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Supply Chain Graphic of the Week: Loomimg Threat to the US Economy?

State and Local Pensions are Under Funded by $4 Trillion, with Scary Repercussions


Aug. 2, 2018


Our Supply Chain Graphic of the Week - actually Graphics - may seem a bit far afield from the supply chain, but it concerns a threat to the economy, and the economy is generally the largest driver of the direction of supply chains.


And while the US economy is indeed humming right now, on target for seeing real growth exceed 3% for the first time since 2005, there is a very dark cloud on the horizon that quietly presents a growing threat.


This scary issue: underfunded state and local pension funds.


The Wall Street Journal reported this week that state and local pensions are a combined $4 trillion - that's with a T - underfunded versus promised payments to retirees. That is about the size of the total German economy, the world's forth largest.


The first graphic below shows the huge and growing gap in state pension funds.


The second chart shows the substantial percent of total state and local spending on payroll that is spent on pension funding, now about 16%. Keep in mind despite the huge rise, there isn't enough spening because the funding gap is growing.




And this is the situation in strong economic times - with a growing stock market. What happens in the next recession? It could get ugly.


The eventual impact of all this on potential pension reductions, taxes, state and local services, movements in and out of states and cities more or less impacted by the fundng gap, and therefore the economy as a whole is scary to contemplate.


But action is needed now because the situation will only get worse.


"Certain pension funds face the prospect of insolvency unless governments increase taxes, divert funds or persuade workers to relinquish money they are owed," the Journal says.



Any Feedback on our Supply Chain Graphic of the Week? Let us know your thoughts at the Feedback section below.


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