Coming Pension Crisis

Union members appear to be quite mistaken about what lies ahead. It appears that many union members are thought to believe that the economy can crash and somehow their pensions will be preserved. Please consider that pensions are paid for by the government through tax revenues. If there are no tax revenues, how will the government pay for pensions? You may ask, why would tax revenues disappear? Well, in Scranton’s case, people are going to continue moving out of Scranton until the tax revenue base becomes too small. In fact, this is happening already, the city has lost 41% of its population and this trend will only continue. With no populations, businesses will be forced to close up shop which is already happening in Scranton. To make matters worse, Scranton’s situations is not unique. Over 500 municipalities in Pennsylvania as well as the State of Pennsylvania have their own Pension Crisis. To make matters worse, the states of America have 4.5 trillion missing in their budgets that they owe to pensioners.

What will happen…

I encourage you to do your own research, but let me spell out what will happen in a couple of years. Once Scranton goes bankrupt, it will send shockwaves throughout the municipal bond market since municipalities are assumed to be safe investments. The shock will alert the bond market to begin inspecting Pennsylvania municipal bonds with far more seriousness. Two things will then transpire: The State maybe on the hook to rescue Scranton which may exposes it to financiers taking it look at its own balance sheet. Pennsylvania has an underfunded pension of 53 billion dollars that it also can’t payoff. This will spook the bond market and send shockwaves throughout the financial market. The other scenario is the 500 municipalities will not be able to borrow on the open market to fund the operations of their government. Thus, city after city will default. The crisis will be so momentous that anything before it will pale in comparison. All the state’s pensions will vanish! The only hope will be for the federal government to come to the rescue by selling bonds themselves to raise money. The risk with this is that there is a possibility that no one will be willing to buy these bonds.

The end…

It is interesting to think about the end of America because it is assumed that it will be climatic. The truth is that America may just end with a whimper. America’s financial status would be in question which would mean it loses its reserve currency status. The world fundamentally will not need America any longer. This scenario may seem extreme but it is not only possible but a reality we are currently heading for. As stated earlier, 4.5 trillion dollars will be coming due very shortly, and we do not have the money to pay for it. May God help us if we wait until the last minute to realize that we need to act.

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