You may have heard about or read about the city in Alabama that has run out of money to pay it's pensioners. Per the article this affects 40 people although the number is larger if you factor in spouses and that a few of them may have family circumstances where they care for a parent or maybe a special needs child.This may be difficult to remember but a few years ago the idea of a public pension being unable to make payments would have been unthinkable. Fannie and Freddie going under, for all intents and purposes, was also unthinkable. Merrill Lynch is no longer a public company. There is now a debate about how many municipalities will fail. There is also a debate about how many countries in Europe will go down.
Before the financial crisis started I commented several times that Enron and Worldcom showed us that anything can fail; anything. Candidly I did not have municipalities and European countries in mind but they do fit the description of anything.
The last ten years has been a lesson in seeing the unthinkable happen or come much closer to happening than people would have ever thought and the above does not take into account issues in the US at the Federal level (debt and entitlements). It would be very easy to outdebate me on this but I cannot envision a scenario where entitlements as we now know them don't change radically. Or should I say painfully?
The solution (pain) could include means testing, reduced benefits for everyone or something else. In the article linked above the town in Alabama may reduce benefits from $3000 per month to $200 with someone quoted in there that this would not be a haircut but a scalping. Obviously I do not know how this will play out and of course we lack the political will to do anything difficult but something will have to give at some point and people will get caught completely off guard and consequently will be hurt just like anyone in Prichard, AL relying on $3000 per month looking down the barrel of a $2800 pension cut.
The McAdoo card? There was an airline analyst on CNBC yesterday with the same name.
13 comments:
When the dust settles I think the hair cut will be less than 2800 although 2000 would not surprise me.
I think means testing and pain is still years down the road, but you never know. Politicians will deny and continue to lie about the situation the morning before they vote the other way.
States cannot legally go bankrupt. They can default but the debt does not get wiped out by court action. So what happens then? Same with pensions?
sounds more like a stabbing than
a scalping to me....
another lesson in "nothing in
life is guaranteed"
Many people with a pension from
a business are smart and don't
count on the pension....but with
the government, workers felt more
secure.
How do you protect yourself from
everything?
Thanks for another interesting
year Roger...I wish you happiness
and health in 2011.
thank you
as for your question I don't think we can protect against everything, only the reasonable. As I sit here today I have zero expectation of getting ss or medicare. this may turn out to be too pessimistic but if we are truly planning on zero then it can only get better.
Since it's usually a waste of time explaining to folks that the SS fund and all the other federal trusts are not only fully funded to date but separate from the general fund and therefore, unified budget legerdemain to make the general fund look better aside, are debt-free and, in the case of the SS fund at least, not experiencing any current deficits whatsoever I'll just wish everyone:
A Merry Christmas if you celebrate it;
a Happy Holiday if you don't;
a blessed New Year for everyone
and may the unthinkable mean you win the lottery.
Oh yes and pay less attention to the media noise machine and more to your significant other and your portfolio (may the one grow in love and the other ...um, just grow).
A votre sante!
RW,
thank you for all your contributions to this blog.
States can not go bankrupt BUT
How about 50% tax on pensions over 1000 and 95% tax on pensions over 3000/month?????
How about a one time tax on state bond assets of 50%????
Maybe a state could reorganize just like a bankruptcy if they needed to. Anything is possible!!!!
I'm a retired cop with a CALPERS pension. I've always wanted to be on the other side of a skirmish line.
If deep cuts are made, I would expect pensioner riots in the US very similar to what we have seen recently in France, Spain, Italy, and Greece. I may have to raise tilapia to go along with my victory garden. Interesting times.
"pensioner riots"
interesting thought but NEVER happen.
americans just don't have any fight left in 'em (too much tube and fattening food). sometimes i wonder how we ever threw the brits. out and won WWII
JBP,
I worked the Los Angeles riots in 1994 and plenty of anarchists demonstrations since then. I do not think the underclass or various disaffected special interest groups have lost their potential to riot. I also see a very real potential for class warfare as entitlement programs are scaled back. Due to the bad economy and increased police department budget cuts and layoffs, crime is already starting to trend up in Los Angeles.
I hope you have plenty of beans and bullets.
Correction, the last L.A. riots were in 1992. The last big L.A. earthquake was in '94. I worked that one too.
Something is terribly wrong with this country when a local government is allowed to disregard the law with impunity. Those responsible for failing to fund the pensions in the past should be prosecuted. Period. I bet they funded their own pensions and healthcare. A contract is a contract. They ( the local government ) can refuse to pay the pensions but if the pensioner refuses to pay his mortgage when he has no money , the law steps in and takes his house? Has everyone gone mad? Where is the justice? Give everyone 401Ks and then manipulate the system so that the rich make billions selling short the stocks the poor guy owns in his 401K? He switches out of stocks into bonds right at the bottom and is fully invested in bonds right at the top for bonds. And now we are sending the Republicans (under the sham guise of Tea Party) back into Congress to steal more for the rich? What the hell is going on in this country? Are voters that stupid?
Crime is the privatization of redistribution.
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