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Daily Digest 9/6 - Illinois Shorting Pensions Again, Guaranteed Pay?

Wednesday, September 6, 2017, 10:01 AM


North Korea promises more 'gift packages' for US

A top North Korean diplomat today called his country’s recent nuclear test a “gift package” for the United States and promised more to come if the U.S. continues what he called its “reckless provocations.”

Venezuela’s Medicine Shortages Overwhelming Border Cities in Guyana, Colombia, Brazil

Venezuela’s political crisis has bled into widespread food and medical shortages for some time now, causing families to travel to neighboring countries such as Colombia in search of basic healthcare and vaccines for children.

Fear of robots taking jobs spurs a bold notion: Guaranteed pay

Driverless trucks. Factory robots. Delivery drones. Virtual personal assistants.

As technological innovations increasingly edge into the workplace, many people fear that robots and machines are destined to take jobs that human beings have held for decades. For many affected workers, retraining might be out of reach — unavailable, unaffordable or inadequate.

Illinois Shorting Pensions, Again

All of the pension funds are impacted. TRS has $71 billion in unfunded liability. Actuaries called for $4.564 billion to be contributed. The revised amount, based on the new law, is $4.034 billion.

Moody's: If the US defaults, it won't regain its top-notch debt rating

Moody's Investors Service said on Tuesday it would strip the United States of its top-notch rating if a default such as a missed debt payment were to happen and it would not regain the Aaa-status even if the default were resolved.

Inside the new economic science of capitalism’s slow-burn energy collapse (Joseph J.)

The study, ‘Long-Term Estimates of the Energy-Return-on-Investment (EROI) of Coal, Oil, and Gas Global Productions’, homes in on the concept of EROI, which measures the amount of energy supplied by an energy resource, compared to the quantity of energy consumed to gather that resource. In simple terms, if a single barrel of oil is used up to extract energy equivalent to 50 barrels of oil, that’s pretty good. But the less energy we’re able to extract using that single barrel, then the less efficient, and more expensive (in terms of energy and money), the whole process.

How EIA Guestimates Keep Oil Prices Subdued (Uncletommy)

Let’s take a look. A month ago, I wrote about how the EIA’s monthly data for May put U.S. oil production at 9.169 million barrels per day (mb/d). But back in May, the EIA’s weekly figures told a different story. The agency thought at the time that the U.S. was producing nearly 200,000 bpd more than turned out to be the case. Here were the weekly estimates at the time:

Hurricane Irma Could Destroy Oil Demand (Michael K.)

However, the effects could actually become slightly bullish over time as the recovery efforts pick up, and intriguingly, there is “potential for some sustained US onshore production curtailments.” Eagle Ford shale drillers were forced to shut in some shale output as both the takeaway capacity (i.e., pipelines) and Gulf Coast refineries went offline, backing up crude at the wellhead. Some estimates put Eagle Ford output down by half at first, although data is hard to come by at this point. Goldman Sachs estimates that 200,000 bpd of Eagle Ford production “remains shut-in,” which offsets some of the bearish impact on WTI from the refinery outages. Adding in some lingering outages offshore in the Gulf of Mexico, total upstream supply outages still stand at about 300,000 bpd.

Gold & Silver

Click to read the PM Daily Market Commentary: 9/5/17

Provided daily by the Peak Prosperity Gold & Silver Group

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DennisC's picture
Status: Gold Member (Offline)
Joined: Mar 19 2011
Posts: 352
An Inconvenient Truth

I always enjoy reading the seemingly daily flow and saga of the pension problems of state governments.  This was a favorite so far that you may have seen (re: Kentucky).


So, let's get a supposed non-political, actuarial view of the problem and what to do about it.

So what can Kentucky do to solve their pension crisis?  Well, as it turns out they hired a pension consultant, PFM Group, in May of last year to answer that exact question.  Unfortunately, PFM's conclusions, which include freezing current pension plans, slashing benefit payments for current retirees and converting future employees to a 401(k), are somewhat less than 'perfectly acceptable' for both pensioners and elected officials who depend upon votes from public employee unions in order to keep their jobs...it's a nice little circular ref that ensures that taxpayers will always lose in the fight to fix America's broken pension system.


