Detroit bankruptcy the beginning of pension fund collapses

“Last week, Detroit declared bankruptcy, becoming the largest city in U.S. history to take such drastic action in the face of financial insolvency. .. What are the largest financial obligations the city (is) facing?  Pensions.  $3.5 billion worth of pensions, to be exact…”

In his article “Warning to all police, firefighters, schoolteachers: Most government pensions to be confiscated within a decade” appearing in on July 21st, Mike Adams tells us that bankruptcy provides cities with a way to opt out of paying their debts.  And for many cities, pension obligations to current and retired employees, i.e. both current and future commitments, make up by far the greater part of their obligations.

As he points out, “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.”

Maintaining a functioning cash-flow by failing to meet pension obligations is very tempting to businesses and governments alike, and even the leftist-dominated Ontario Federation of Labour is guilty of this.

Canadian pension plans are far better regulated, and seem far more likely to fall victim to stock market reversals and economic factors rather than to deliberate failure to provide the necessary funding, but we must be careful; the temptation will always be there.  Take, for example, Conrad Black’s 1984 attempt to take $56 million from the Dominion store workers’ pension plan without even consulting the plan members.

I know that in Canada in the 1970’s, the federal government took employees’ pension deductions into general revenues, and treated pension payments as an expense; there was no effort whatsoever to provide proper funding.  And, it was around that time that the Canadian Broadcasting Corporation, then a government department, was reported as having borrowed half a million dollars and recorded the proceeds as a sale rather than a liability, but that’s a story for another day…

The Americans are living in a false economy, and sooner or later the entire rotten edifice will come crashing down on them.  It’s not a matter of “if”, it’s a matter of “when”.

The world outside is a lot less susceptible to federal government propaganda, and already China, India, Brazil, and others are moving to replace the “greenback” with the “redback” (yuan) and other alternatives.  India and others are arranging to pay Iran for oil in Rupees etc., and Bloomberg recently told us that “Canada’s banks are considering a plan to make Toronto the first North American trading hub for China’s yuan, joining a global race for a share of trading in the currency of the world’s second-largest economy.”

On June 6th this year, InvestmentWatch reported that “…the Fed has ordered the U.S. pension funds to begin to acquire U.S. debt. That is coming down the pike, it’s going to start happening, the states are going to start carrying it in order to fatten up their books… So, we are moving into the last stages before an all out collapse.”

And to put the already-existing situation into context, Adams quotes the Detroit Free Press as reporting that “Early this year, the Pew Center released a survey showing that 61 of the nation’s largest cities… had a gap of more than $217 billion in unfunded pension and health care liabilities”.

The Detroit Free Press also reports in the same article (see below) that public pension plans belonging to the various States across the U.S. “were underfunded by a whopping $1.4 trillion in 2010.”

Mike Adams’ article is an extensive analysis of the collapse of the U.S. economy, and provides a wealth of insight supported by extensive background information.

I strongly recommend it.

Jeff Goodall.

See the article here.

See also “Detroit not alone under mountain of long-term debt” (Detroit Free Press, July 21st 2013) here.