U.S. National Debt to Soar on the Back of Struggling Pension Funds
The U.S. national debt already stands at $20.0 trillion, but it could skyrocket in no time.
Why? Start paying attention to the pension crisis that’s ongoing in the U.S. economy.
Here’s a quick background; cities and states pension funds are struggling. They have more obligations than they have assets.
Why is this a problem? If pension funds don’t have money, those who retire may not get any. It puts the retirement of many Americans on the line.
To provide some perspective, look at South Carolina’s pension funds. As of June 30, they had a funding gap of $25.4 billion. What’s interesting to note here is that South Carolina’s pension funds earned a rate of returns of 11.88% over the past one year. But, their funding gap increased due to more retirees collecting benefits and the cost of living rising. (Source: “South Carolina’s underfunded pensions report large investment gains during the past year,” The Post and Courier, November 7, 2017.)
South Carolina’s pension woes are just one example.
Altogether, U.S. cities and states pension funds are underfunded by $3.85 trillion. (Source: “US faces crisis as pension funding hole hits $3.85tn,” Financial Times, May 15, 2017.)
You also have to keep in mind that there’s a huge demographic change happening in the U.S. The number of those entering retirement could be increasing immensely over the coming years, so this funding gap could get much bigger.
Just a few days ago, I questioned what would happen if the U.S. government steps in and bails out these struggling pension funds. You could read more here: “These Three Triggers Could Send the U.S. National Debt Surging in No Time,”
It must be understood. If nothing is done, the retirement of millions of Americans could be on the line.
Pension Funds Bailout to Begin Soon?
Just recently, we heard something we suspected.
Senator Sherrod Brown from Ohio plans to introduce a bill that will allow struggling pension funds to borrow from the U.S. Treasury to stay in business.
How will this work? The U.S. Treasury would issue bonds to lend to pension funds. Essentially, the idea is that the pension funds could borrow money at lower rates through this.
In addition to this, the bill would allow the Pension Benefit Guarantee Corporation to help pension funds with any other borrowing need. (Source: “Sen. Sherrod Brown to unveil multiemployer loan program legislation,” Pensions & Investments, November 7, 2017.)
Dear reader, don’t get too confused by the wording. At its core, this bills is sort of a bailout program for pension funds in the U.S. economy.
Taxpayers are going to be on the hook for this.
What’s Next?
Understand that the U.S. government already has a national debt of over $20.0 trillion. If it starts “lending” to pension funds, it will be borrowing more.
Currently, the cities and state pension funds are underfunded by close to $4.0 trillion. It could get much bigger. So, all of a sudden, the U.S. national debt could be surging by $4.0 trillion.
The pension fund crisis is worth keeping a close eye on. It could send gold prices soaring, and don’t for a second think the value of the U.S. dollar won’t get impacted. With higher debt, the U.S. dollar could face severe scrutiny and drop in value.