Pensions Wipeout

[leicestersq]

Looks like there is a pensions crisis underway all over the world.

http://globaleconomicanalysis.blogspot.com/2009/11/prichard-alabama-files-bankruptcy-over.html

It is interesting to see how cities in the US are dealing with this, bankruptcy appears to be the way forward for many. In the US, states cannot go bankrupt apparently, but I bet they wish that they could.

In the UK, the private sector has seen pensions cut back as the total cost of them is becoming clear. They are only affordable when you have high inflation, to reduce the real value paid to people in the scheme, as high inflation can normally erode the real value of what is paid. Without high inflation, and mix in increased longevity, and the real cost of these schemes has become unbearable.

But what will we do about the public sector? Someone in the UK has to get to grips with this monster. There is simply no way that the UK can get its fiscal deficit down to a normal level if we have low inflation and maintain bloated public sector salaries. If the fiscal deficit doesnt come down, there will be a siezing up of the bond markets, and the government wont have the cash to carry out its intentions. Then it can either print money, and create massive inflation, or cut public expenditure to the bone, and that means reneging on pensions deals. We will probably get a bit of both.

Far better than hide this reality from the British public, we need bold politicians to state the truth. Public Sector pensions must be cut, and the legal framework to make this happen must be put in place. The alternative to this is pretty horrible. If the courts or politics support maintaining these pensions, then the real world will sort them out. That means bond strikes, hyper inflation, even a collapse of government altogether. The real value of what is paid in taxes to public sector pensioners will collapse at some point if taxes cannot be raised to support them.

No wonder there is a rush into physical gold. If you hold cash in electronic form, the government can tax it. Physical gold can only be taken from you if they find it.

Gold may well be the money of the future in the UK, not the Euro.

[scepticus]

In the UK, the private sector has seen pensions cut back as the total cost of them is becoming clear. They are only affordable when you have high inflation, to reduce the real value paid to people in the scheme, as high inflation can normally erode the real value of what is paid. Without high inflation, and mix in increased longevity, and the real cost of these schemes has become unbearable.

The idea of saving for a comfortable (and earlyish) retirement at anything less than 6% annual growth is a nonsense in any case.

But what will we do about the public sector?

Monetise the commitments that are out of kilter with private sector pensions and then tax them. That is, expect a progressive tax on pension income above a certain level. This would immediately even out the discrepancies between the public and private sector.

No wonder there is a rush into physical gold. If you hold cash in electronic form, the government can tax it. Physical gold can only be taken from you if they find it.

What makes you think gold transactions won't be taxed?

What happens to gold as money if transactions in it are taxed in fiat money and fiat money is the only option for paying taxes? I would say in this case gold will become less liquid than fiat and hence not money. It may still be a good long term investment though, once it has given up the gains it has made due to political risk.

[Alan B'Stard MP]

What happens to gold as money if transactions in it are taxed in fiat money and fiat money is the only option for paying taxes? I would say in this case gold will become less liquid than fiat and hence not money. It may still be a good long term investment though, once it has given up the gains it has made due to political risk.

Gold is a rich man's game.

[leicestersq]

The idea of saving for a comfortable (and earlyish) retirement at anything less than 6% annual growth is a nonsense in any case.

Monetise the commitments that are out of kilter with private sector pensions and then tax them. That is, expect a progressive tax on pension income above a certain level. This would immediately even out the discrepancies between the public and private sector.

What makes you think gold transactions won't be taxed?

What happens to gold as money if transactions in it are taxed in fiat money and fiat money is the only option for paying taxes? I would say in this case gold will become less liquid than fiat and hence not money. It may still be a good long term investment though, once it has given up the gains it has made due to political risk.

Scepticus,

"What makes you think gold transactions won't be taxed?"

Because many of those transactions wont be known about. The government can only tax what it knows about. A bit like cash in hand deals, they are tricky and overly expensive to tax.

