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As you must know by now, Detroit is bankrupt and must restructure…somehow.  They once were the manufacturing capital of the United States and the largest concentrated manufacturer in the world.  They now have over 28% unemployment (actually much higher), and cannot afford to pay for even basic services and much of the city is “bombed out” as in destroyed.  There are calls for all sorts of remedies such as private equity rebuilding and public (federal) bailouts.  ALL of this misses the point…

The point is that Detroit is not “fixable” and is actually only a signpost along the path that all of the U.S. (and entire Western world) is traveling.  If you recall, Meredith Whitney forecast this scenario 3 years ago.  She was early and made the mistake of saying “in the next 12 months”…BUT she was correct in her analysis.  Monetization by the Fed only postponed the final reckoning, it has not been cancelled.  Bond investors will be killed by the ability to service even a fraction of the debt when it does not exist, this is a “given.”

What is not a “given” and only a very few have figured out yet is that pensioners will also be destroyed.  I am not talking about “Detroit pensioners” (though this is a certainty); I am talking about pensioners in general, across the spectrum and all over the world.  Let me explain.  Pension “promises” have been made throughout the years by corporations, institutions, cities, states and sovereign governments during a “different era.”  Years ago, pensions were actually funded, FULLY funded.  Then along came the 80’s and 90’s and the actuaries started to “up” the assumed growth rates which meant that less money had to be deposited to pay future benefits.

Well here we are years later and the actuaries were wrong…REALLY wrong!  We did not get the expected growth rates, interest rates were pushed to virtually zero AND not enough was deposited to begin with. Not to mention enough to make up for poor investment results.  THIS is going to be a problem everywhere, a huge problem.  Those already receiving pensions will see them curtailed, those expecting pensions will receive far less than they were promised AND the “kicker.”  The “kicker” being the fact that benefits will be paid out in currencies that have only a fraction of the value that they have today.

This will in essence wipe out a middle class that “played by the rules,” they went to work, they saved, and they “trusted” their future in their employer’s promises.  I have said for years and it now looks assured to have been correct, “When it comes to retirement, rely on your own investments and do your own thinking because promises will be broken at your expense.”

The same could be said for everything else financial in your life.  Do you feel good because you have large balances in the banking system?  Or a huge muni portfolio that pays you tax free income?  Or a large stock portfolio in a “house of cards” market that is supported by the low interest rates in a Ponzi currency and debt market?  Or how about that ETF that allows you to sleep at night because it is “backed” by gold?  Do see my point?

“Promises were made to be broken” and they will be.