They
do this for two reasons. First, they are
confident that those who are already receiving the pension payments will never
give an inch on what they feel they have justifiably earned over the course of
their careers. Secondly, those that are
still working and contributing to the pension plans see the great deal their
predecessors are currently receiving in retirement and there is no way in Hades
that they are giving up on that same dream.
Both of these attitudes are the equivalent of whistling past the
graveyard and will not prevent the grim reaper of fiscal reality from making
his gruesome presence known in the not-too-distant future.
Simple
math and the harsh morning glare of reason dictates that when the funds flowing into a pension fund plus
any financial gain from its asset value less its administrative costs do
not cover the funds flowing out of a
pension fund in the form of retiree payments, there will be a shortfall and
the fund is unsustainable. That
unsustainability will by necessity result in one of two likelihoods. Either those receiving pensions will continue
receiving funds at the same rate while those working members contributing to
the fund increase their portions to cover the shortfall…or…both those currently
receiving pension payments and those who
will receive them in the future will in fact receive not the full payment,
but pennies on the dollar based on
the capacity of the fund. Of course,
this dynamic can be avoided if structural changes are made to the fund to make
it fiscally sustainable. For that to
happen, somebody in the system has to take a financial hit. And that, my friends, is where the problems
lie. Nobody
wants to take that hit.
The
result is that the economically-shaky pension funds continue to rattle down the
road; pensioners continue to trek to the bank with their overly-generous
retirement checks; and current workers continue to make contributions at
unrealistically-low rates and look forward to the false promises of a
comfortable retirement. The whole
machine is hurtling down a hill with inadequate steering, worn out brakes, an
incompetent driver, and an impenetrable wall waiting at the bottom of the incline. It does
not take an accountant to see how this story ends.
And
now, under the cover of federal coronavirus relief funding, many of these same
state pension guardians come forth with the notion that suddenly, like completely out of left field and no
doubt due to this terrible and unavoidable global pandemic, their pension
funds are on the verge of collapse and it is the obligation of this nation’s
taxpayers to bail out these programs. Catch
that logic; people who will NEVER benefit
from these poorly-designed and poorly-managed pension funds will nonetheless prop
them up with their tax payments. And…they will do this while struggling to finance
their own retirement and while the insanity
that led to this disaster simply continues
unabated.
This
shameless attempt to forego any accountability for their reckless management of
worker’s pension funds and to seek taxpayer relief for their own fiscal
transgressions is pathetic beyond description.
Unfortunately, because many of the beneficiaries are powerful and
influential players in our political system; this ruse stands an excellent
chance of succeeding. This particular
phase of the coronavirus stimulus legislation might just be the Trojan Horse that states roll through
the gates of Congress with a sweet little pension bailout hidden deep inside.
Don’t
miss the next post!
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· The
Gross Domestic Product is a number
that expresses the annual worth of the output of a country in local currency;
in other words, the market value of all goods and services produced in the United
States for one full year. America’s GDP
has been running about $20.5 TRILLION
over the last few years.
· The
tax receipts that our government
receives annually to pay for our nation’s business have been running around
$3.3 TRILLION.
· The
federal spending deficit for FY2018 was
$779 BILLION, with total federal spending clocking in at
$4.1 TRILLION.
· That
FY2018 federal spending deficit grew by
17 percent (that is $113 BILLION)
compared to FY2017 and is the highest federal deficit in six years (since FY2012).
· The
current national debt of the United
States is approximately $24,000,000,000,000.
That is in TRILLIONS.
· Keep
in mind that this dynamic is occurring when federal tax receipts are at all time highs and the spending numbers are
BEFORE any of the coronavirus stimulus
was instituted.
As
the numbers reflect, we as a nation are spending essentially everything (and more) that we make each year while
our monstrous debt continues to accrue interest and multiply in astronomical
terms. Look at these numbers…so many zeros…is it any wonder that our
elected officials lose track of how much money they are spending?
Now
comes the coronavirus pandemic and the federal effort to offset its punitive
fiscal effects on our nation and its people.
Under the guise of a national emergency, called a war by some, our government has ginned up the printing presses and
has thus far spent $2 TRILLION in one
stimulus package and $480 BILLION in
the recent follow-up bill. And don’t be
misled by Governors who are screaming that the feds are not doing all they need
to do; these two spending packages were in
addition to previous actions and expenditures taken to address the viral
outbreak: https://www.investopedia.com/government-stimulus-efforts-to-fight-the-covid-19-crisis-4799723
. And hold on tight…there
appears to be a good deal of sentiment in WDC to pass even more stimulus legislation with an ever-increasing cost on the
federal debt.
