Mike Adams — Natural News July 21, 2013
Last week, Detroit declared bankruptcy, becoming the largest city in U.S. history to take such drastic action in the face of financial insolvency. A declaration of bankruptcy isn’t what most people think it is, though: it’s not just a statement of “we’re broke!” It’s actually a way for the city to clear its slate of all financial obligations and not pay the retirees it owes.
What are the largest financial obligations the city facing? Pensions. $3.5 billion worth of pensions, to be exact.
Yes, Detroit owes former government employees — teachers, firefighters, cops and more — a whopping $3.5 billion in current and future payments. Except Detroit doesn’t have $3.5 billion to pay the pensions. The city is in a state of economic collapse. Remember, the U.S. government used billions in taxpayer money to help General Motors move its manufacturing offshore to countries like China. As a result of economically-insane actions and criminal mismanagement, a city that used to be the hub of industrial output in America has become a ghost town of abandoned buildings, crumbling infrastructure and financial destitution.
But even as all this was becoming apparent, the government workers there continued to collect fat paychecks and pensions, all based on the promise that endless population growth would out-pace the rise in pension obligations. Many pensioners are owed over $100,000 a year from the government, and this is true across California, Illinois and many other states as well.
Chicago, for example, owes $19 billion in pension payments that it doesn’t have, and the city of Los Angeles is more than $30 billion in the hole. The story is much the same in every major U.S. city.
As the Detroit Free Press now reports:
Early this year, the Pew Center released a survey showing that 61 of the nation’s largest cities — limiting the survey to the largest city in each state and all other cities with more than 500,000 people — had a gap of more than $217 billion in unfunded pension and health care liabilities. While cities had long promised health care, life insurance and other benefits to retirees, “few … started saving to cover the long-term costs,” the report said.
Read that report here:
Detroit’s bankruptcy being challenged
Realizing it flat-out doesn’t have the money to pay these pension obligations, Detroit had little choice but to declare bankruptcy in an effort to avoid paying the pensions. In effect, this is a confiscation of all pension funds by the government, meaning that retired cops, firefighters, school teachers and so on will never see a dime of the pensions they thought they had earned.
Naturally, those who are owed the pensions are furious about all this. Imagine working 40 years on the job, building up a retirement only to have that retirement stolen from you by a local government that’s steeped in corruption and financial mismanagement. The word “incompetent” doesn’t even begin to describe Detroit’s political leadership. It’s more like “brain damaged” or “criminally insane.”
But it’s also commonplace. Across the country, city governments have all spent the pension funds instead of saving them. Almost no large city has the funds necessary to pay its obligations to retirees. Pension financial planning strategies are tragic nightmares of broken promises, dishonest politicians and delusional workers (who still somehow believe they’re going to get paid).
In Detroit, the pensioners are fighting back, claiming Michigan’s state constitution forbids cities like Detroit from wiping away pension obligations by declaring bankruptcy. It’s all headed to the courts now, where even if Detroit’s bankruptcy is nullified, the city still doesn’t have the money to pay its pension obligations.
So it’s a no-win situation regardless of the outcome. Where the money doesn’t exist, nobody gets paid regardless of the legal wrangling in the courts.
Is Detroit “Too Big To Fail?” An Obama bailout may be imminent
There’s already talk of Obama bailing out Detroit, meaning the federal government would take on the debt of the mismanaged city and its pension funds, eventually passing on those obligations to taxpayers all across the country.
Yep, that means you and I will be paying the $100,000 retirement pension of some ex-cop in Detroit. It’s all part of the federal government’s new plan to reward waste and punish fiscal responsibility.
No wonder Sen. Rand Paul says Detroit will only be bailed out “over my dead body.” As Breitbart.com reports, Sen. Paul has stated, on the record, “I basically say he [Obama] is bailing them out over my dead body because we don’t have any money in Washington.”
Breitbart.com goes on to state, “Paul said the reason he is going to fight to stop any efforts to bail out Detroit is that if the president succeeds in bailing it out, that will send a signal to the rest of cities and states nationwide that the federal government will bail them out to if they conduct reckless spending.”
“Those who don’t have their house in order, who are teetering on disaster, will continue to make bad decisions.” – Sen. Rand Paul.
He’s right, of course. But rewarding reckless spending has become the new sport in Washington, where globalist banks routinely receive hundreds of billions of dollars in taxpayer bailouts after losing money on outlandish derivatives bets that went sour.
If we bail out Detroit, then the precedent is set: The taxpayers will have to foot the bill to bail out Chicago, Los Angeles, New York, Phoenix, Seattle and every other city that’s on the brink of financial disaster because bureaucrats are short-term thinkers who typically only think ahead to the next election, not the next generation.
“Public pension plans across the nation are in fiscal distress. Generally underfunded, most now require far greater contributions from governments than initially envisioned,” writes the California Common Sense organization, which goes on to state:
In 2012-13, Los Angeles’s pension costs are expected to rise to $1.3 billion, or 18% of the city’s budgeted expenditures. In 2002-03, just 10 years ago, pension costs were only $157 million, or 3% of total expenditures. Over the last decade, pension costs have grown at an annual average growth rate of 25% and have outpaced spending growth for every major area of the city’s budget.
“In April Moody’s Investors Service warned it could downgrade the ratings of Chicago, Cincinnati, Minneapolis, Portland and 25 other local governments and school districts as part of a change in how it factors public pensions into debt grades,” writes Forbes.com. “In Chicago, teachers’ pensions alone cost $1 billion a year, while overall debt service accounts for close to a quarter of the city budget.”
