The Ticking Time Bomb That Will Wipe Out Virtually Every Pension Fund In America

Are millions of Americans about to see the big, juicy pensions that they were counting on to fund their golden years go up in flames in the biggest financial disaster in U.S. history? When Bloomberg published an editorial entitled “Pension Crisis Too Big for Markets to Ignore“, it simply confirmed what a lot of people already knew to be true.  Pension funds all over America are woefully underfunded, and they have been pouring mind boggling amounts of money into very risky investments such as Internet stocks and commercial mortgages.  Just like with subprime mortgages in 2008, this is a crisis that everyone can see coming well in advance, and yet nothing is being done about it.

On a day to day basis, Americans generally don’t think very much about pensions.  Most of those that have been promised pensions simply have faith that they will be there when they need them.

Unfortunately, the truth is that pension plans all over the country are severely underfunded, and this has already resulted in local fiascos such as the one that we just witnessed in Dallas.

But what happened in Dallas is just the very small tip of a very large iceberg.  According to Bloomberg, unfunded pension obligations on a national basis “have risen to $1.9 trillion from $292 billion since 2007″…

As was the case with the subprime crisis, the writing appears to be on the wall. And yet calamity has yet to strike. How so? Call it the triumvirate of conspirators – the actuaries, accountants and their accomplices in office. Throw in the law of big numbers, very big numbers, and you get to a disaster in a seemingly permanent state of making. Unfunded pension obligations have risen to $1.9 trillion from $292 billion since 2007.

And of course that $1.9 trillion number is not actually the real number.

That same Bloomberg article goes on to admit that if honest math was being used that the real number would actually be closer to 6 trillion dollars…

So why not just flip the switch and require truth and honesty in public pension math? Too many cities and potentially states would buckle under the weight of more realistic assumed rates of return. By some estimates, unfunded liabilities would triple to upwards of $6 trillion if the prevailing yields on Treasuries were used. That would translate into much steeper funding requirements at a time when budgets are already severely constrained. Pockets of the country would face essential public service budgets being slashed to dangerous levels.

So where are all of these pensions eventually going to come up with 6 trillion dollars?

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That is a very good question.

Ultimately, even if financial conditions stay as stable as they are right now, a whole lot of people are not going to get the money that they were promised.

But things will get really “interesting” if we see a major downturn in the financial markets.  According to Dave Kranzler, if the stock market were to fall by 10 percent or more and stay there for a number of months, that “would cause every single public pension fund to blow up”.  And Kranzler is also deeply concerned about the tremendous amount of exposure that these pension funds have to commercial mortgages…

Circling back to the mall/REIT ticking time-bomb, while the Fed can keep the stock market propped up as means of preventing an immediate nuclear melt-down in U.S. pensions (all of which are substantially “maxed-out” in their mandated equities allocation), the collapse of commercial mortgage-back securities (CMBS) will have the affect of launching a nuclear sub-missile directly into the side of the U.S. financial system.

The commercial mortgage market is about $3 trillion, of which about $1 trillion has been packaged into asset-backed securities and stuffed into yield-starved pension funds. Without a doubt, the same degree of fraud of has been used to concoct the various tranches in these CMBS trusts that was employed during the mid-2000’s mortgage/housing bubble, with full cooperation of the ratings agencies then and now. Just like in 2008, with the derivatives that have been layered into the mix, the embedded leverage in the commercial mortgage/CMBS/REIT model is the financial equivalent of the Fukushima nuclear power plant collapse.

I have previously talked about the ongoing retail apocalypse in the United States which threatens to make so many of these commercial mortgage securities go bad.  It is being projected that somewhere around 3,500 stores will close in the months ahead, and this is going to absolutely devastate mall owners.  In turn, it is inevitable that a lot of their debts will start to go bad, and pension funds will be hit extremely hard by this.

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But the coming stock market crash is going to hit pension funds even harder.  Stocks are ridiculously overvalued right now, and if they simply return to “normal valuations”, pension funds are going to lose trillions of dollars.

We are talking about a financial tsunami that will be absolutely unprecedented in our history, and yet investors continue to act like the party can last forever.  In fact, we just learned that margin debt on Wall Street has just hit another brand new record high

The latest data from the New York Stock Exchange show margin debt, or cash borrowed to buy shares, hit a record $528.2 billion in February, up from its prior high of $513.3 billion in January.

Of course my regular readers already know that margin debt also shot up to dramatic peaks just before the last two stock market crashes as well

Prior periods when margin debt hit records occurred around stock market peaks, including 2000 when the dot-com stock boom went bust, and 2007 when stocks began to crater amid early signs of trouble in the housing market ahead of the 2008 financial crisis.

