Why states like Illinois want a Fed bailout

By Bill Wilson – There can be little wonder as to why bankrupt states like Illinois would love to see the Federal Reserve fire up its printing presses and start buying state and municipal bond debt.

At $85 billion — and counting — Illinois has one of the highest unfunded pension liabilities in the nation, reports the state’s budget crisis task force.

The primary driver of the crisis is simple: Pension funding levels are abysmal. The teachers retirement system is only 46.1 percent funded. The state university employees retirement system is 45.3 percent funded. The state employees retirement system is 34.9 percent funded. The judicial retirement system is just 31 percent funded. But the general assembly retirement system takes the cake with just a 20.2 percent funding level.

A 70 percent funding level would normally be considered dangerously low. The levels seen in Illinois are simply catastrophic.

But it may even be worse than all that, the task force notes, writing, “Illinois’ pension systems are likely in a more dire fiscal condition than they seem. Illinois’ three largest pension systems discount future pension liabilities using an assumed rate of return on investments of around 8 percent.”

Respected investment advisor Mike “Mish” Shedlock writes that “that is not going to happen,” pointing to less-than-desirable economic conditions. Something the task force seems to agree with: “many believe that this assumed rate of return is overly optimistic. Most state pension systems have exceeded an 8 percent rate of return over the past several decades, but the rates have been much lower in recent years.”

Read more at NetRightDaily.com: http://netrightdaily.com/2012/11/why-states-like-illinois-want-a-fed-bailout/#ixzz2B5xCiGN7

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