Meanwhile, PFM warned that the typical "kick the can down the road approach" would not work in Kentucky and that current retiree benefits would have to be cut.“This is the time to act,” said Michael Nadol of PFM. “This is not the time to craft a solution that kicks the can down the road.”

“All of the unfunded liability that the commonwealth now faces is associated with folks that are already on board or already retired,” he said. “Modifying benefits for future hires only helps you stop the hole from getting deeper, it doesn’t help you climb up and out on to more solid footing going forward.”


Of course, no amount of math and logic will ever be sufficient to convince a bunch of retired public employees that they have been sold a lie that will inevitably fail now or fail later (take your pick) if drastic measures aren't taken in the very near future.


As such, no matter the long-term consequences, we suspect the "kick the can down the road" approach to pension reform will continue to win right up until the plans actually run out of money...then we'll all lose together.

Of course, "overcome by circumstances" is a decision too provided you are not the last "marginal" state legislator to get elected.


KugsCheese's picture
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
Re: An Inconvenient Truth

Taxpayers have had enough.  Politicians will go to court to get terms amended.   30%-50% cuts to benefits.   Its already happening.

thc0655's picture
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1744
Nibble on pension reform now; blow up later

I disagree.  I think the most that politicians and CEO's will do with pensions is nibble on reforming them, for now.  Cans will continue to be kicked, realities ignored, unicorns anticipated.  The public wants to keep ignoring the problem and think happy thoughts, so that is what they will continue to do, abetted by the politicians of course.  Bandaids will not be slowly peeled off or suddenly yanked off.  They will be left in place until they fall off because the puss oozing from the wounds pushes them off from below.

Only until some of the pension plans end up in bankruptcy court where judges are barred from kicking cans will any significant adjustments be made, and even then recent examples indicate some of those court solutions will have to be revisited because even they will be insufficient.  I think most plans won't even make it into bankruptcy court before they blow up and drag sponsoring governments down into disasters they can't hide or recover from until "something is done" with the pensions.  It will be apocalyptic.

My wife and I expect our city pensions to pay out month by month without so much as a tremor until one day the checks simply quit coming.  A hue and cry will be heard throughout the land and then, once everyone is paying attention, the extent of the damage will be reluctantly revealed: the city is truly falling apart from diverting more and more of its current budget to pay for pensions, and the checks will only resume once huge cuts are imposed.  For planning purposes, we're (optimistically) expecting a minimum 50% cut and we're hoping gold has gone to $10,000 and silver to $200 at about the same time.


KugsCheese's picture
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
Re: Nibble on pension reform now; blow up later

The FED cannot control interest rates forever.   The balance sheet reduction that may start in October should spike rates since the FED is largest buyer of government debt.  What happens to municipalities when rates go to 4% and debt must be rolled over?  The FED had two goals: 1) bailout crony banks; 2) lower interest rates so Federal, State, Local governments could fund spending without going insolvent (i.e. artificially low interest rates).  The Can has been kicked since at least 1971. 

DennisC's picture
Status: Gold Member (Offline)
Joined: Mar 19 2011
Posts: 352
"Pure Imagination"

For some reason, that song popped into my head.  But then there was this (a.k.a. reality):

saxplayer00o1's picture
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4263
Amid Budget Gridlock, Bronin Issues Bankruptcy Warning..Hartford

Amid Budget Gridlock, Bronin Issues Bankruptcy Warning To ...

Hartford Courant-33 minutes ago
Projections show the capital city, facing a $65 million deficit this year, will run into ... be used to address long-term liabilities like debt and pension obligations.”.

China Cities Face Surging Funding Costs on Default Concerns

Bloomberg-12 hours ago

Those broader concerns spelled higher debt costs recently for Jiangsu ... eastern province of Jiangsu sold 1 billion yuan ($153 million) of 270-day bills last week ..

Colorado's 2018 health insurance premiums finalized; 26.7% average increase in individual plans

The Denver Channel 18h ago

Insurance premiums for Kentucky's Affordable Care Act customers to ...

Insider Louisville-17 hours ago
The rates affect only those 78,800 Kentuckians who get their insurance on the federal health care exchange — not those who get insurance in other ways, such ...

Optima's exit may leave many Virginia counties with no ObamaCare ...
Highly Cited-The Hill-15 hours ago

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