You may recall some panic over the debt ceiling, which was supposed to make the world blow up on 15 March.
Eight Years Of Bull Ends Tomorrow
The Ides of March: Why This Time IS Different, Part 1
In fact, no, that didn’t happen:
Analysts at HSBC explain that the limit on the maximum amount of federal government borrowing has been suspended for over a year, but will be re-imposed on 16 March and this does not create an immediate crisis since the Treasury has access to alternative means of financing that will likely last through August and perhaps all the way to October or November.
In other wishful thinking news, the Dutch people who had hoped for exit polls indicating change are almost certainly going to be disappointed.
The basic insight here is that doomsayers are often not pessimists, predicting the destruction of all that they know and fearing it. Doomsayers are often optimists, predicting destruction of the evils that currently oppress them.
I am no great shakes as a diviner, but experience has shown me that change for the better almost always takes a long time.
But take note of the failed predictions and the try-hard prognosticators. They are probably selling an entertainment product, and can probably be separated from real news.
On the other hand, even entertainment cannot be neglected entirely. 4chan and 8ch are “entertainment” and yet they provided a hint of powerful social change that was ignored by complacent idiots.
Finally, note that some very annoying folks just point to long-term problems without giving any proposed action or short-term prediction.
Washington has a knack for ignoring long-term financial shortfalls and painting overly rosy scenarios about the future to make their numbers work in the here and now.
Then there is Social Security. Many politicians are just too intimidated, uninformed or complacent to tackle the unsustainability of Social Security — which by the latest tally will see its trust fund go to zero just 17 years from now, in 2034.
But while fudging GDP numbers is dangerous for America’s economic outlook and the demise of Social Security in two decades is a serious long-term concern, America faces a mathematical problem that dwarfs both of these items: A pending pension crisis that could leave millions of Americans high and dry in the very near future.
Sure, it would be difficult for many if the U.S. economy stumbles under misguided Trump policies. And yes, the idea of even modest cuts to Social Security in the coming decades could serious affect millions of seniors. But take a look South Carolina’s government pension plan, which covers roughly 550,000 people — one out of nine state residents — but is a staggering $24.1 billion in the red.
This is not a distant concern, but a system already in crisis.
Younger workers are being asked to do much more to support the pensions of retirees. An analysis by the The Post and Courier of Charleston noted recently that “Government workers and their employers have seen five hikes in their pension plan contributions since 2012, and there’s no end in sight.” (Most now contribute 8.66% of their pay, vs. 6.5% before the changes.) At the same time, the pension fund has been chasing more stocks and alternative investments instead of relying on stable investments like bonds that may be much less volatile but generate only meager returns.
And if that’s not troubling enough, South Carolina’s pension fund is far from alone.
The Michigan Public School Employees Retirement System pension fund is $26.7 billion underfunded, and mind-blowingly has paid out more benefits than it has actual assets in 41 of the last 42 years, according to some estimates. The Mackinac Center for Public Policy has estimated that, as a result, more than a third of Michigan’s school payroll expenses go to retirees, not those people actually teaching children in a classroom.
It’s not just government employee pensions at risk, either.
Legislators are debating help for roughly 100,000 coal miners who face serious cuts in pension payments and health coverage thanks to a nearly $6 billion shortfall in the plan for the United Mine Workers of America. And the Teamsters just got permission to slash benefits by as much as 30% for some 400,000 participants because its Central States plan is so deep in the hole.
It’s a very disturbing trend, and according to one organization nearly one million working and retired Americans are covered by pension plans at risk of collapse — and many more plans face shortfalls that could become equally problematic if action isn’t taken immediately.
The problem is only going to get worse as payouts remain bloated and investment returns remain hard to come by. With global growth minimal and the interest-rate environment still quite low by historical norms even in the face of recent Federal Reserve moves, the situation is quite urgent.
The looming problems with Social Security make things even more disturbing. If older Americans never bothered to build up much in the way of retirement savings because they were expecting their pension to be there, then Social Security is quite literally the only way for them to make ends meet.
And if you really want to terrify yourself, think about what would happen to the U.S. economy if older, low-income pensioners suddenly have 5% or 10% less to spend on necessities. According to data from 2013, the average household income of someone older than 75 is $34,097 and their average expenses exceed that, at $34,382. If their benefits are cut, their spending will assuredly fall — and that reduction in spending on food, energy and other staples won’t be replaced.
That’s the crisis I fear most: a dramatic reduction in benefits to millions of pensioners, the failure of Social Security to bridge the gap and a substantial decline in consumer spending as a result. Then it’s not just older Americans tightening their belts, but younger Americans facing a tough job market as restaurants and retailers start cutting back, too.
There’s also a serious concern about whether simply cutting benefits or boosting contributions is enough as global growth slows and fixed-income investments yield significantly lower than in recent years. As I wrote a few months ago, some investment experts expect as little as 4% annual returns in U.S. equities, and bonds to yield less than 2% for many years to come.
So what do we do?
Unfortunately, there are no easy answers. Pension reform — as with Social Security reform — is most equitably approached as a combination of benefit cuts, increased contributions and higher eligibility ages. But since those solutions tend to offend all stakeholders, it is difficult to get past the inertia.
However, America is rapidly approaching a point of no return.
Say what you will about the solvency of Social Security, and the imperative of acting on admittedly imperfect calculations that still give us a good 15 to 20 years until the trust runs dry.