Thursday, February 4, 2016

The Growing Public Pension and Muni Bond Bubble - By Michael Bargo, Jr.

Biggs estimated that the entire amount of unfunded pension liability in the U.S. was $4.6 trillion in 2011, but this figure did not include municipal bond debt which, when combined, brings the total unfunded pension and muni bond liability to $8.3 trillion. This amount is far greater than the mortgage meltdown and is not included in the Treasury Department's balance sheet or the national debt. 
But unlike the mortgage credit bubble that led to the 2008 crash, public pensions are not debts, since the money to finance them was not borrowed, it is just allocated to be paid by future appropriations, i.e., your taxes………

These pensions are created behind closed doors, have no limits and are out of control. In 2014 Robyn Gordon Peterson of the Long Beach Public Transportation Co. had a pension of $1.2 million dollars and this did not include benefits. The Los Angeles Police and Fire Depts. and San Diego City; have one retired Assistant Fire Chief whose pension is $871,605; three others with pensions in the $800,000s; (from 800K to 899K) seven in the $700,000s; twenty-three in the $600,000s; seventy-four who receive in the $500,000s; and seventy-nine who receive pensions in the $400,000 range. This means just 194 people collect over $80 million a year. And this doesn’t include tens of thousands who collect pensions in the $300,000 range, the $200,000 range, etc………..

This disconnect is why all state public sector pension plans are underfunded. The average public pension is only 41% funded. This is the quintessential definition of a bubble.
And when they crash, they will crash under different circumstances than the mortgage meltdown. It’s important to realize that this crash will not occur all at once, as when the MBSs crashed. It will be a spreading financial crisis that moves from one pension-bankrupted city to another. This is already happening.