Author Topic: Need Help Understanding this RT Article About US Debt Limit  (Read 3151 times)

Offline yoshi

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Need Help Understanding this RT Article About US Debt Limit
« on: November 01, 2012, 07:40:27 AM »
http://rt.com/business/news/us-debt-limit-treasury-672/

The part in this article that says "These measures include temporarily removing investments from government employee pension funds to clear space for other borrowing." Can someone please explain to me what this means? How do you clear space for borrowing by removing investments?


Bonnieblue2A

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Re: Need Help Understanding this RT Article About US Debt Limit
« Reply #1 on: November 01, 2012, 08:38:07 AM »
The US Treasury has been using this practice for awhile now. Here's an example from 2011:

"Even though the government has reached its official borrowing limit, Geithner said unexpected revenue and bookkeeping maneuvers will allow the Treasury to continue auctioning debt for another 11 weeks.

Geithner has suspended pension payments in the past when Congress has held off raising the debt limit. The money that the two pension funds will lose will be replaced when Congress votes to raise the borrowing limit."
http://www.cleveland.com/business/index.ssf/2011/05/geithner_halts_investments_in.html

Instead of putting the money into the pensions it is being spent instead, thus "borrowing" pension investment before the investment is actually made. In the private world this practice by an employer would land people in jail. However, when the fox guards the hen house creative accounting and commingling of funds is the order of the day.

Note that this practice is not exclusive to the Feds. but happens at the municipal and state levels as well:  http://www.usrbs.com/unfunded.html

The unfunded pensions of municipal, state, and federal employees is the 8,000 lb. gorilla in the room that NO politician is willing to address during campaign season. However, every single one of them should be questioned about it. The long and short of it is that if you do not have direct control over your retirement funding then don't count on it to be there when you need it. Tens of millions of public employees are going to be in for a very rude awakening one day in the not so distant future.

Offline bigbear

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Re: Need Help Understanding this RT Article About US Debt Limit
« Reply #2 on: November 01, 2012, 12:19:59 PM »
I agree Bonnieblue, unfunded pensions should receive more attention than they currently get.  We hear about SS and Medicare/aid to some degree, but we never hear about public pensions.  Mostly because public pensions are at the state, county, or local level.  No one wants to stand up to teachers, police, fire, etc because of the bad PR.  But if the expenses cannot be supported without 'accounting tricks', then the benefit promises cannot stay where they are.  There's a reason private companies have been moving away from defined benefit plans in favor of defined contribution plans... and this is it.

Meanwhile, the first waves are starting to hit the shores...  So far the rulings are favoring the pensioners (the pension plans cannot restructure/reduce their debt obligations).  But we'll see what happens when bigger (aka more costly) pensions are pushed toward nationalization (funded by federal taxes). 

http://www.npr.org/blogs/money/2012/06/05/154302347/judge-says-pension-fund-cant-seek-bankruptcy-protection

http://www.nytimes.com/2012/08/24/business/creditors-of-stockton-fight-city-over-pensions-while-in-bankruptcy.html?_r=0

http://latimesblogs.latimes.com/lanow/2012/10/san-bernardino-calpers-payments.html

IMO, burdensome pensions have contributed to the exportation of jobs:  GM, Beth Steel... and others now producing where it costs less for wages/benefits.

Update on American Airlines:
http://www.businessinsurance.com/article/20121101/NEWS03/121109997?tags=%7C63%7C307%7C77%7C82

Offline NWPilgrim

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Re: Need Help Understanding this RT Article About US Debt Limit
« Reply #3 on: November 01, 2012, 12:23:02 PM »
Sounds like what Lyndon Johnson did to SSA and Clinton did to Transportation and many other "trust" funds.  They replace real assets with IOUs (US debt instruments).  This is why nearly every trust fund is now a Ponzi scheme, they have no real value and depend on current deposits to cover current obligations.

So now the govt employees will face the same issue as everyone else does with SSA.  As Yoshi said, if a private firm took investments (stocks, cash, govt or other corp bonds) out of their employees' pension fund, spent it, and replaced it with their own company bonds they would be thrown in jail and heavily fined (unless they were banks I imagine).

