How will America pay its pensioners?
American pension plans are facing a crisis that could have massive repercussions nationwide. For years, many states have struggled with pension accounts being underfunded, but a new credit evaluation standard proposed by Moody’s Investors Service could turn a medium-term problem into an immediate one. With baby boomers beginning to retire en masse, the timing could hardly be worse.
This newly proposed credit evaluation standard, set to take effect next year, would change how government pension liability is determined. Pension liability is calculated by taking the estimated future value of the government’s pension investments and subtracting what it needs to pay out to cover all its employees as they retire. The problem, according to Moody’s, is that governments are making wildly optimistic assumptions about what their investments will be worth in the future. For example, many states assume a consistent 7.5 to 8 percent annual return or higher—in perpetuity. But Moody’s says a 5.5 percent return is more likely.
However, even Moody’s expectations may be too high. Ed Ring, research director of the California Public Policy Center, says a 4.5 percent average return is a more realistic assumption. Mike Shedlock, of Mish’s Global Economic Trend Analysis, says that in today’s world of manipulated interest rates and money printing, a zero to 2 percent average return is a distinct possibility. “And not a single pension plan in the U.S. is remotely prepared for such an event,” he wrote June 13.
This has huge implications for pension plans across the country. A lower return means less money in the fund when it comes time to pay retirees. This should make future government retirees nervous. It should also make government planners nervous, because state pension liabilities may be set to grow astronomically. This could affect the ability of states to access bond markets and borrow money. It could also mean fantastically higher tax rates to pay salaries and health benefits of retired workers.
California’s unfunded pension liability would “officially” double to $328.6 billion, according to a report by the California Public Policy Center. States like Illinois—which, according to a September 2012 report from Republicans on the Senate Joint Economic Committee, has only a 30 percent-funded pension fund—face running out of money completely. The report noted that, “By standard accounting methods, some state pension funds will run out of assets within as little as five years.” When combined, state and local pensions are more than $4 trillion underfunded—this is money needed today and earning interest—to pay for retirement promises.
The federal government is in an even worse position. Over the next three years, an astounding 30 percent of federal workers are eligible for retirement. As more baby boomers retire, more strain is put on a system that cannot pay out what has been promised. In 2011, the federal government’s unfunded pension liability was $761.5 billion. But this is just the beginning. A recent Republican deficit projections report showed that in 30 years, government debt could reach a mind-boggling $125 trillion. Most of that is Social Security, Medicare and Medicaid promises made to future retirees—for which the government has not put aside money to pay.
America’s “spend today, worry tomorrow” economic practices are beginning to come full circle.
As more and more people hit retirement age, governments will resort to borrowing to pay retirement promises. But who will be willing to lend money to a broke government so it can give it away to retirees? Thus, when the borrowing fails, expect taxes to rise—a lot. Yet, it will be impossible for indebted Americans stuck in an economy on the edge of recession to afford more taxes. So expect massive cuts in retirement promises too. Millions of people who are set to retire are going to find out that the money they have been promised simply isn’t there.
There are no easy solutions to America’s debt problems. Moody’s new pension rating guidelines highlight America’s debt problems. At the same time, they could inadvertently hasten the inevitable crisis that debt will create.
Angry young men
Young people in Stockholm’s suburbs rioted every night for a week in late May. The unrest started days after police shot and killed a 69-year-old man wielding a knife. Buildings including two schools, a cultural center and a police station were set on fire or vandalized, and 340 cars were torched. The riots occurred in areas occupied mostly by immigrants. Europe’s economic troubles are exacerbating its volatile immigration situation. As unemployment rises, native resentment of immigrants grows, while immigrants bear the brunt of the unemployment. Europe’s economic problems are leading to a social crisis.
America, Italy and Germany will be the three “lead nations” in Afghanistan after 2014 when the nato mission enters a noncombat phase, U.S. Defense Secretary Chuck Hagel said June 5. Germany will continue to be in charge in northern Afghanistan, and Italy will take charge in the west. The Los Angeles Times noted, “Absent from the announcement was reference to the closest U.S. ally, Britain, which has been the second-largest source of troops in the 11-year Afghanistan war” (June 5).
