Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Iran's Death Spiral -- 40 Years And Counting - 17 Feb 19
Venezuela's Opposition Is Playing With Fire - 17 Feb 19
Fed Chairman Deceives; Precious Metals Mine Supply Threatened - 17 Feb 19
After 8 Terrific Weeks for Stocks, What’s Next? - 16th Feb 19
My Favorite Real Estate Strategies: Rent to Live, Buy to Rent - 16th Feb 19
Schumer & Sanders Want One Thing: Your Money - 16th Feb 19
What Could Happen When the Stock Markets Correct Next - 16th Feb 19
Bitcoin Your Best Opportunity Outside of Stocks - 16th Feb 19
Olympus TG-5 Tough Camera Under SEA Water Test - 16th Feb 19
"Mi Amigo" Sheffield Bomber Crash Memorial Site Fly-past on 22nd February 2019 VR360 - 16th Feb 19
Plunging Inventories have Zinc Bulls Ready to Run - 15th Feb 19
Gold Stocks Mega Mergers Are Bad for Shareholders - 15th Feb 19
Retail Sales Crash! It’s 2008 All Over Again for Stock Market and Economy! - 15th Feb 19
Is Gold Market 2019 Like 2016? - 15th Feb 19
Virgin Media's Increasingly Unreliable Broadband Service - 15th Feb 19
2019 Starting to Shine But is it a Long Con for Stock Investors? - 15th Feb 19
Gold is on the Verge of a Bull-run and Here's Why - 15th Feb 19
Will Stock Market 2019 be like 1999? - 14th Feb 19
3 Charts That Scream “Don’t Buy Stocks” - 14th Feb 19
Capitalism Isn’t Bad, It’s Just Broken - 14th Feb 19
How To Find High-Yield Dividend Stocks That Are Safe - 14th Feb 19
Strategy Session - How This Stocks Bear Market Fits in With Markets of the Past - 14th Feb 19
Marijuana Stocks Ready for Another Massive Rally? - 14th Feb 19
Wage Day Advance And Why There is No Shame About It - 14th Feb 19
Will 2019 be the Year of the Big Breakout for Gold? - 13th Feb 19
Earth Overshoot Day Illustrates We are the Lemmings - 13th Feb 19
A Stock Market Rally With No Pullbacks. What’s Next for Stocks - 13th Feb 19
Where Is Gold’s Rally in Response to USD Weakness? - 13th Feb 19
US Tech Stock Sector Setting Up for A Momentum Breakout Move - 12th Feb 19
Key Support Levels for Gold Miners & Gold Juniors - 12th Feb 19
Socialist “Green New Deal” Points the Way to Hyperinflation - 12th Feb 19
Trump’s Quest to Undermine Multilateral Development Banks - 12th Feb 19
Sheffield B17 US Bomber Crash 75th Anniversary Fly-past on 22nd February 2019 Full Details - 12th Feb 19
The 2 Rules For Successful Trading - 12th Feb 19 -
Financial Sector Calls Gold ‘Shiny Poo.’ Are They Worried? - 11th Feb 19
Stocks Bouncing, but Will They Resume the Uptrend? - 11th Feb 19

Market Oracle FREE Newsletter

The Real Secret for Successful Trading

The Magnitude Of The Coming Pension Storm Will Come To Light In 2018

Personal_Finance / Pensions & Retirement Sep 30, 2017 - 05:07 PM GMT

By: John_Mauldin

Personal_Finance

BY PATRICK WATSON : Part of my job is helping John Mauldin with the research for his Thoughts from the Frontline letters. Regular readers know John isn’t a doom-and-gloom guru. He’s optimistic on most of our big challenges.

Except for a few things—like the brewing state and local pension crisis.

The more John and I dig into it, the worse it looks. We have both spent many hours trying to find any good news or a silver lining, without success.


