Pension Fund Crisis:
There was a movie some years ago called “Wag The Dog”, that had to do with a politician obscuring what was actually going on by focusing everybody on something else of lesser importance. Here are the facts that no one is telling you about the Pension Fund Crisis:
- One half of the states in the U.S.A. have pension funds with balances that are less than 70% of the amount required to meet their obligations;
- While many of the states in the U.S.A. have recovered from the Great Recession, Virginia is rated among the very worst states in their financial structure;
- When the pension crisis hits, probably within five years from now, the effects on the economy will be both Direct and Indirect.
At some point the pension funds simply will not be able to meet their obligations which will mean that pensioners will receive less of a pension amount than they anticipated. Pensioners will have to cut back their spending.
The loss of income by the pensioners will ripple through the economy, because of their reduced consumer spending and loan defaults. That means economic distress called a recession.
The solution that will be proposed will be to radically increase taxes. The amount of the tax increase required to solve the pension fund crisis will have the same effect on all households – reducing their disposable income and thereby causing a recession. This will be ugly when it hits. You want to have your portfolio balanced and have some liquidity before it hits.
Please re-read our first two points in this series of blogs as you plan your investment decisions.