Not getting along
The German Islam Conference, widely believed to be one of the best hopes for Muslim integration in Germany, held its annual meeting in Berlin on May 7. The conference revolved around three main issues that involve the Muslim community: institutional cooperation between Muslims and the German state; gender equality as a common value; and prevention of extremism, radicalization and social polarization. German Muslims rebutted all three issues. They countered the first issue by calling on the government to make more concessions, accusing it of “interfering” with Islamic teaching. They denied that the second issue, gender equality, was even a problem. The final issue enraged them. They denied the dangers posed by extremists within the nation and throughout Europe. The German Islam Conference is doomed to fail. Germans are unwilling to accept Muslims if they won’t conform to the German way of life, and Muslims won’t give up their religion in exchange for living in Germany. Germany and Islam will continue to clash.
Court threatens euro, again
Germany’s Constitutional Court is hearing a case alleging that the European Central Bank (ecb) has exceeded its mandate as it tries to prevent the eurozone from collapsing. It’s expected to rule after the German election in September. Last August, when the euro crisis looked like it could turn worse, the ecb announced a new program to help prop up indebted countries. If a country’s government first submitted to the EU’s (Germany’s) conditions, the ecb would, in essence, lend it an unlimited amount of money in order to keep its borrowing costs down. Predictably, many Germans are concerned by the ecb’s promise to essentially print money for governments that can’t pay their bills. Germany’s central bank opposes the ecb in the case now before the court. Once again, the existence of the euro is threatened. As we have said since the start of the crisis, the euro was designed to fail in order to force EU nations to unite. This is an important reminder that the drama in Europe is far from over.
Floods give army a chance to shine
In early June, floods hit Central Europe, including Germany. Berlin deployed 19,000 soldiers to help the victims—the biggest domestic humanitarian operation in the army’s history. “The army, recently covered in the news largely for its failed drone program, is now generating positive headlines again,” wrote Spiegel Online. “At the same time, it is also regaining the trust of a German people who have traditionally been skeptical of the nation’s armed forces” (June 12). Residents held banners with slogans like “Thank you, Bundeswehr!” “I’ve never experienced such a positive relationship with the civilian population,” said army spokesman André Sabzog. The public’s gratitude for the army’s actions is helping lift the taboo on the German army’s deployment.
The ayatollah’s ‘moderate’ president
According to much of the Western media, Iranian president-elect Hasan Rowhani is a “moderate” and a “reformist” who will alter the Islamic Republic’s defiant, belligerent course under Mahmoud Ahmadinejad. The international community widely views Rowhani as a pragmatist who will engage in meaningful dialogue. He was, after all, Iran’s chief negotiator with the West for its nuclear program from 2003 to 2005. His “reformist” image may help ease Iran’s economic sanctions.
But looks can be deceiving. His election was engineered by the ayatollah, whom few would mistake for a “reformist.” After he left his nuclear negotiator post, Rowhani gave a speech in 2006 in which he openly admitted to duping the international community. “By creating a calm environment,” he said, “we were able to complete the work on Isfahan [nuclear reactor].” Installing a new, ayatollah-approved president does not mean that Iran is about to end its support for terrorism, reconcile with Israel or close its nuclear program. In fact, it may even be more deadly because its intentions are cloaked under a “moderate” guise.
As Langley Intelligence Group Network opines, Khamenei probably plans to use Rowhani’s softer image to begin a campaign to break the U.S.-led economic sanctions. “With Rowhani serving as Iran’s chief diplomat, he may be welcomed more openly in many capitals around the world, making it more difficult for the United States and its allies to maintain the increasingly tight noose of economic sanctions that have been imposed on Iran in recent years. Rowhani’s more acceptable image may also complicate efforts to pursue coercive measures, including the use of force, should sanctions fail to prevent Iran’s nuclear advances.”
Whatever the nature of Rowhani’s leadership, it will submit to that of Iranian Supreme Leader Ayatollah Khamenei, who alone controls nuclear and foreign policy.
