According to The New York Times article “In Ruling on California Town’s Bankruptcy, Judge Challenges Security of Pensions”:
“A federal bankruptcy judge on Wednesday upended the widely held belief that public workers’ pensions have a special status in California that makes them impossible to cut, further chipping away at the idea that pensions are sacrosanct in a municipal bankruptcy.”
The judge ruled against the sanctity of CalPERS pensions and declared the CalPERS liens on the city of Stockton, California to be null and void.
What’s that mean?
It means that a federal judge has ruled that a government—albeit the relatively small government of the city of Stockton, California—that’s bankrupt, doesn’t have to pay its debts—not even to California government workers now on CalPERS pensions. That means the the debt owed by the city government of Stockton to the pensions of government employees, will not be imposed on the people of Stockton. If the city government is bankrupt, the city’s government’s debts are null and void.
The city employees (who’ve been sticking it to the city taxpayers for years) argued that being associated with the government, they were special and, if the bankrupt city government couldn’t pay their pensions, then the city’s chumps (the taxpayers) would still have to be held responsible.
The bankruptcy court disagreed.
The court said that if a city government becomes bankrupt, all of it debts–even those owed to other governmental agencies–can be discharged and left unpaid.
Pretty shocking, hmm?
This means that if government employee wages and/or pensions become so high that they help force a government into bankruptcy, the government employee pension funds could also wind up bankrupt. And that means that if government workers want to collect their pensions, they’d better not get too greedy.
The City of Stockton bankruptcy case implicitly acknowledged what I’ve been saying for years: Government debt is too great to be paid. What can’t be paid, won’t be paid. If the Stockton government is bankrupt, even debts owed to government pensions must be, and will be, rendered void.
• On a national level, the City of Stockton ruling is at least consistent with the observation that, as the value of the dollar rises, the real value of the National Debt also rises, the government’s ability to repay its falls and hastens a moment (like that in Stockton, California) when an overly-indebted government must repudiate its debts.
When that moment arrives, creditors (in this case, former government employees) holding their wealth in the form of paper debt instruments denominated in fiat dollars (in this case CalPER’s pension funds) will lose their assets.
Sooner or later, the same drama we see in Stockton, California, is going to play out on the national level. Unable to repay the National Debt, the federal government will have to admit it’s insolvent and, either by means of hyperinflation or open repudiation, the government will have to admit and declare that its debts are void and the correlative debt instruments (US bonds, So-So Security, government pensions, etc.) are worthless or at least significantly devalued.
In the meantime, while we wait for the stuff to strike the fan on the national level, highly-indebted state and local governments that are going broke under the growing weight (purchasing power) of fiat dollars, will be increasingly allowed and even forced to declare bankruptcy and repudiate their debts. When they do, their creditor will lose their assets just as the former municipal workers for Stockton California are losing theirs.
Stories like Stockton’s are bits of evidence that a moment when even the federal government repudiates the national debt is on the horizon and approaching with some speed.
Remedy? Get your wealth into something other than paper-debt instruments. Get your wealth into something whose value cannot be repudiated by government. Get your wealth into something tangible like gold or silver.