The top 10 biggest U.S. cities on the brink of pension bankruptcy
According to Business Insider, here are the top 10 U.S. cities whose pension obligations will soon collapse: (this article was originally published in 2010, so we have updated the “years” to reflect 2013)
#1 Philadelphia – Unfunded liability of $9 billion, $16,696 per household, only 1 year before the pension accounts are empty
#2 Chicago – Unfunded liability of $44.8 billion, $41.966 per household, money runs out in 4 years
#3 Boston – Unfunded liability of $7.5 billion, $30,901 per household, money runs out in 4 years
#4 Cincinnati – Unfunded liability of $2 billion, $15,681 per household, money runs out in 5 years
#5 St Paul – Unfunded liability of $1.4 billion, $13,686 per household, money runs out in 5 years
#6 Jacksonville – Unfunded liability of $4 billion, $12,944 per household, money runs out in 5 years
#7 New York City – Unfunded liability of $122 billion, $38,866 per household, money runs out in 6 years
#8 Baltimore – Unfunded liability of $3.7 billion, $15, 420 per household, money runs out in 7 years
#9 Detroit – Unfunded liability of $6.4 billion, $18,643 per household, money runs out in 8 years
#10 Fort Worth – Unfunded liability of $2 billion, $7,212 per household, money runs out in 8 years
Note that some of these numbers were actually optimistic. Detroit, for example, was predicted to run out of money in 2021, yet it already declared bankruptcy in 2013. What you are looking at here is a looming cascade of municipality bankruptcies over the next 10 – 20 years.
Cascading financial collapse
Nobody saves in America anymore; not cities, not states and of course not the federal government which Obama has brought to the astonishing debt level of $16 trillion (it was only $8 trillion when he first took office). It begs the question: If the cities bail out the pensioners, and Washington bails out the cities, who’s going to bail out Washington and its exploding debt?
The answer, of course, is nobody. Central banks all around the world are already sitting on far too much U.S. debt that’s being eroded by the hour as the Federal Reserve commits “quantitative easing” that dilutes the global dollar supply. They aren’t going to take on trillions more to bail out a nation now seen as a global imperialist bully that runs NSA spying on its own allies while routinely engaging in economic espionage through currency manipulations.
The American government is widely hated throughout the world today. Most nations probably wouldn’t mind seeing the USA collapse into financial oblivion. And within a few years, they may just get their wish.
“On average, pensions consume nearly 20 percent of municipal budgets,” writes Anthony Flint of The Atlantic Cities. “But if trends continue, over half of every dollar in tax revenue would go to pensions, and by some estimates in some cases would suck up 75 percent of all tax revenue.”
Financial collapse is not a doomsday conspiracy theory; it is mathematical inevitability
The upshot of all this is that if you are counting on a government pension to pay your bills during your retirement years, you may need to write that off because it probably won’t be there for very much longer.
This is true not just for local and state government workers, but also for federal government workers. Yep, all those TSA agents, DHS workers and FDA bureaucrats are going to see their own pensions stolen, and I can’t say that I’m shedding tears over TSA goons not getting their pensions. (“Pedophilia pensions!”)
“I mean the statistics in California are staggering,” said Sen. Rand Paul. “I think there’s over 100,000 people there getting over $100,000 a year in retirement. You got police chiefs in medium-sized cities getting $350,000 a year for a salary. It’s become untenable. But the main thing is we cannot send a signal from the federal government that cities and states are going to be too big to fail.”
Where all this really hurts, though, is at the local level. In most cities, people like firefighters, cops and school teachers are wildly under-paid. They dedicate their lives to serving the community, often putting their own lives at risk in the process. Stealing their pensions is especially malicious given how much they have sacrificed to earn them.
But there’s nothing that can be done to save them at this point. The mathematics are already in motion and unstoppable. Nearly all big-city pension obligation projections have been based on the false assumption that endless economic growth would provide a never-ending tax base from which pension obligations could be paid. That assumption, however, was a willful delusion in which city managers and bureaucrats happily engaged.
There is a day of reckoning coming for America, and it’s going to be a day of nationwide outrage as pensions all across the country are confiscated or destroyed in a cascading chain of bankruptcies. At the same time, the federal government will no doubt embark on a Cyprus-style private bank account confiscation program that steals private wealth from the American people. Wiring money out of the country will be made illegal, and all forms of wealth — including retirement accounts — will be subject to government confiscation.
At that point, only people who have gone to great lengths to protect their assets will have anything left. What holds value in such a scenario? Land, bullets, rifles, hand tools, stored food, silver coins, gold coins, iodine disinfectants and antibiotics, to name a few obvious items. Skills and education also rank high.
Detroit’s bankruptcy tells us the era of financial demise has begun. Now it’s only a matter of time before what happened to Detroit spreads to Los Angeles, Chicago, Philadelphia, Boston and other large U.S. cities. It is no coincidence that DHS and the feds are now routinely running paramilitary police state training exercises in high-density urban areas.
As bad as pensions are, unfunded health care liabilities are far worse
For the real story on all this, take everything you’ve just read about unfunded pensions and dig that hole ten times deeper. Because the unfunded health care obligations are ten times worse.
According to the Pew research document at www.Pewstates.org , a fiscal assessment of 61 large U.S. cities revealed that while pensions are 74% funded, retiree health care liabilities are only 6% funded.
You read that correctly: cities have only saved 6 cents on the dollar for what they’re going to need to pay the health care costs of retirees. And that’s assuming health care costs don’t keep skyrocketing thanks to hare-brained monopoly programs like Obamacare which lock in guaranteed monopolies to the drug companies, cancer centers and hospitals that now extract nearly one out of every four dollars of economic activity generated in across America.
Here’s the chart: