"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Monday, November 15, 2010

An Example of How the World As We Know It Will End

Maryland's state public employee pension funds are $33 billion in the red, according to this article.    Maryland's population, meanwhile is 5.7 million people, or about 1.5 million households.   Assume conservatively that about half of those households pay no income tax.   That means there are about 750,000 Maryland households that owe $33 billion, or about $45,000 in debt per household.    To pay for someone else's retirement!

But it's actually worse than that.   You can go find Maryland's retirement system's annual report for 2009 online here.  It shows that they use a 7.75% investment return assumption in valuing the system's liabilities.  That means that they believe that future benefit payments will be paid for by their assets growing at an average of 7.75% a year long-term.   Does anyone really think nowadays that the worldwide economy is going to generate a 7.75% rate of return going forward given its current problems?   If Maryland valued its liabilities using an expected rate of return of a typical bond portfolio -- say, 4.5% or 5% -- that $33 billion in unfunded liabilities might be something closer to $50 billion.  

And, of course, the debt for future retirement benefits to state employees doesn't take into account the unfunded liablities of city employees, county employees, town employees, etc.  

And (of course, again!) none of this takes into account the unfunded liablities we all owe for federal government employees' pensions.  

What do you get when one neighbor finally realizes that they are in debt for hundreds of thousands of dollars to be able to pay for the retirement of their next-door neighbor simply because the next-door neighbor worked for something called "government"?   What do you get when the first neighbor realizes that he is going to have to work to 70 or 72 or beyond because he can't afford his own retirement, but his next-door neighbor -- who got more time off while he was working -- is retiring at age 58 or 60 with full benefits?   What do you get when people who have saved religiously in their 401k plans are told that they are now rich and have to be taxed punitively to pay defined benefits (that, we are told, can never be reduced) to their neighbors who worked for governments?  

What do you get when Man A who worked in private industry is going off to work and struggling to make ends meet while Man B who worked for government is heading off to his lake house secure in the faith that his retirement benefits can never be reduced one plug nickel, much less taken away, no matter what? 

Armageddon, that's what you get.  

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