Gold is certainly less liquid than fiat money. But if you raise taxes too high to finance stuff like pensions, which are of no benefit to those being taxed, then there is a huge financial incentive for the taxed to move away from using fiat money. If those incentives become large enough, then fiat money becomes worthless, and people will move en masse to a new money. This is really what happens during hyper-inflation, the currency itself becomes worth nothing, no matter how many zeroes you put on it.

This could really happen in a high tax environment. The cost of dealing in an illiquid currency becomes less than the tax cost of a liquid currency. If that point is reached, you really have trouble. This is because the currency becomes more valuable according to the numbers that accept it. The more people you can trade with in that currency, the more people will want to use that currency. The market will then find ways of making that currency more liquid as well.

If the market switched to a gold based currency, then pensions obligations based in sterling, become worthless. Any government would be obliged to switch to using the new currency as well.

Think it cant happen? There are many who once thought that the UK banking system would never collapse.

The danger is real whilst politicians wont grapple with the problem of UK government expenditure which is just out of control.

[scepticus]

But if you raise taxes too high to finance stuff like pensions, which are of no benefit to those being taxed, then there is a huge financial incentive for the taxed to move away from using fiat money.

That is why I advocated taxing the existing irrevocable commitments where they exceed by some way the pension incomes of the private sector.

That is, I am advocating the taxation of excessive (relative to rest of society) pension income. So we need to stop making stupid public pension promises, and institute a tax (in future) on those promises which have already been made which should not have been made.

I'm certainly not advocating the raising of taxes now or later to fund these promises.

[matroskin]

Looks like there is a pensions crisis underway all over the world.

http://globaleconomicanalysis.blogspot.com/2009/11/prichard-alabama-files-bankruptcy-over.html

It is interesting to see how cities in the US are dealing with this, bankruptcy appears to be the way forward for many. In the US, states cannot go bankrupt apparently, but I bet they wish that they could.

In the UK, the private sector has seen pensions cut back as the total cost of them is becoming clear. They are only affordable when you have high inflation, to reduce the real value paid to people in the scheme, as high inflation can normally erode the real value of what is paid. Without high inflation, and mix in increased longevity, and the real cost of these schemes has become unbearable.

But what will we do about the public sector? Someone in the UK has to get to grips with this monster. There is simply no way that the UK can get its fiscal deficit down to a normal level if we have low inflation and maintain bloated public sector salaries. If the fiscal deficit doesnt come down, there will be a siezing up of the bond markets, and the government wont have the cash to carry out its intentions. Then it can either print money, and create massive inflation, or cut public expenditure to the bone, and that means reneging on pensions deals. We will probably get a bit of both.

Far better than hide this reality from the British public, we need bold politicians to state the truth. Public Sector pensions must be cut, and the legal framework to make this happen must be put in place. The alternative to this is pretty horrible. If the courts or politics support maintaining these pensions, then the real world will sort them out. That means bond strikes, hyper inflation, even a collapse of government altogether. The real value of what is paid in taxes to public sector pensioners will collapse at some point if taxes cannot be raised to support them.

No wonder there is a rush into physical gold. If you hold cash in electronic form, the government can tax it. Physical gold can only be taken from you if they find it.

Gold may well be the money of the future in the UK, not the Euro.

It's healthcare contributions/costs for pensioners they are striking/worried about, not proper "pensions"/cost-of-living-allowance.

If you recall recent GM bankruptcy story, GM was telling the unions to reduce their demands for unionised retirees healthcare contributions which were clearly unaffordable.

And the most costly in terms of healthcare are the last 2 years of OAP's life - Mish has an opinion about that too if you search his website.

And about Gold too.

[interestrateripoff]

The entire pension system is one huge scam to skim more money off the workers.

Work until dead will be the only acceptable option.

[right_freds_dead]

we need bold politicians to state the truth.

you have vince cable, but no one or newspaper seems to pay attention to him.

the usa has ron paul. both clear speakers of the truth.

people dont want to believe. for any government to get away with this it has to have a band of supporters.

that band are house owners. and what house owners want, house owners get. the rest can shit.

its right in front of your own eyes.