America’s Pensionless Future

January 4, 2011 | From theTrumpet.com

The first debt bomb has already detonated. Is it the first explosion in a nationwide chain reaction? By Robert Morley

Want to see the future? Go to Prichard, Alabama. It is a city with a sobering lesson for America and for millions of people who think the good times are about to return.

What draws our attention here?

Nothing. That’s what’s startling. There is hardly anything going on here anymore. Prichard in 2011 is a rundown, decaying, derelict collection of overgrown, boarded-up old buildings. Around them, abandoned homes litter a landscape crisscrossed with cratered roads and trash-strewn streets. The only thing making any noise is the graffiti.

Why the silence? It’s because 40 percent of the population of Prichard isn’t there. And the few remaining businesses operate from behind barred windows and guard dogs.

Prichard used to be the real-time American dream. It was a rich manufacturing boomtown replete with movie theaters, big-box department stores and its own zoo. The schools were safe. Children played in the streets. During that heyday, it was hard to even find a place to park in this model city.

But the town’s dramatic boom-to-bust isn’t why this Alabama case study is on the front page of the New York Times. The reason Prichard (population 27,000 and falling) is making headlines is that its leaders are setting a startling precedent that might be coming to a city near you.

According to the New York Times, Prichard pulled the trigger on something that pension experts say they’ve never seen before: It stopped sending out pension checks to its retired workers.

One month the checks were in the mailbox. The next month—cold turkey—the box stayed empty.

What do you do when the money is gone? That is a question Prichard’s pensioners are now dealing with. Predictably, the lawsuits have begun. But meanwhile, so have personal bankruptcies by people no longer able to meet credit card and other debt obligations. One 66–year-old retired fire captain said he is going back to work as a security guard so he can make his mortgage payments. Charities are helping some, but not everyone. The retired fire marshal, too young to collect social security and unable to find work, was found dead in his home with all the utilities turned off.

It is illegal for Prichard to stop paying its pension obligations. The state has repeatedly ordered the city to pay up. It would if it could. The problem is that it is flat, busted broke—the charred remains of a combusted economy. Property values are sinking, taxes are soaring, and jobs and people are fleeing. But the debt payments remain. How can you set up a nice pension-payment plan when all you’ve got around you is financial rubble—the result of years of mismanagement?

Every judge in the country can order you to pay until they are blue in the face, but it’s like demanding the mayor of a war zone give everyone a bonus this year.

At first, it might not seem so startling that a city could go broke. After all, people go broke, so why can’t cities? That’s a good question—and the trouble is, it’s one that investors around the world are beginning to ask themselves.

Up until this point in American history, state and municipal debt has been among the safest investments available. Only U.S. treasuries were considered safer. But is Prichard the proverbial canary in the toxic coal mine? Is there a devastating chain reaction starting around us?

“Prichard is the future,” says San Diego’s former city attorney Michael Aguirre, who is advising the city to declare bankruptcy to reduce its pension burden. “We’re all on the same conveyor belt. Prichard is just a little further down the road.”

Read that again! This is San Diego, California—not Podunk, Nebraska.

Read the full story here!

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