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America is heading into an era of 'pension poverty,' economist warns


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(NaturalNews) A noted author and freelance economist has made a frightening, yet eminently logical conclusion: America's pensioners - those who receive Social Security or other government entitlement - are about to enter an era of "pension poverty" similar to that being experienced by the broke countries of Europe.

Writing at his popular Of Two Minds blog, [found here], Charles Hugh Smith notes that the biggest problem with the current pension model is that it was developed and passed decades ago by lawmakers who had little understanding of, or appreciation for, further economic conditions.

"The core problem with pension plans is that the promises were issued without regard for the revenues needed to pay the promises," he writes in a piece called The Coming Era of Pension Poverty.

"Lulled by 60 years of global growth since 1945, those in charge of entitlements and publicly funded pensions assumed that 'growth' - of GDP, tax revenues, employment and everything else - would always rise faster than the costs of the promised pensions and entitlements," Smith said.

That kind of thinking, he says, is inherently and historically farcical. Two factors make that so: The country's changing (as in aging) demographics and an economy that remains perennially stagnant at growth rates of 1 to 3 percent annually, which is nowhere near enough to fund entitlement spending that has already headed for insolvency.

Too many takers, not enough givers

What's more frustrating is that these are not highly classified secrets that only the most astute economic analyst could recognize; this train wreck has been foretold for years.

As the 60-plus million baby boomers began qualifying for Social Security and Medicare, that drove massive increases in Americans staking claim to the federal budget. What is even more troubling is that, while the number of beneficiaries was rising dramatically, the number of taxpayers funding the beneficiaries remained stagnant for years before now falling to the lowest labor force participation rates in history.

More claimants on a finite pool of money while there are fewer Americans contributing to the pool. That is a recipe for disaster.

Since the 1970s, Smith writes, "federal social spending (entitlements) has almost tripled from 5 percent of GDP to 14 percent while federal tax revenues/spending have remained range-bound as a percentage of GDP. In other words," he continues, "social spending is soaring as a percentage of the economy (GDP) while revenues to support that spending are limited by the slow-growing economy and the correlation between high tax rates and recessions."

Another "structural" economic "headwind" is the low rate of return on investments in a zero-interest rate global economy.

But the biggest culprit, Smith notes, is "the systemic abuse of public trust and public funds."

The Detroit Syndrome

Call it the "Detroit Syndrome" writ large.

In the 1940s and 1950s, Detroit's population swelled to more than 1.8 million, driven largely by employment in the automotive and manufacturing sectors. But by the 1970s and 1980s, following a series of trade agreements, U.S. manufacturing began to suffer from global completion, and that was especially hard on automakers. By 2000, the damage was irreversible.

As the jobs left, so, too, did Detroit's tax base - yet its pension programs and other entitlement promises remained unchanged. Unable to finance those agreements, which were made in more lavish times, the city eventually went broke.

R. Bruce Josten, executive vice president of Government Affairs at the U.S. Chamber of Commerce, listed 10 "truths" about the country's entitlement programs during a board of directors meeting in June 2013 that have fallen largely on deaf ears in the nation's capital and especially among the current recipient class.

'What can't be paid won't be paid'

You can - and should - read about them here, but suffice to say the prognosis for the "system" isn't good as it won't survive in its current form because it can't.

"We need to fix these programs because otherwise they will consume every dollar the government collects. There will be no money left over to improve our schools, defend our country from its enemies, clean our environment, or repair our roads and bridges," says Josten.

Smith is more dire - and direct. He doesn't see a "fix" that won't involve some sort of Greek-style collapse, though he doesn't mention Greece specifically.

"Regardless of what was promised, what can't be paid won't be paid," he wrote.







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