“The public dispute over accounting standards is a signal to taxpayers, retirees and political reformers that fundamental flaws remain in how pensions measure their finances,” writes Steve Malanga in the WSJ. At issue, as he correctly points out, is the delusion that government pensions “on average estimate they will earn 7.6% a year on their portfolios.” Using a more realistic riskless rate (as if that exists!) increases the unfunded liability from about $1 trillion to $3 trillion. It’s all funny money. I’ve looked at the numbers in Newport, RI and it’s ugly. The stock market will not come to its rescue. And politicians don’t want to raise taxes and risk losing the next election and employees don’t want to contribute more from their paychecks. Pensions will not survive as they are today. The most natural path of destruction will be a gutting of services (police/firemen etc) which will no doubt increase risks for everyone.
E.J. Smith - Your Survival Guy
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