Pennsylvania’s Pension Crisis Approaches

While I certainly wish everyone happy holidays, a very merry Christmas, and a prosperous 2010, I instead hope that many will take a moment from their holiday schedule to read a warning on pensions. As a consequence of the financial meltdown created by the money-printing of the Federal Reserve and Congress, pensions nationwide will be entering into crisis in the coming years. Throughout 2010, the danger will become more apparent, and there are consequences for all – not just those retiring with pensions.

This month, the Associated Press reports that Pennsylvania’s “teachers’ pension fund fell from $67.2 billion in mid-2007 to $46 billion at the end of September [2009]. The state workers’ fund, which had a market value of nearly $36 billion in 2007, was less than $24 billion by Sept. 30.” This, frankly speaking, is quite alarming as the stock market rally (in nominal dollars) this year has ended.

In July 2009, I warned about the upcoming pension crisis, and note that CalPERS, the nation’s largest pension fund, had plummetted from $239 billion to $181 billion. While recent reports have it bouncing back to $198 billion with the stock market rally, it is important to note that the fund was already underfunded in 2007.

It is also noteworthy to remark that the purchasing power of the dollar is on a base of quicksand, and is not a reliable unit of account.  401k plans are not exempt from troubles, and if you are unaware of the details in how your pension plan is invested, how and when you can withdrawal funds, I suggest that it is only a matter of prudence to educate yourself.

The impact to our society is that, in many cases, these pension plans are funded by property, school, and state payroll taxes in addition to the contributions from the pensioners during their careers. When the insolvency of these funds becomes more apparent, the disgruntled pensioners will likely press for governments to bail them out, which would be nice except for the inconvenient fact that GOVERNMENT HAS NOTHING.  Government can only redistribute wealth to the pensioners from either first taxing the remainder of the population more heavily directly or an indirect tax via the insidious, hidden tax of inflation.  Facts are indeed stubborn things.

Besides the above, I also recommend this audio link from McAlvany.com that discusses the pension situation.  Above graphic courtesy Rob Pepe.

When one dispassionately surveys the economic situation from pensions, to the bailouts and corporatism, to the government-sponsored health insurance cartels, to the suppression of the gold market, to the IRS and the unnecessary income tax, there is only one rational response.

When one surveys the attacks on civil liberties by the Patriot Act, the warrantless wiretapping of American citizens and the power of the IRS to examine every credit card transaction you make, the endless and expensive wars abroad in Iraq and Afghanistan, there is only one self-evident response for free men and women, and that response is….

rEVOLution.

Jake Towne

December 24, 2009