Pension Funds Can Be Reduced in Bankruptcy

One of the important developments is the Stockton, California bankruptcy. The jurisdiction for bankruptcy is federal court, not state. This is rather significant and the law is really clear, there are no exceptions among creditors under bankruptcy. A federal judge earlier this week gave the green light to Stockton, Calif. to restructure under bankruptcy protection and that applied to the state pension funds.

Perhaps nobody wants to really address this issue openly, but it is the pension funds that are destroying state and local governments who cannot simply print money as can the Feds. As one state employee retires, they are replaced and that means the cost of government goes exponential. We are looking at the cost of state and local governments doubling over the next 10 years  and that is simply not sustainable. This is HIGHLY deflationary because they increase taxes and have no means to expand the monetary system. Thus, all the arguments of those selling the hyperinflation scenarios are omitting the impact at the state and local governments that will be deflationary.

This court ruling is CORRECT! This is the way out of pension liabilities for state and local governments. It was the Great Depression when Congress in 1934 passed legislation to allow municipalities to file for bankruptcy. So this is not new. What is new with this round of financially distressed municipalities is the cause – pensions.

http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter9.aspx

The escape valve is here. The Stockton ruling is in accordance with law. The way out from the pension nightmare is to file bankruptcy. This ruling will encourage MORE municipalities to follow this lead.

We are preparing a report on the Pension Crisis. It is far worse than anyone suspects. Pension funds are being devastated because they relied on interest, not equities, to fund future payments. With interest rates so low, the Pension Crisis is expanding and far more insolvencies will emerge.