Archive for August 2nd, 2010
As the first of the 80 million Baby Boomers have begun to retire, it has become increasingly apparent that the United States is facing a pension crisis of unprecedented magnitude. State and local government pension plans are woefully underfunded, dozens of large corporate pension plans either have collapsed or are on the verge of collapsing, Social Security is a complete and total financial disaster and about half of all Americans essentially have nothing saved up for retirement. So yes, to say that we are facing a retirement crisis would be a tremendous understatement. There is simply no way that we can keep all of the financial promises that we have made to the Baby Boomer generation. Unfortunately, the crumbling U.S. economy simply cannot support the comfortable retirement of tens of millions of elderly Americans any longer. The truth is that we are all going to have to start fundamentally changing the way that we think about our golden years.
Once upon a time, you could count on getting a big, fat pension if you put 30 years into a job. But now pension plans everywhere are failing. State and local governments are cutting back and are raising retirement ages. A majority of Americans have even lost faith in the Social Security system, which was supposed to be the most secure of them all.
The reality is that we are moving into a time when there is not going to be such a thing as “financial security” as we have known it in the past. Things have fundamentally changed, and we are all going to have to struggle to stay above water in the economic nightmare that is coming.
Part of the reason we have such a gigantic economic mess on the way is because we have promised vastly more than we can deliver to future retirees. When you closely examine the numbers, it quickly becomes clear that a financial tsunami is about to hit us that is going to be so devastating that it will change everything that we know about retirement.
The following are 22 statistics about America’s coming pension crisis that will make you lose sleep at night….
Private Pension Plans And Retirement Funds
1 - One recent study found that America’s 100 largest corporate pension plans were underfunded by $217 billion at the end of 2008.
2 – Approximately half of all workers in the United States have less than $2000 saved up for retirement.
3 – According to one recent survey, 36 percent of Americans say that they don’t contribute anything at all to retirement savings.
4 – The Pension Benefit Guaranty Corporation says that the number of pensions at risk inside failing companies more than tripled during the recession.
5 – According to another recent survey, 24% of U.S. workers admit that they have postponed their planned retirement age at least once during the past year.
State And Local Government Pensions
6- Pension consultant Girard Miller recently told California’s Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities. When you break that down, it comes to $22,000 for every single working adult in California.
7 – According to a recent report from Stanford University, California’s three biggest pension funds are as much as $500 billion short of meeting future retiree benefit obligations.
8 – In New Jersey, the governor has proposed not making the state’s entire $3 billion contribution to its pension funds because of the state’s $11 billion budget deficit.
9 – It has been reported that the $33.7 billion Illinois Teachers Retirement System is 61% underfunded and is on the verge of total collapse.
10 – The state of Illinois recently raised its retirement age to 67 and capped the salary on which public pensions are figured.
11 – The state of Virginia is requiring employees to pay into the state pension fund for the first time ever.
12 – In New York City, annual pension contributions have increased sixfold in the past decade alone and are now so large that they would be able to finance entire new police and fire departments.
13- Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern’s Kellogg School of Management recently calculated the combined pension liability for all 50 U.S. states. What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds. That is a difference of 3.2 trillion dollars.
14 – According to one recently conducted poll, 6 out of every 10 non-retirees in the United States believe that the Social Security system will not be able to pay them benefits when they stop working.
15 – A very large percentage of the federal budget is made up of entitlement programs such as Social Security and Medicare that cannot be reduced without a change in the law. Approximately 57 percent of Barack Obama’s 3.8 trillion dollar budget for 2011 consists of direct payments to individual Americans or is money that is spent on their behalf.
16 – 35% of Americans over the age of 65 rely almost entirely on Social Security payments alone.
17 – According to the Congressional Budget Office, the Social Security system will pay out more in benefits than it receives in payroll taxes in 2010. That was not supposed to happen until at least 2016. The Social Security deficits are projected to get increasingly worse in the years ahead.
18 – 56 percent of current retirees believe that the U.S. government will eventually cut their Social Security benefits.
