Former Fed Advisor: State Pensions Time Bomb Spells Disaster For The US
By Tyler Durden
Underfunded government pensions to the tune of $1.3 trillion, with a gap that just can’t be filled, is the ticking time bomb facing the US economy which faces dramatic cuts in public services – and potentially riots reminiscent of Athens six years ago – according to former Federal Reserve advisor, and President of Money Strong, Danielle DiMartino Booth.
As she picks apart the danger signs with the US on the precipice of recession, it’s the impending pensions crisis that keeps her awake at night, sharing the gloomy sentiment laid out in an extensive March 2016 Citi report titled “The coming pensions crisis.”
With few people taking part in what little recovery the US has had, and given how stretched pensions are, checks are going to have to be written from Washington sooner than you think, DiMartino Booth told Real Vision TV in an interview. “The Baby Boomers are no longer an actuarial theory,” she said. “They’re a reality. The checks are being written.”
A Bulldozer Couldn’t Fill the State Pensions Gap
The $1.3 trillion pensions deficit just takes into account state and municipal obligations, and with promised returns of 8% and funds compounding at 3% for decades it will take nothing short of an economic miracle to recover. “The average state pension in the last fiscal year returned something south of 1%. You cannot fill that gap with a bulldozer, impossible,” DiMartino Booth said. “Anyone who knows their compounding tables knows you don’t make that up. You don’t get that back unless you get some miracle.”
The last time we saw significant market weakness, the baby boomers pretty much accepted that they would be retiring at 70 instead of 65, she added. “Well, guess what? They’re turning 71. And the physiological decision to stay in the workforce won’t work for much longer. And that means that these pensions are going to come under tremendous amounts of pressure.
“And the idea that we can escape what’s to come, given demographically what we’re staring at is naive at best. And it’s reckless at worst,” DiMartino Booth said. “And when you throw private equity and all of the dry powder that they have — that they’re sitting on — still waiting to deploy on pensions’ behalf, at really egregious valuations, yeah, it’s hard to sleep at night.”
Pension Fund Underfunding is Ground Zero
The interview with Real Vision was held in Dallas, which DiMartino Booth said is Ground Zero for the pensions crisis, where returns for the $2.27 billion Police and Fire Pension System have suffered due to risky investments in real estate made over a decade ago. Huge withdrawals are now taking place, amid concerns over the future viability of the pension scheme, which commentators say could be flat broke in a little over ten years.
“We’re seeing this surge of people trying to retire early and take the money. Because they see it’s not going to be there. And if that dynamic and that belief spreads– forget all the other problems,” DiMartino Booth said. …read more
Source: Former Fed Advisor: State Pensions Time Bomb Spells Disaster For The US
