America’s “Silent” $6 Trillion Crisis


by Brian Maher, Daily Reckoning:

America’s silent crisis is no longer… silent.

MarketWatch columnist Jeff Reeves has warned that “collapsing pensions will fuel America’s next financial crisis.”

“This is not a distant concern,” he adds, “but a system already in crisis.”

By some estimates, America’s public pensions alone are sunk in a $6 trillion abyss.

According to the Federal Reserve, pensions — public and private combined — were roughly 27% underfunded as of last year.

Meantime, vast hordes of pensioners are entering or approaching retirement.

Come at the dilemma from any angle… and you come upon a labyrinth.

How has the American pension come to such a sad pass?

As far as public pensions run, the answer is close by.

Daily Reckoning contributor Charles Hugh Smith:

Corrupt politicos promised the moon to public employees, and now the fiscal chickens of insolvency are coming home to roost.

“But I don’t have a pension,” comes your response. “This doesn’t concern me.”

Ah, but have another guess — at least if you swear off your taxes in these United States.

As the late Canadian Prime Minister Mackenzie King styled it:

“The politician’s promises of yesterday are the taxes of today.”

Zero Hedge’s pseudonymous Tyler Durden:

Funds collected from taxpaying Americans will be spent to satisfy the ridiculous retirement promises and obligations made over the past few decades, and while the immediate recipients of the funds, i.e., those looking at near-term retirement, will be made whole, everyone else, i.e., taxpayers, will lose.

Just so.

It is an iron law of nature, second only perhaps to gravity:

Politicians promise… taxpayers pay.

And let us add our own corollary:

The better the politician… the bigger the promises… and the larger the bill.

Most public pension systems were built upon this rosy-dawn assumption:

Their investments would yield a handsome 7.5% annual return.

Once upon a time, that may have been realistic.

But that was before the 2008 financial crisis… before the Federal Reserve opened its war on savers… and bonds still paid a handsome yield.


The average public pension plan worked an average gain of 2–4% by 2015.

It returned just 0.6% in 2016, according to Bloomberg.

2017 saw an upswing.

But according to the Center for Retirement Research…

Even if these plans attain their Pollyannaish 7.5% returns over the next few years… they’ll still be only 73% funded by 2021.

Howard Marks, co-founder and co-chairman of Oaktree Capital Group:

If you walked into a pension fund today which had no investments, and you were given a pile of cash and you invested today intelligently, prudently, but not shrinking from risk, I think you could expect to make something in the vicinity of 5% in the coming years from today.

A highly technical term describes the business… and we apologize if it sends you scurrying for the dictionary:


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