19 - In 1950, each retiree’s Social Security benefit was paid for by 16 U.S. workers. In 2010, each retiree’s Social Security benefit is paid for by approximately 3.3 U.S. workers. By 2025, it is projected that there will be approximately two U.S. workers for each retiree.
20 – The shortfall in entitlement programs in the years ahead is mind blowing. The present value of projected scheduled benefits surpasses earmarked revenues for entitlement programs such as Social Security and Medicare by about 46 trillion dollars over the next 75 years.
21 – According to a recent U.S. government report, soaring interest costs on the U.S. national debt plus rapidly escalating spending on entitlement programs such as Social Security and Medicare will absorb approximately 92 cents of every single dollar of federal revenue by the year 2019. That is before a single dollar is spent on anything else.
22 – Right now, interest on the U.S. national debt and spending on entitlement programs like Social Security and Medicare is somewhere in the neighborhood of 15 percent of GDP. By 2080, those combined expenditures are projected to eat up approximately 50 percent of GDP.
I put “Fraud” in quotation marks because, legally, it’s not – even though it should be:
By acquiring about a quarter of home-loan bonds with government-backed guarantees to bolster housing prices and the U.S. economy, the Fed helped make some securities so hard to find that Wall Street has been unable to complete an unprecedented amount of trades. Failures to deliver or receive mortgage debt totaled $1.34 trillion in the week ended July 21, compared with a weekly average of $150 billion in the five years through 2009, according to Fed data.
Note that the total amount of Fannie and Freddie paper outstanding is about $5 trillion – so we’ve got what – about a quarter of it that’s currently subject to a fail-to-deliver?
Gee, that’s nice. Isn’t that kinda like a naked short? Selling that which you don’t own, eh?
Now the bond dealers will tell you that this sort of thing is “normal’ and “happens all the time.” And they’re right, after a fashion – kinda.
When traders don’t deliver bonds to their counterparties, they don’t receive cash they could be earning interest on. With the federal funds target rate in a range of zero to 0.25 percent since December 2008, the amount of foregone earnings is almost nothing.
Yeah, the bigger issue isn’t there. The bigger issue is this:
“What they’re doing is after-the-fact saying, ‘We bought more than existed, so we’re going to try to alleviate those problems,’” said Scott Buchta, head of investment strategy at New York-based Braver Stern Securities LLC.
Let me restate that in English: Someone sold us more than existed – that is, they naked shorted the bonds to us.
Now naked shorting is supposed to be illegal. Especially when it’s intentional naked shorting – not an “accident.”
One can hardly argue that 25% of the float being sold naked short is an “accident.” Rather, it sure looks like an intentional act of selling that which you do not own and cannot (reasonably) acquire, fueled by the fact that failing to deliver is, at present, “reasonably cheap.”
But it’s only reasonably cheap because we have this special class of people in NY that can sell things they don’t have, with no reasonable expectation of being able to deliver within the agreed terms. In the “real world” of commerce such an act is called “fraud” when practiced intentionally and on a grand scale.
Oh sure, occasionally every businessman sells something he is unable to deliver on the original agreed terms. We accept this, and while there is occasionally some sort of penalty or sanction, it’s part of business. You say you’re going to deliver 10,000 Widgets on June 1st, and come June 1st you only have 9,500, because you were a bit too optimistic in terms of how quickly you could manufacture them. Perhaps you pay a penalty for that, perhaps not, but it’s not an intentional act.
That argument – that it’s all an “accident” – is darn hard to sustain when the amount of product that is sold short without the ability to deliver is some twenty five percent of the total float outstanding.
Where are the cops?
The stock market is being manipulated folks and here’s proof.
So where are the cops? Where is the SEC? Oh yeah, the new ‘financial reform’ bill exempts them from any public disclosures. That’s nice and convenient, isn’t it? They can work in secret and claim they’re protecting us….but who are they really protecting?
Put your money in this market at your own risk. You can be sure that the people running this show WILL find a way to take it from you.