Meetings from May 31 to June 2 between the Iranian government and Taliban leaders highlight the fight for control in the Hindu Kush, and how all eyes are distracted from the most dangerous player in the region. While Iran, Afghanistan and Pakistan fight to sway the Taliban in order to shore up their borders and counter U.S. influence, they underestimate the European presence. Germany understands what will happen as U.S. power wanes. It is determined not to allow its own designs on the Middle East to be undermined. Iran is so focused on its own ambitions, it fails to see that it is already caught in the German whirlwind. See Gerald Flurry’s article in last month’s Trumpet edition.
A harder ‘push’
Iran was named the worst offender for state-sponsored terrorism in a report released May 30 by the U.S. State Department. “The year 2012 was notable in demonstrating a marked resurgence of Iran’s state sponsorship of terrorism,” the report stated. Europe has noticed as well, and it has responded to Iran’s broadening influence in the Middle East and North Africa with troop deployments in Mali as well as strong support for Iran’s enemies in the Middle East, such as Saudi Arabia. Germany has soldiers on the ground in Turkey, Sudan, Somalia and Afghanistan, along with European peacekeepers in southern Lebanon. It also has ships blockading Lebanon from the Mediterranean and European warships off the coast of Somalia and Yemen. As editor in chief Gerald Flurry said, “That is startling and ought to make our hair stand on end if we understood the history of Germany, and what it has done in the past. [The Germans] are thinking about a circular attack on Iran and its allies” (Key of David, May 12).
Special forces train together
Chinese and Russian special forces held a 10-day joint military exercise in Beijing beginning June 11. “Cooperation 2013” marked the first-ever joint training operation held in China. Forty-six personnel from China’s elite anti-terrorism Snow Leopard Commandos joined 29 Russians from a special task force unit in domestic security. The two forces aimed to learn from each other to improve their counterterrorism skills and tactics. The military exercises consisted of training courses on shooting, forced entry, hostage rescue and terrorist camp raids. Russia and China previously conducted a joint anti-terrorism drill in Russia in September 2007. Watch for these two countries to continue to strengthen their military ties. Bible prophecy indicates that these powers will be part of a huge 200 million-man army.
Putin crackdown pays off
Russian opposition campaigners paraded through Moscow on June 12 denouncing President Vladimir Putin’s authoritarian rule and demanding the release of citizens they say are political prisoners. But their low numbers showed that Putin’s crackdown on the opposition is weakening the movement. The protesters were rallying to support 27 people arrested after an anti-Putin demonstration became rowdy on the eve of the president’s inauguration in May last year. Sixteen of them have remained jailed, awaiting trial on accusations that could send them to prison for up to 10 years. The arrests were part of Moscow’s efforts to discourage Russians from staging future rallies, and the efforts seem to be working. The latest protest drew only 10,000 to 15,000 people—just a fraction of the 100,000-plus that marched against the president last year, and far fewer than expected. Expect the vigor of Russia’s opposition movements to decline further as Putin tightens his grip.
Huge heist of American secrets
In what is probably the largest-ever breach of American military secrets, the designs for more than two dozen major weapons systems—including the Hornet fighter jet and the Black Hawk helicopter—have been compromised, according to a confidential report obtained by the Washington Post on May 27. China is once again the prime suspect for the attacks. The extent of Beijing’s involvement, specifically that of its military, in attacking and stealing from American corporations came to light in February. Though the Chinese cyber unit responsible for the attacks went dormant after it was first exposed, it’s now back at work, and Washington is not taking a hard stand against Beijing.
‘Another step closer and we shoot’
Any expansion of nato to include Finland and Sweden would offset the balance of power and force Moscow to respond, Russian Prime Minister Dmitry Medvedev said on June 4. “New participants emerging close to our border will change the parity, and we’ll have to take this into account and respond to that,” he said. Moscow has been nettled by nato’s expansion ever since former Soviet satellites started to join the Western alliance in the 1990s, and has been especially opposed to the anti-missile shield the U.S. and nato are deploying in Europe. Neither Sweden nor Finland is actively seeking membership, but both cooperate extensively with nato and have openly discussed the possibility of joining. Expect Moscow to intensify its anti-nato rhetoric as it seeks to prove that it is once again a formidable global power, and as it labors to draw its former Soviet satellites back in.
