fraction of the original amount which can actually be paid or get nothing. And the longer they wait and the harder they push the closer to zero their recovery becomes, as the cost of litigation takes from the recovery and in addition the city continues to decay and will keep doing so until it is fiscally restored to a sound foundation with its taxes and spending brought both into balance and to a competitive level.
Kevyn Orr doesn’t have to concede anything. He holds the whip hand in that the city is a wasting asset and the longer the unions keep screwing around and screaming the less they get.
Karl Denninger’s Market Ticker
This is a nationwide problem.
If you are a government employee, a labor union member, or even a retiree from the private sector, you had better be looking for ways to protect your current retirement portfolio or find yourself a new source of income, because that money you’ve been promised is going to be wiped out.
The pain is coming and millions of Americans will end up in the poor house as a result.
We’ve discussed the coming wave of State and local defaults, and it appears that the end game is close…
Eventually, the Federal government will hit its (real) debt ceiling as well. That will happen when no one else but The Federal Reserve will buy the US Treasury’s debt issues, at which point the retirement accounts, 401k’s, savings and dollar denominated assets of every American will be completely and utterly destroyed.
No worries, right? Because they told you that YOUR retirement account is perfectly safe and those investments you’ve spent your entire life acquiring are in good hands.
Do you really want to keep pretending this isn’t happening?