This article was published by The McAlvany Intelligence Advisor on Wednesday, December 14, 2016:
The dictionary defines civilization as “an ideal state of human culture characterized by a complete absence of barbarism and non-rational behavior.” Rich Galen thinks a better definition is living in a “constant state of positive assumptions.”
Many of those assumptions are coming into question, with many more already proven to be false. One of them is that pension plans are safe, that promises made will be kept, and that the assumptions underlying those plans regarding rates of return on invested assets are reasonable and that they virtually guarantee predictable results.
Those positive assumptions vanished last summer in Athens when further austerity measures were being applied to Greek citizens in exchange for bailouts from the EU. Unnerving photographs taken at the nadir of those riots by Margarita Mavromichalis are available with a simple google search. Those citizens learned once again that government promises can be broken at any time that is convenient for the PTB (powers that be). They also show what happens when that happy state of “positive assumptions” disappears along with the thin veneer of civilization. Readers are cautioned.
With a little more digging, a reader can remind himself of what happened in London in the winter of 1978-79. The issue was essentially the same: promises made by the government weren't being kept and the thin veneer of civilization vanished. It's remembered as the Winter of Discontent. At issue was inflation, the invisible robbing of purchasing power by central banks' process of expanding the currency. Gravediggers and trash collectors went on strike. Photographs of the results are also available online. Picket lines were set up in front of hospitals so that only the most grievously ill were allowed to be treated.
There's the crisis in Dallas, where withdrawals from the city's police and firefighters' pension plan were stopped last week, leaving $150 million in withdrawal requests abandoned in the queue. The plan is broke, and that fact is now beginning to be recognized by the city's citizens.
There's the pending crisis with CalPERS, the California Public Employees retirement System, which reported that it earned less than one percent on invested assets last year, compared to its investment assumption of 7.5 percent.
Can Athens, or London, happen here? Can those comfortable assumptions continue to hold citizens in the US in a state of denial?
Danielle DiMartino Booth doesn't think so. In a Real Vision TV interview last weekend, Booth, a former advisor to the federal reserve, said that “the Baby Boomers are no longer an actuarial theory. They're a reality. The checks [from their retirement plans] are being written.”
What happens when those checks bounce? Or worse: a letter comes in the mail from the trustees expressing great anxiety over the necessity to cut benefits, or eliminate them altogether?
Just how large are those shortfalls? Moody's thinks that, taken all together – federal, state, and local pension plans, Social Security, and medicare – they total $20 trillion. Put another way: it would take the entire economic output of the US in a year to close the gap.
Moody's is dreaming, according to boston University Professor Laurence Kotlikoff (shown above). He said that forecasters like Moody's are off the mark by a factor of ten. He calls it an “economics labeling problem.” This is how a college professor avoids using the words “lie,” “deceit,” and such. The professor instead uses “generational accounting”: estimating what one generation will be forced to pay for another generation's promises. That “fiscal gap,” according to Kotlikoff, isn't $20 trillion – it's closer to $200 trillion.
Of course this is quibbling over incidentals. Those promises will be broken. They're already being broken. When a Social Security beneficiary receives a check that doesn't reflect real world inflation, his loss in purchasing power breaches the government promise made years ago. When a policeman retires and learns that his pension benefits aren't available, that breaches another promise.
Those with foresight and a knowledge of history are making other plans. Those, happily, include increasing numbers of Millennials who have seen through the false assumptions and are relying more and more on themselves for their futures. Rasmussen Reports has helped track their view of Social Security for years. Back in 2013 they reported that, “only 35% of voters under 40 still consider Social Security a good deal.” And that was then.
The thin veneer of civilization remains in place as long as promises made are kept. When those promises aren't kept, and people get hungry, or angry, or both, the veneer vanishes.
Rich Galen: The Thin Veneer of Civilization
Business Insider: The US government has a $20.4 trillion retirement problem
Business Insider: A pensions time bomb spells disaster for the US economy
Huffington Post: Athens riots over more austerity
History of London's Winter of Discontent in 1979
Rasmussen Reports: What America Thinks: Younger Voters Don't Trust Social Security
Background on Kotlikoff's generational accounting and the resulting fiscal gap
ZeroHedge: Laurence Kotlikoff: “The US Fiscal Gap Is $200 Trillion… Our Country Is broke”