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pension collapse starting in illinois

From Birch Gold Group

After degrading for decades, America’s public pension system is finally at its breaking point, and the first shoe is about to drop in Illinois. Is this the beginning of the end?

Illinois isn’t the only state underwater. New Jersey, California, and several others are close behind. And when one falls, the rest could quickly follow.

When that happens, we’re poised for a vicious chain reaction that could decimate our economy. Americans everywhere will feel it — young or old, pension holder or not. Here are the risks, and what you may want to do to prepare…

Troubling Harbinger in Illinois

The epicenter of the U.S. public pension crisis is in Illinois. This should give you an idea of how bad things are there: On top of the state pension program being utterly insolvent, Illinois can’t even afford to pay lottery winners or feed prisoners.

Illinois legislators are grasping at straws. According to a recent report, the state has $15 billion in unpaid bills and $251 billion in unfunded liabilities. $119.1 billion of those unfunded liabilities are tied to shortfalls in the state’s failing pension program.

After months of desperate number crunching, Illinois finally passed a budget this week. But legislators employed massive tax hikes to make it happen — a 32% increase on state income tax and 33% increase on state corporate tax.

Illinois’ new budget doesn’t mean much, though. It raises a paltry $5 billion, just a drop in the bucket when you look at the state’s $15 billion deficit.

Even Illinois Governor Bruce Rauner agrees that it’s a hopeless, last-ditch effort:

“This is a two-by-four smacked across the foreheads of the people of Illinois,” Rauner said. “This tax hike will solve none of our problems and in fact, long run, it’ll just make our problems worse.”

And if all that wasn’t enough, Moody’s is putting Illinois under consideration for a credit downgrade — potentially making it the first U.S. state to receive “junk” rating status. If that comes to pass, borrowing costs for Illinois will uptick dramatically, and it could be the final nail in the coffin.

Just the Beginning…

The situation in Illinois is taking center stage right now, but several other states are poised to follow. And when Illinois does fall, it will only accelerate their demise.

Kentucky, New Jersey, Arizona, and Connecticut are at the top of the list. Their pension woes and budgetary shortfalls are nearly as big as Illinois’.

And the rest of the country? It’s only marginally better off. Bloomberg reports that just 15 states have pension funding ratios above 80%.

U.S. public pensions are underfunded by at least $1.8 trillion, possibly as high as $8 trillion, according to expert estimates. They’re paying out more money than they’re taking in, plain and simple. And they’re falling hopelessly short on their projected returns too. Most funds aim for approximately 7.5% return, but they barely broke 1.5% last year.

All this shows is that, more than ever, pensions are snowballing into insolvent oblivion. And sadly, a collapse is the only thing that will stop them.

The Threat to Your Wealth (And How to Preserve It)

America’s public pension system is nothing but a tinderbox waiting to be lit, and Illinois just struck a match. No matter what, the only way this quagmire of pension insolvency can end is in a pile of ashes.

That alone is sufficient reason for Americans to start seeking safe haven stores of wealth right now.

Consider the Fed’s most likely response to this imminent collapse, which will only make matters worse. It’s safe to assume the Fed will fall back on its old tricks from 2008: print more money and use quantitative easing to slap a band-aid over the problem.

While the Fed tries to pretend away this pension collapse with fast-and-loose, helicopter monetary policy, inflation will surge and the dollar will drop like a stone.

But one “real money” asset will do the exact opposite: gold.

See, gold’s inherent value never changes, only its price does. And that price depends on several external factors like supply, demand, and valuation of the currency used to buy it — in our case, that currency is dollars.

So when the dollar falls, what happens to gold prices? Well, it means you have to spend more dollars to buy the same quantity of gold. And that just sends gold prices higher and higher.

  • windofchange

    You know it is bad as Obama hasn’t gone back and will probably stay in New York and leave Illinois to Rahm Emanuel.

  • Libya21

    Heck, just confiscate the pension contributions or pensions of everyone who has been in the state legislatures, members of Congress or the governors and their cabinet officers. Most are rich crooks, right? They created the problems, so let them solve them!

  • flyer

    I’d like to know what the state of Illinois did to stop the bleeding before they raised taxes. Every state has costly program that can be elimitated in order to stop the bleeding. Raising taxes would be my last course of action. You know damn well those taxes will never be reduced ever again. We’ve all seen these tax hikes happen, right. When my budget starts to reach the point where the income can’t support the out going it makes sense to cut something out or reduce something before I bleed to death. So I wonder if they even did something like that before taking the tax route. Somebody needs to be fired. Surely they have smarter people than that managing the states budget. Guess not, so like I said somebody needs to be fired.

  • CAaT

    Same tired old song for decades now. Economic collapse is emanate, buy gold. If gold was going to be worth what these salesmen make it out to be, then they would not be selling the gold today.

  • Duane A. Fisher

    The Smart people and business owners will be leaving ILLINOIS like Rats leaving a sinking ship. What their Law makers just did with the tax raises is going to turn that state into Detroit!

  • Ken Lela Love

    If your out-go exceeds your income, your up-keep will be your downfall.