I had the pleasure of being interviewed once again by Gordon Long as part of his financial repression series. The topic of this interview was “America’s Pension Problem“.


Synopsis – By Gordon Long – Edited by Me

Mish Shedlock talks about the magnitude of the mounting Pension Problem in America and uses his home state of Illinois as a prime example. According to a State Budget Solutions, last year’s state unfunded pensions reached an all-time high of $4.7 trillion. This funding gap state public pension plans are underfunded by $4.7 trillion, up from $4.1 trillion in 2013. Overall, the combined plans’ funded status has dipped three percentage points to 36%. Split among all Americans, the unfunded liability is over $15,000 per person.

Pending Pension Crisis

“Illinois Pension’s in general are 39% funded. This is after this massive rally we have had since 2009 in financial assets. Some of the worst ones are only about 20% funded.”

“Various cities in Illinois have problems, Chicago being one of them. The City of Chicago has a huge pension crisis right now. We have things in Illinois like “Home Rule Taxes” where cities can levy their own taxes in addition to the state. That is why we have varying sales tax that range anywhere from 6.25% to 10%, depending on locality.”

“I have been working with the Illinois Policy Institute on pension and bankruptcy issues. There are a number of cities in Illinois that are ready to file bankruptcy. The problem is they can’t file bankruptcy because the state doesn’t allow it.”

“The fundamental problem is they have made more promises than they can possibly keep”

Gaming the System

The problem is “you have police and fire workers who can retire after 20 years and collect up to 70% of their earnings based on the 5 highest years salaries. We see a lot of pension spiking in the last few years where for example police work overtime (which counts towards their best five years) so these workers stand to collect far more in retirement (total years in retirement) than they actually ever made while working (total years worked).

“Tax payers are actually funding the employees portion of the pensions by excessive wages and direct contributions “.

“Chicago floated General Obligation Bonds to fund current expenses. That is illegal. We have bonds here in Illinois that are tax exempt on the basis they are supposed to be funding long term infrastructure expenses that are funding short term needs.”

Obscene Property Taxes

“Taxes in Illinois are already obscene. A homeowner on a $600,000 home can expect to pay $14-15,000 per year – every year on property taxes. Do you really own your own home in Illinois?”

“Pensions are so underfunded in Illinois that they are going to go bust in the next slowdown. I believe one (a slowdown) is on the way.”

Looming Crisis Globally

Negative interest rates are sweeping the globe. How will states, cities and towns fund themselves and their pension obligations in an era of potential negative nominal bond rates?

Returns on the heavily weighted funds’ bond holdings are being potentially destroyed while state bond offerings are likely to face mounting issues such as the monstrous overhang levels of unfunded pension liabilities.

“How will states, cities and towns fund long term asset assumptions of 7% given or exceptionally low or year negative yield bonds?”

Repression Series

Gordon’s financial repression series is up to about 900,000 video downloads.

Guests include Marc Faber, John Rubino, Paul Craig Roberts, Doug Noland, Chris Martenson, Grant Williams, Doug Casey, Axel Merk, Dave Stockman, Steve Keen, and many others.

My previous interview was Gordon Long Video Interview of Mish: Topic – Financial Repression (and How to Defend Yourself From It).

At the end of the current interview, I briefly mention several trades I am currently in: Russia, Japan, gold and miners.

Mike “Mish” Shedlock