Preparing preemptive strikes?
Japan’s ruling Liberal Democratic Party (ldp) is assembling a new set of defense guidelines that would allow the country’s military to develop offensive capability and to strike first if an attack appears imminent, according to reports on June 3. Japan’s missile defense system is among the world’s most advanced, but its capabilities are restricted under the government’s current interpretation of the constitution. The chief of the ldp’s national defense division said the ongoing incursions into Japanese-administered waters by Chinese vessels and North Korea’s provocations have shown the need to change the current guidelines. The intensifying tension between China and Japan is prompting both sides to ramp up their defense capabilities, but Bible prophecy says their disputes will soon be laid aside so that they can join forces against a common enemy.
Does civil war reveal America’s future?
Mexico’s three-way civil war between organized crime syndicates, civilian vigilante militias and government troops could easily replicate in the United States.
The same drug cartels causing so much carnage south of the border are operating in the U.S. and are deeply embedded in at least 1,286 American cities, according to the U.S. Drug Enforcement Administration. Most of these operations are conducted via alliances with America’s major street gangs. There are approximately 1.4 million active gang members in America, a demographic force as large as the U.S. military. Some cartels and gangs are cooperating not only with each other, but also Hezbollah and Iran’s Quds Force.
Using a similar reasoning process to vigilante militias in Mexico, American citizens are buying weapons and personal firearms at a historically high rate—an estimated 67 million firearms from 2008 to 2012. As overloaded and cash-strapped law enforcement agencies struggle to keep on top of crime, vigilante justice has been rising.
The American government is apparently seriously considering the threat of such civil unrest and has already made moves toward establishing a military-backed, federalized police force. The Department of Homeland Security is in the process of stockpiling more than 1.6 billion rounds of hollow-point ammunition, along with 7,000 fully automatic nato personal defense weapons, 2,717 Mine-Resistant Armored Protection vehicles, and a huge stash of 30-round, high-capacity magazines. Why would a federal domestic law enforcement agency need military hardware, unless the government anticipates massive civil unrest? The situation is ultimately leading to the fulfillment of the prophecy in Ezekiel 5.
Al Qaeda reaches into West Africa
An armory belonging to Lebanon’s Hezbollah was discovered on May 30 in northern Nigeria by the West African nation’s army and spy agency. The cache, including rifles, anti-tank weapons and a rocket-propelled grenade, was found in a warehouse in the city of Kano. Nigeria’s State Security Service said the weapons were intended for use against “Israeli and Western interests.” Kano and northeastern Nigeria have suffered multiple attacks in the last three years since the homegrown Islamist militant group Boko Haram launched an insurgency. Boko Haram, whose name means “Western education is forbidden,” says its quest is to overthrow the Nigerian government and create an Islamic state. Boko Haram is believed to be receiving backing from Hezbollah and al Qaeda-linked militants in various countries.
Will the Nile run dry?
On May 28, Ethiopia began diverting the course of the Blue Nile, a major tributary of the Nile River, to allow construction to continue on the 6,000-megawatt hydroelectric Grand Ethiopia Dam, sending new waves of concern throughout the nations that rely on the Nile for water, especially Egypt. Cairo fears Ethiopia could use the dam as a political or military tool. At a June 3 meeting, top Egyptian officials advised President Mohamed Morsi that Egypt could back rebels within Ethiopia to pressure the government or to use intelligence and/or military forces to attack and destroy the dam. Apparently unbeknown to the officials, the meeting was being aired live on national television. In a statement released shortly after the meeting on June 3, Morsi’s office said, “Egypt will never surrender its right to Nile water, and all options [to safeguard it] are being considered.” Egypt is now advancing on several fronts to control the Nile by isolating Ethiopia: through Somalia, Sudan and Eritrea, and by sponsoring Ethiopian Islamist and other opposition movements. Despite the animosity raging now, Bible prophecy says Ethiopia will eventually ally with Egypt and Iran (Daniel 11:43). This suggests a radical reorientation in Ethiopian governance. Egypt will play a critical role in that reorientation, as Trumpet editor in chief Gerald Flurry stated last year.