After struggling to raise debt from third parties to repair crumbling infrastructure, the state of New Jersey has come up with a “clever” approach to fundraising that entails selling debt to their own insolvent pension funds…something we’ve dubbed the “Pension Ponzi Squared.” Of course, because when everybody else shuns your debt for being too risky who better to sell it to than yourself?
With $3.4 billion in annual benefits payments versus only $1.9 billion in contributions, funds like the New Jersey Public Employees’ Retirement System already qualified as a plain vanilla ponzi scheme. But, using what little pension assets they have left (38% net funded) to buy debt in the entity that ultimately backstops their liabilities is a whole new level of madness.
Already, not only are resource streams drying up, but debt streams that are being used to mimic resource streams are drying up too. So now they are looking to borrow possible future money which they don’t have yet, from other areas they have already borrowed into insolvency.
It is unclear if Trump can ignite a bubble, but if he does, that is probably all it will be. Enjoy it, but also try to get your money into your own hands wherever you can, because if you don’t, it will be “loaned” to try and keep the party going a little longer. The name of the game for those who are in charge is to fake free resource availability using any unaccompanied uwealth they can get their hands on, in the hopes people will stay r just a little longer, and the crash will happen after they have left office.
Whether it is a bank, a government, or any other place you can park resources, do not lose sight of the fact that in that environment, once your money is “loaned” out temporarily, it is gone, and you will not be getting it back.
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[…] Pension Ponzi Squared? […]
Just taking a page from the Mother of all Fraudsters – the Fed.
I can vouch that parts of the military are becoming just as incompetent. Most DoD logistics used to have several months of supply streams. With budget cuts and such stocks, including essentials like MRE’s are in short supply now, I have no clue what domestic bases would look like after several weeks of troops not getting paid. Makes me wonder about the nuke bases.
Another thing to remember is how much of the supply chain was leftover from WW2. MREs and perishables were being rotated, but durable things were still being drawn down from stocks we built up for the invasion of Japan. It’s only been about 10 years since we started making more .50 BMG ammunition and Purple Hearts, because we had so many stocked up from WW2 and the aborted invasion.
So now, instead of making half of the things and hauling the other half out of warehouses, we are having to make all of it, and we aren’t good at that anymore.
The NY state teachers retirement system has been doing the same thing for years: when the state doesn’t have its required annual contribution, the pension fund loans it to the state which gives it back to the pension fund and claims it has met it’s obligation. The new York times has even reported this scam, but the teachers union has been silent…
Ok had to read this a couple of times to be sure I understood the money flows.
The Pension fund of New Jersey, is buying State of New Jersey bonds. Originally I read it as the pension fund was buying pension fund bonds.
I’m not sure why this is a surprise. Social Security at the Fed level has been doing this since 1960’s. Or to put it another way, if the Gov’t has promised retirement money to you, and you are under a certain age, don’t ever count on getting it.
Illinois has already been down this route a couple of times. When recently required to put a statutorily agreed amount of funding into state employee pension funds, the state did so by borrowing the entire amount in new bonds. Needless to say, its bond rating promptly dropped each time it did so.
I have a feeling that Trump will finnagle a way out from under all those $T of debt (federal borrowings) and declare them null and void.