Margin debt jumped 22% from the end of 1999 before peaking in March 2000 at $278.5 billion, the same month stocks peaked. In 2007, margin debt shot up to $381.4 billion in July, three months before stocks topped.

We are perfectly primed for the greatest financial disaster in American history, and yet very few people are sounding the alarm.

This massive financial bubble is a ticking time bomb, and when it finally goes off it is going to wipe out virtually every pension fund in the United States.

Courtesy of The Economic Collapse Blog

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  • Jimbeau

    An interesting spin on the strange Atlanta bridge collapse:
    http://www.whatdoesitmean.com/index2272.htm

  • Jimbeau

    So… not to oversimplify, but this is just ONE more thing that is going to happen when
    ====> THE CRASH OCCURS <====
    Everything revolves around THE CRASH.
    But I'm not even convinced at this point that it WILL happen, because common sense told us it should have happened years ago… but it didn't. Soooo, screw it. Maybe those jerkoff banksters CAN keep this ponzi BS going forever; nobody I know seems to have any problem continuing to take these stupid, worthless pieces of paper. Again: screw it. Get your prepping done and quit worrying about the bomb (like that old movie). If it happens before you die, party down. You've done everything you could have.

  • Ann Tenna

    this snyder profit is a failed lawyer who got run out of wash,dc either by his own flight or who knows?…either way he is a False for Profit rapture proclaimer who will pay big time in the end for his False Doctrine…

  • lloyd Lisco

    Gold Bought at $40.00 an Ounce is today $1,250.00 an Ounce Or More Anywhere in the World, The MSM tells you That Gold Gains no Interest. Get out of the Paper Debt System and into Gold Today While you can. When the Collapse hits, Gold will go Higher and Paper will Collapse, Then Gold will only be Available at Unbelievable Prices.

    • Jimbeau

      You won’t convince anyone that metal is a good investment if you don’t beat it into their heads that metal isn’t for making them rich (although it might), it is for PROTECTION OF PRINCIPAL.
      “Do you wanna be flat broke?… Well DO you, punk?”… lol

  • lloyd Lisco

    Of Course the Pensions will Fail, Man’sPromise to Pay has Always Failed throughout History.

    • Jimbeau

      Think: “Wimpy”… hamburger Tuesday… yada

  • Steve Lanning

    Thanks for the article, Michael. So the solution is to keep buying and holding gold and silver? Thoughts?

    • lloyd Lisco

      Gold is God’s Money, Man Cannot Make it, It Has never Failed in 7,000 Years, It Owes No One, Gold is Purified in Fire, Good anywhere around the World, Try any of these with the Dollar.

      • Steve Lanning

        Thanks, Lloyd. Maybe it’s because I’m old-fashioned, but when I postulate a problem, I like to proffer a solution–even if it’s off the wall. I suppose Michael hasn’t come up with his solution.

        • lloyd Lisco

          Read Revelation 3-18 in your Bible, Then you will Know for sure what to do to Protect your Wealth.

      • Ann Tenna

        Lloyd..lets not forget golds red haired step child… SILVER will out preform All the money metals including gold….
        This is where i really like the STUPID WHITE BOY and his STUPID WHITE BITCH…they have NO Clue about the Value or History of SILVER,,, Makes it sooooooEasy for the Smart Ones to obtain SILVER for fake money, the federal reserve note …. i personally like the 40% Kennedys…and i will not tell you how many “thousands” literally i have burried in western new york in the “woods”.. along with my peace and morgans

        • lloyd Lisco

          Thanks Ann For your Reply, The only Drawback to Silver is it’s Weight, A $1,000.00 Face Bag of 40% or 90% Weighs 55 Pounds and is Bulky. Today that Bag of 90% is Worth about $18,000.00. A 30 Caliber Ammo can Full of gold Weighs 50 Pounds and is Worth $625,000.00 and that Ammo can has a Carrying Handle, That is why I always Recommend Gold. You are a Smart Lady to Invest in Metals, Soon their prices will go Thru the Roof as the Paper System Collapses and our Red Haired Step Children will be Worth Plenty, Because of Silver’s Smaller Value it will be Ideal for Everyday Transactions. Thanks again for your Wise Comments.

          • Jimbeau

            It IS a pain to deal with, if you have any significant amount of it.

    • Ann Tenna

      his thoughts are for the rapture… just ask the jimm and tammy bakker show