It’s happening in the U.S. folks.
The sovereign debt crisis that I’ve been warning about is not just limited to governments outside the U.S. It’s quickly coming home to roost here in the U.S. via underfunded state and local pension plans.
The latest installment comes from the Dallas Police and Fire Pension System where the mayor of Dallas demanded that withdrawals from hard-earned pension plans be halted immediately.
You heard that right: No more withdrawals!
Why? Supposedly, to stop a run on the pension fund.
Come to find out, years of pie-in-the-sky investment-return projections, unrealistic promises to pensioners and fraud have forced the Dallas Pension board to look for a massive $1.1 billion bailout.
Those who offered a career of service to Dallas and who paid into the fund withdrew $600 million this year … with $500 million of that coming in the last four months alone. This compares to just $81 million withdrawn in all of 2015.
This, folks, is the classic definition of a sovereign debt crisis: Mind-boggling financial stresses caused by the inability of the government to manage its debt.
With the mayor’s action, he stopped $154 million in pending withdrawals. But it’s not likely to work: That’s because the funded ratio plunged from 45% earlier in the year to its current level of 36%. And that means it has just 36-cents on hand for every dollar in obligations.
So, what’s the solution?
You guessed it. Higher taxes.
The City of Dallas indicated they would have to DOUBLE property taxes to satisfy the requested $1.1 billion bailout.
I don’t know about you, but if my property taxes doubled, I would be madder than a wet hen.
The fact is the latest shenanigans will surely raise the city’s funding costs, especially since Moody’s and Fitch already downgraded the city’s bonds in October because of pension problems.
There are also discussions about a reduction in retirement benefits to help restore solvency in the fund.
And it doesn’t stop there.
The city is already experiencing a significant drop in the police force, with nearly 100 experienced officers throwing in the towel in the last two months alone.
Dallas serves as a stark reminder about what can happen when governments bite off more that they can chew. And mark my words: It’s not just Dallas. Pensions in California, Illinois and New York are also on the ropes. And the largest Ponzi scheme of all – Social Security – is not far behind.
Now more than ever, it’s crucial to think outside the box and safeguard your investments against these seemingly Black Swan events.
What’s more, the growing distrust of governments gives way to more chaos, just like I’ve been warning about with my war cycles.
Unfortunately, it’s going to get worse before it gets better.
And that’s what my Real Wealth Report subscribers have come to rely on – avoiding disasters like this and finding ways to profit in spite of the chaos.
Stay safe and best wishes,