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Welcome To The Third World, Part 21: This Pension Thing Is About To Get Real

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Posted by John Rubino - DollarCollapse.com

on Monday, 16 January 2017 10:27

“The problem with police officers and firefighters isn’t a public-sector problem; it isn’t a problem with government; it’s a problem with the entire society. It’s what happened on Wall Street in the run-up to the subprime crisis. It’s a problem of people taking what they can, just because they can, without regard to the larger social consequences. It’s not just a coincidence that the debts of cities and states spun out of control at the same time as the debts of individual Americans. Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do, from the top of the society to the bottom. They’d been conditioned to grab as much as they could, without thinking about the long-term consequences.”
― Michael Lewis, Boomerang: Travels in the New Third World

Though it may not be instantly clear, in the above quote Michael Lewis is talking about public sector pensions and how over the course of several decades, mayors and governors across the US have colluded with police, firefighter and teachers unions to promise outrageously-generous benefits and then failed to put aside enough money to pay for them.

As a consequence two things are happening. In dozens if not hundreds of cities and towns, services are being cut to the bone to pay for ballooning pension benefits, and – when even these cuts prove inadequate – pensions are being drastically reduced.

Which in turn means two other things. First, life isn’t nearly as easy or pleasant as it used to be in a lot of places, as library hours are cut, trash piles up and police response times lengthen. And second, hundreds of thousands of public sector workers who expected to retire comfortably are staring at major lifestyle shrinkage.

To which a reasonable person might yawn and say, sure the numbers look grim. But they’ve looked that way for a long time and outside of Chicago, American life is still pretty good by Greek, Venezuelan or Russian standards. So go away until something tangible actually happens.

Point taken. But this might be that time. Beginning with Dallas, where the city is actually taking money back from plan recipients…

Dallas Police and Fire pension members may have to pay back funds

The city has agreed to put in an additional billion dollars over 30 years, but they’re proposing a series of bitter pills to make up the rest of the nearly $4 billion shortfall.

The bitterest pill: A proposal to take back all of the interest police and firefighters earned on Deferred Option Retirement accounts, or DROP. That would amount to an additional billion dollars saved. The city is calling it an “equity adjustment.” Retirees call it an illegal “claw back.”

The city is also seeking to “equity adjustment” on cost of living increases. The city says that pension checks are about 20 percent higher than they would have been if increases had been tied to inflation.

The city’s proposing to freeze cost of living increases until it catches up to the inflation index.

…and moving on to Kentucky, where if a funding level of 16% for the state employees fund isn’t an imminent crisis, then nothing is:

KY-pensions-Jan-17

Things are if anything even bleaker in the private sector:



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Currency

Inflation Is Rearing Its Head Everywhere, And Now In Germany - The Implications For The U.S. Dollar And Euro Relationship

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Posted by Robert P. Balan - Seeking Alpha

on Friday, 13 January 2017 06:23

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Summary

  • Latest Eurozone data indicate a substantial jump in inflation in Germany in December , eliciting calls that ECB president Mario Draghi, end his ultra-loose policy and raise the policy rate.
  • The reality is that with energy costs rising quickly, the strong disinflationary pulse that the globe had seen in 2015-2016 has been neutralized. The deflation meme is dead.
  • The overwhelming impact of rate differentials still favor the USD, but there comes a time when significantly higher inflation rates in the US vs. Row starts to hurt the currency.
  • The universal outlook of higher crude oil prices in the medium term has the potential effect of limiting future USD gains, if not weakening it outright against the euro.
  • Our short-term outlook is for the US Dollar to strengthen until mid-February, after which the US currency should weaken significantly against the euro and other major currencies.

...read more HERE

 

...related from Jack Crooks:

The Fed’s Fake News: Inflation Risks. Buy bonds!



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Currency

The Fed’s Fake News: Inflation Risks. Buy bonds!

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Posted by Jack Crooks - Currency Currents

on Thursday, 05 January 2017 08:19

Quotable

“We know from chaos theory that even if you had a perfect model of the world, you'd need infinite precision in order to predict future events. With sociopolitical or economic phenomena, we don't have anything like that.”

--Nassim Nicholas Taleb

Commentary & Analysis

The Fed’s Fake News: Inflation Risks. Buy bonds! 

JC

It’s an interesting aspect of the human condition—clinging to our view despite the fact reality has already invalidated them. The Federal Open Market Committee seems to have this characteristic firmly embedded in its DNA.

To wit, today’s headline from Reuters:



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Currency

2017 is Looking More Optimistic Than Ever

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Posted by Martin Armstrong - Armstrong Economics

on Tuesday, 03 January 2017 08:12

2017-Countdown-600x450The only thing about international trade is that someone cannot have a trade surplus without another experiencing a trade deficit. We all cannot have trade surpluses simultaneously and we have to begin understanding this reality. The net capital movements around the world are showing clear signs that things will be intensifying and the net capital movement is headed for the dollar – but that does not mean day one. Sure, many will point the finger at Trump and blame him for a trade war etc., but in reality, the net capital movements are intensifying for reasons that have nothing to do with trade. Ushering in Trump will also have a profound impact upon Europe and now Merkel’s greatest challenge will be to hold the EU together for its core design was to enhance German trade by eliminating currency risk.

The insane policies of Angela Merkel combined with....continue reading HERE

....also from Martin:

Hyperinflation - Coming to an Indebted Democracy Near You



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Currency

Surging US Dollar in 2017 a Catalyst for Gold Bottom

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Posted by Jordan Roy-Byrne - The Daily Gold

on Thursday, 29 December 2016 07:40

Gold has suffered recently in the wake of higher real interest rates while the US Dollar, thanks to higher yields has reached a 14-year high. Stronger real rates hurt Gold but so does a stronger US Dollar, which remains the dominant global currency. In addition to falling real interest rates Gold likely needs the US Dollar to approach a major peak. It may sound perverse to gold bugs but the sooner the US Dollar climbs and the stronger it gets, the closer Gold could be to the start of a new bull market.

Gold is now officially in its longest bear market ever. If we define a bull market as a multi-year advance then Gold has endured five bear markets over the past 45 years. Four of the five are plotted in the chart below. The current bear market has followed the trajectory of the 1987-1993 and 1996-2001 bears but with more downside. 

Dec272016Goldbearanalog

Gold Bear Analog



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