All over the US, states, cities, school districts, and other governmental entities have promised their workers generous retirement benefits, but haven’t set aside enough cash to pay what they will owe.

At some point, perhaps soon, either they will have to cut benefits to retirees or stick taxpayers with a huge bill... or both.

What else could go wrong? Plenty.

Healthcare Goes on the Books

Local governments often give retired police officers, firefighters, teachers, and other workers a pension plus healthcare benefits.

Healthcare is expensive even in the best circumstances. Imagine your health insurer had promised to cover your medical expenses but hadn’t set aside any cash to pay for it.

Remarkably, that’s exactly what has happened.

Governments currently disclose their retiree healthcare liabilities only in footnotes to their financial statements. Many have saved little to no money to cover those future expenses.

That’s about to change.

Starting in 2018, the Governmental Accounting Standards Board—the source of generally accepted accounting principles (GAAP) for state and local governments—will force officials to record healthcare liabilities on their balance sheets. Pew Charitable Trusts estimates the national shortfall will add up to $645 billion.

That’s on top of the estimated $1.1 trillion in unfunded pension liabilities they already had. In other words, this giant problem that no one knows how to solve is about to get 59% worse!

Or, more accurately, it’s going to look 59% worse. The healthcare shortfall isn’t new. What’s new is that local governments have to stop obscuring it.

What else could go wrong? Plenty.

The Opioid Plague

Now, let’s add another crisis on top of the already-terrible one that just got 59% worse.

You’ve probably heard about the opioid drug abuse that is killing thousands of Americans. Putting numbers on it is tricky—often, multiple factors contribute to the same death.

The Centers for Disease Control estimates opioids played a role in more than 33,000 deaths in 2015. No one thinks the numbers have improved since then.

The deaths aren’t evenly distributed. This Reuters graphic shows the heaviest concentrations in the Midwest, New England, and New Mexico.

Source: Reuters

It’s probably no coincidence that some of these states have suffered above-average economic pain in the last decade or two.

The deaths from overdose and the even larger number of near-deaths are putting a huge strain on local government finances in those regions.

A recent Reuters investigation found costs soaring for everything from ambulances to autopsies. Cities and counties are racking up huge bills for courts, prosecutors and public defenders, jails, and treatment programs.

The small towns and counties dealing with this opioid plague are often the same ones whose pension plans and healthcare expenses are already underfunded.

That’s bad news for current retirees, workers who hope to retire, and taxpayers who will ultimately foot the bill. In a word, everyone.

But that’s not all.

Costly Storms

Last weekend at the Texas Tribune Festival here in Austin, I heard Houston Police Chief Art Acevedo discuss his Hurricane Harvey experience. As more areas flooded, he kept the entire department on duty for six straight days, 24 hours a day.

Acevedo said he knew this wasn’t in the budget, but the alternatives were worse. Lives were at stake, and the city needed its protectors more than ever.

The hurricane is over, but the Harvey expenses are just starting. Houston may have to spend $250 million on the disposal of flood debris… and the city is only part of the affected area.

Houston’s pension plans were already on shaky ground, so this won’t help. Many local governments in Florida, Puerto Rico, and the US Virgin Islands may see the same, thanks to Irma and Maria.

So what does it mean to you?

For one, we should plan for substantially higher state and local taxes in the future.

And if you’re a public worker or retiree, you better think about how you will make ends meet if your benefits get slashed.

I’m going to do my part by working even harder to find income-generating investments for my subscribers, to help recover some of what the pension crisis may cost them.

This is, as John Mauldin says, a problem we can’t just muddle through. All we can do is prepare for it—and now is the time to start.

Free Report: The New Asset Class Helping Investors Earn 7% Yields in a 2.5% World

While the Fed may be raising interest rates, the reality is we still live in a low-yield world. This report will show you how to start earning market-beating yields in as little as 30 days... and simultaneously reduce your portfolio’s risk exposure.

Claim your free copy here.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules