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Blue Governance
No Light at End of Tunnel for Public Pensions

Moody’s has analyzed 56 U.S. public pension plans and found them to be in deep, deep trouble. The Financial Times:

In some of the worst-funded schemes, including the teacher pension plans in Illinois and Kentucky, the funding gap has grown to almost eight times what current teachers are paid, according to Moody’s. […]

The analysis looked at best- and worst-case scenarios for the year to July 2016. It found that if returns went down by 10 per cent on average this year, the collective pension deficit would grow 59 per cent, to $952bn.

In the most optimistic scenario, where average returns totalled 5 per cent, the collective funding gap would still widen by more than $200bn.

Even as the GOP is imploding, the problems of blue model governance that Democrats have hitched their wagons to are stubbornly persisting—and, indeed, are getting much worse. “[Public pension plan] deficits are going from abysmal to worse. We are witnessing a slow-motion car crash,” an analyst told the FT. The numbers just don’t add up, and the day of reckoning draws ever nearer.

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  • Pete

    As sure as the sun rises in the East, the Democrats will aim for a federal government bailout.

    • Nevis07

      Which really doesn’t make any sense. I mean debt on top of debt doesn’t really get you anywhere, it just kicks the can down the road and makes the problem bigger for a later date…

      • Pete

        Ah, you are right my friend. From a societal point of view, it does not make any sense to pile debt on top of debt.

        But I’m talking about Democrats. Here, they will strive to spare one of their core constituency groups — public sector union members — as much pain as possible by having innocent taxpayer (and their children and grandchildren) share the burden of reckless pension promises made to the unions.

      • Thom Burnett

        It makes perfect sense for the people making the decision.
        Their goal isn’t to solve the problem but to stay in office with the benefits of being in office.
        Kicking the can even a year or two down the road saves their butts.

    • Andrew Allison

      The plan, per the Senate Dems proposal to make PR pensions senior to general obligation bonds, appears to be to stick it to bondholders instead. Hopefully, they’ll figure out that doing so would speed up the slow-motion public finance train wreck by destroying the municipal bond market.

      • Jim__L

        We just need to keep repeating the truth, “The Democrats are the party of making promises you can’t keep”. It’s an article of faith among Millennials that Social Security won’t be there for them when they retire. Hammering home the point that they are the generation on which the debt burden will fall, will convince many to abandon the Dems.

        • Beauceron

          “Hammering home the point that they are the generation on which the debt
          burden will fall, will convince many to abandon the Dems.”

          No it won’t.

          Bernie Sanders, whose budget proposals would increase the federal deficit enormously, has captured the majority of the youth vote.

          Today’s young are the first generation to be part of the Leftist educational machine from birth. It’s all they know. They are indoctrinated, brainwashed- and they strongly support massive increases in spending, government programs, and control.

          And if you disagree with them you’re a racist, colonialist oppressor who just doesn’t have their insight into the human condition.

          • Tom

            Not all of us.

          • Andrew Allison

            But not, I fear, enough of you.

        • Andrew Allison

          The Republicans, as illustrated most recently by the completely irresponsible budget from Paul Ryan et al., are just as guilty. The sad truth is that our utterly irresponsible reprehensatives are just that. Little wonder that the people are angry.

  • Jim__L

    Is the GOP imploding, or simply marginalizing the Blue-committed Establishment?

    The Republicans have a better chance of finding a replacement for Blue than the Democrats — Trump is giving them far more motivation to do so.

    • Andrew Allison

      The GOP is probably screwed. All indications are that its establishment will deny the clear choice of its base the nomination, and be suitably punished (including, I suspect, the well-deserved loss of the Senate and maybe even the House) at the polls. There’s a reasonable chance that in the unlikely event that it gets behind Trump he could confound the punditariat once again and win.

      • Boritz

        Loss of elections is not punishment but rather part of a routine cycle they weather quite well raking in 100 million plus dollars in consulting fees per election cycle win or lose. Trump getting control of the apparatus would constitute real punishment but as you point out they’re poised to handily sidestep that possibility and will hand control of the country to Hillary as protector of the status quo if necessary.

  • Beauceron

    States know the feds will bail them out– that is, irresponsible states know that citizens from states with less irresponsible governments will be forced to pay for their profligacy.

  • Andrew Szakmary

    I get that interest rates are low today, but to suggest that the BEST case scenario for investment returns going forward is 5% annual average returns is simply not reasonable based on capital market history or even stock valuations today. Most of these pension funds invest 70% of their portfolios in stocks or equity-like investments; the probability that they will earn 5% or less on average over the next 30-40 years is exceedingly low.

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