What Happens When Major Cities Go Broke WORLDWIDE
What happens when cities across the country, or the world for that matter, can no longer collect taxes from its taxpayers?
In major cities like New York and Vancouver, the taxes the city is able to collect is dwindling as many companies and individuals are struggling financially in the wake of the coronavirus.
A number of months ago, my co-author of the book Who Stole My Pension, Ted Siedle, and I did a talk in Miami to a group of real estate investors. Ted talked about the looming failure of city and state employee DB pensions, and I talked about the failure of DC pensions.
Later that day, two school teachers, a husband, and wife came up to me and expressed their concern about the security of their teachers’ pension. After I explained their DB pension was probably secure, they sighed a breath of relief.
I then added that, unfortunately, while their retirement might be secure, young people, the future taxpayers, are destined to lose via higher taxes and fewer government services. Not missing a beat, the teachers replied, “We don’t care. Just as long as our retirement is secure.”
The reason I mentioned the two schoolteachers I met in Florida is because they did not care about future retirees. They do not seem to care if their retirement security robbed taxpayers and kids of their future.
I explained to the two teachers that the depression I see coming may be caused by the collapse of pensions. Again, they didn’t seem to care. Their dual teachers’ pensions would put them in the millionaire category.
I pushed forward explaining that, if the pensions collapse, the Fed would bail out the retirement of Baby Boomers. And bailing out their teachers’ pensions would steal from the young.
Again, they didn’t seem to care. All they cared about were golf courses and cruising the world.
All cities count on income tax, sales tax, & real estate tax
All public pension stakeholders—American taxpayers and pensioners—need to get educated fast as to the causes of coming pension collapses and learn what they can do about it now.
Sal DiCiccio, Phoenix City Councilman, had this warning to taxpayers:
“State and local governments long ago made a proverbial deal with the devil. Politicians who didn’t want to face the music for their bad decisions made a deal with the government unions representing all these various pension funds to deliberately underestimate the average annual cost to taxpayers—so they can keep buying votes with money they don’t have. But they’re only making the problem, and the bills when they come due, dramatically larger.
How much each city, county, state, or local school district owes for their pension liabilities are determined by how much they have promised, how much money is currently in the fund, and the rate of return that fund is projected to return in the market, along with a host of actuarial assumptions like when each person will retire, and how long they’ll live after that. The higher the projected rate of return, the later retirees start collecting their pensions, and less time they’ll collect those checks before they pass away, the less a local government is forced to pay into those funds.”
The fact that America’s public pensions are underfunded has received a lot of national attention. States with the worst pension fund shortfalls include Colorado, Connecticut, Illinois, Kentucky, and New Jersey which have less than half of the assets needed to pay promised benefits and another 17 states have less than two-thirds.
Warren Buffett has described America’s underfunded public pensions as a “disaster” that companies and individuals should consider when deciding whether to expand or move into a state.
“If I were relocating into some state that had a huge unfunded pension plan, I’m walking into liabilities,” Buffett said. “Cause I mean, who knows whether they’re gonna get it from the corporate income tax or my employees—you know, with personal income taxes or what. That liability isn’t gonna—you can’t ship it offshore or anything like that. And those are big numbers, really big numbers.”
The Fed is Printing Fake Money
I’ve said numerous times that “bailouts are the name of the game.” If Quantitative Easing (QE) continues and more fake—fiat—money is printed (coupled with ZIRP, Zero Interest Rate Policy) the world economy will move closer to the brink of collapse and wipe out the middle class and the poor. And the house of cards? It comes crashing down.
Will the next wave of big bailouts be pensions? I think so. Once again, bailing out pensions protects the “too big to fail” banks who get rich selling fake, toxic assets to the world. When the pensions go bust, the big banks will once again be bailed out in the name of saving pensioners’ retirements.
My concern is that, as the global pension crisis worsens, more and more people will turn to socialist and communist ideals—and politicians who embrace them—for salvation.
Rewrite the Rules of the Game
In 1944, 44 nations gathered at Bretton Woods Conference to agree upon the new rules of the post-WWII international monetary system.
Prior to WWII, the British pound sterling was the top dog in the world of money. Fighting WWII caused England to ship its gold to the United States to pay for the war. As WWII was coming to an end, the United States held much of the world’s gold. Since the United States had the gold, it promised to back its dollar with gold, and the U.S. dollar became the “reserve currency” of the world. In 1944, the U.S. dollar was as good as gold. Literally. The dollar was trusted and respected. That soon ended.
Between 1950 and 1960, Germany, Japan, England, and the rest of Europe recovered and began exporting products to the United States. Gold-backed dollars left the United States and Nixon and his buddies panicked.
In 1971, Nixon broke the promise made at Bretton Woods, and the United States began exporting fake money in exchange for real products such as Volkswagens and Toyotas.
The world gladly accepted these fake dollars as long as the world had conﬁdence in the leaders of the United States. That conﬁdence was severely tested after 2008.
Is that conﬁdence nearly gone? Is the end near? Is the mountain of debt too high? Will more fake money keep the avalanche from coming down the mountain? Is the last snowﬂake on its way?
I believe so.
I believe that as the dollar continues to die, there will be another conference to rewrite the rules of the game.
That’s why I buy god’s money (gold & silver) and what I call people’s money (cryptocurrency) because I want to play by my own rules—outside of the Fed.
God’s money and people’s money have more integrity than central bank money.
Editor, Rich Dad Poor Dad Daily