To
put this in perspective, imagine that you and your family are receiving a total
family income of $75,000 per year. You
get notified that your work-week will be cut down drastically; which results in
a reduced or totally lost paycheck. You have debts like everyone else; a car payment
or two, a mortgage, perhaps a second mortgage, education expenses for the kids,
utilities, insurance, and groceries…a lot of bills. Now after paying your bills, it would be
ideal if you could set-aside a bit of your income in savings for the future or
for rainy day catastrophes; but that is extremely hard to manage and the plain
fact is that most people are not doing it.
Instead, and if you are operating
like our federal government, you are spending almost $100,000 per year; or
about 25 percent MORE than you
actually receive in income.
Now
here is the rub…you do this while not paying one…red…cent on your outstanding debt. Nothing goes to principal repayment on the
car or the mortgage. You are simply
digging your financial hole deeper and deeper with the certainty that one day;
the debt will have to be addressed. If
you are John Q. Citizen, the likely result is bankruptcy. You
don’t have a money tree in the back yard; but
the government does.
If
you are the United States of America, the solution is…you print more money. You
kick the debt can down the road. While
you pass out stimulus checks to every Tom, Dick and Harry and spend money on
federal programs like drunken sailors, you are saddling future generations of
Americans with the consequences of your irresponsible and extravagant fiscal
habits. When we see parents do this to
their children; we call it a tragedy.
When our government does it; we call it business as usual.
Consider
this… In recent years, our government has been receiving RECORD HIGH tax receipts from its citizens to fund itself. But instead of taking this increased revenue
and trying to apply it in some responsible fashion towards decreasing our
federal debt and annual spending deficit; our elected officials have simply
spent the additional revenue and more
on federal programs too numerous to count.
And now…with the global pandemic paralyzing our economy and chopping
down federal tax receipts to a fraction of what they have been; do you think they
might consider re-priortizing spending?
Do they cut back in some areas in order to increase in others that have
more pressing needs? No! They continue the profligate spending habits
they have become addicted to and add on top of that the oceans of cash
dedicated to the pandemic stimulus effort.
Instead of trying to contain the fire and save the building; they are
instead pouring fuel on the fire and increasing the blaze.
It
is bad enough that our elected officials, both Republican and Democrat, pay no
heed to our federal debt and continue to load up this ticking fiscal time
bomb. But if, as it appears quite likely
they will do, they bail out these even more
irresponsible (yes…as incredible as it
seems…that is possible) state governments and their unicorn pension plans;
then we will have reached a point of federal fiscal ineptitude that is simply
beyond comprehension. At some point, a
reckoning will arrive.
If
there is any semblance of financial reason to be found in our WDC governmental
complex, that reckoning will begin to dawn soon. Uncle Sam may not have to declare bankruptcy
like John Q; but at some point, all mechanical devices wear out and chickens
will come home to roost. The United
States cannot continue to endlessly print money to cover for its insatiable
generosity in federal programs spending and assume, without any reasonable
basis whatsoever, that future generations will figure out some way to balance
the ledger.
In
the mid-1980’s, the government cut off new employee entry into their Civil
Service Retirement Plan (CSRS); this was the pension plan for federal employees. They did this for two reasons. First, they recognized that the Plan was not
fiscally sustainable and had to be structurally revised if it was to
continue. Secondly, many in government
wanted to tap into the large pool of federal employee retirement contributions
in order to prop up the Social Security Administration. You see, prior to that point, federal
employees in the CSRS did not contribute to nor draw from the Social Security
system. The addition of new federal
employees to the Social Security pool of contributors no doubt helped to
stabilize the system.
The
government replaced the CSRS with the Federal Employees Retirement System
(FERS). While being a solid and reliable
retirement system that was immensely fair to federal employees, it shifted the
funding obligation more towards the employee and away from the employer. It required more sacrifice from the individual
to fund their own future
retirement. It required that all
participants have some skin in the game.
This is the hard decision that many
states and organizations need to make regarding their troubled retirement
plans. It requires courage from leaders;
it requires sacrifices from members; and it requires common sense and
fairness. And it also requires a firm
approach from the government that makes it clear that these unsustainable
pension programs must first help themselves by instituting responsible
structural changes before they go begging to the federal coffers for a bailout.