Basically the Feds have just nationalized the govt employee pensions. Supposedly this is temporary, just like robbing SSA was suppose to be for Vietnam war (my brother said he was in a war not a conflict).  How are we doing on refunding SSA 45 yrs later?  Or like robbing Transportation and other trust funds 20 yrs ago.  Did someone say crumbling infrastructure?!

This is a desperate act of a broke govt and that who is now backing the govt employee pensions.  Warm fuzzy.

Offline yoshi

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Re: Need Help Understanding this RT Article About US Debt Limit
« Reply #4 on: November 01, 2012, 01:33:56 PM »
Okay, so to be clear, when they say "removing" they actually mean never putting it in to begin with?

Offline ag2

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Re: Need Help Understanding this RT Article About US Debt Limit
« Reply #5 on: November 01, 2012, 03:45:21 PM »
.........The long and short of it is that if you do not have direct control over your retirement funding then don't count on it to be there when you need it. Tens of millions of public employees are going to be in for a very rude awakening one day in the not so distant future.

That would be a logical conclusion.  However, I fear that the politicians, unions and retired public employees will demand "whatever it takes" to fund these retirements and the result will be legal theft (much higher taxes, fees and inflation).

Bonnieblue2A

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Re: Need Help Understanding this RT Article About US Debt Limit
« Reply #6 on: November 01, 2012, 03:52:37 PM »
Okay, so to be clear, when they say "removing" they actually mean never putting it in to begin with?

Historically that is what it has meant. However, as the national debt ceiling continues to grow and as we continue to reach debt ceilings faster and faster I don't think anyone can give you a guarantee that pensions might not be raided and used as a slush fund just like the Social Security fund and fuel taxes are used now.

Audit the Treasury? Good luck with that. The only Congressman who may have been able to pull that one off is on his way out of office (Ron Paul).

Offline Scottman

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Re: Need Help Understanding this RT Article About US Debt Limit
« Reply #7 on: November 01, 2012, 09:00:38 PM »
Is there no one else? who will do what Paul did?

Offline yoshi

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Re: Need Help Understanding this RT Article About US Debt Limit
« Reply #8 on: November 02, 2012, 05:56:39 AM »
Thanks, everyone. I get that no one's funds seem safe right now. It was that line in particular that had me very confused.  :'(

endurance

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Re: Need Help Understanding this RT Article About US Debt Limit
« Reply #9 on: November 02, 2012, 10:38:52 AM »
The days of the fat-cat federal retirement are drawing to a close, as the old system, CSRS required enrollment by 1986.  Most of those in the program have retired or will be retiring in the next few years. 

CSRS was replaced by a more traditional 401k style retirement plan called TSP (Thrift Savings Plan), which matches up to 4% of the employee's contribution and allows employees to contribute up to 14% of their income.  In TSP employees have a very limited range of investment options including a government bond fund, a corporate bond fund, an international fund, a small cap fund, and an S&P 500-equivalent fund.  There is no cash option.  Most employees are heavily invested in the 'safest' investment, the government bond fund.  Since bonds are constantly reaching maturity, they can simply keep the money from those bonds and write an IOU rather than rolling it into new bonds.  Beyond this, they can divert new investments into cash and IOUs.

There's another system called FERS which is more like a traditional pension that coincides with TSP.  Essentially, the employee contributes 0.8% of their salary and in return they get 1% for each year of service of their highest paid three years of service.  In other words, if you worked 30 years, you'd get 30% of the average of your last three years of service.  However, that program has just been changed significantly.  Starting January 1, 2013 all new hires will have to contribute 3% and still only get 1% out for each year of service.  Seriously, that's so obviously screwy it's like they didn't even try to hide what a bad deal that was for the employee. 

I really doubt any of these programs will still be fully funded in another decade.  I sure don't base my retirement plans on it.  They'll find a way to get at the money.  It's too big a pot not to piss in for them.