Because America’s cities and states are in debt up to our eyebrows from unfunded pensions to public employees — pensions that, without exception, are based on the expectation that whatever money that’s paid into those funds gets 7% to 8% interest.
But the reality is the Federal Reserve is artificially suppressing interest rates because of the Godzilla-sized national debt of $16.9 trillion. That’s the official figure, according to our feral gummint. The real figure, according to a U.C. San Diego economics professor, is $70 trillion.
If the Federal Reserve lets interest rates go up, then our gargantuan national debt will balloon even quicker.
That is why the interest rates on bank savings, certificates of deposit (CD), and U.S. Treasury bonds and notes are so anemic. The highest interest rate being offered for a one-year CD currently is 1.05%. As for treasury notes, rates are going up. The latest 10-year Treasury note has a yield as high as 2.866%, a level not seen since July 29, 2011. But 2.866% is still a far cry (5.134% to be precise) from the 8% interest rate on which are based our public pensions.
Below is a chart showing how underfunded public pensions are, compared with private retirement funding. As Tyler Durden of ZeroHedge puts it:
The chart below explains, in the simplest possible terms, why there are many more “Detroits” on deck. It shows the underfunded status of public vs private retiree healthcare plans. It needs no commentary, although it may deserve one question: what happens when all those public servants who have been promised over a trillion in healthcare benefits upon retirement, realize it was all a lie? And then come… the pensions.
Dr. Eowyn is the Editor of Fellowship of the Minds and a regular contributor to The D.C. Clothesline.