Kentucky

Via The Daily Bell

Just because a Ponzi scheme is run by a government doesn’t mean it won’t collapse.

The situation in Kentucky serves as a dire warning about larger pension systems including Social Security.

What Kentucky is currently facing in like a bank run. When people hear that a bank is failing, they all scramble to get their money out before it goes bust. This snowballs and the bank runs out of cash that much quicker.

Last week we noted that, after months of planning and cogitating over how to address the failing public pension systems in their state which are somewhere between $40 and $80 billion under water, Kentucky's Governor Matt Bevin and the leaders of the General Assembly’s Republican majorities released their highly-anticipated 'plan' which turned out to be nothing more than the same old "kick the can down the road" approach to "pension reform" that has perpetuated the pension ponzi in this country for decades while doing absolutely nothing to address the actual crisis.

If Bernie Madoff taught us anything it's that every successful ponzi scheme requires precisely one critical component to keep it afloat: a steady stream of fresh capital to fund redemptions.  Absent that key component, even the most carefully crafted ponzi, with the best, most creative accounting fabrications in the world, will inevitably fail from a lack of real, cold, hard cash to keep the illusion going.

We have written frequently over the past couple of weeks about the disastrous public pension funds in Kentucky that are anywhere from $42 - $84 billion underfunded, depending on which discount rate you feel inclined to use. As we've argued before, these pensions, like the ones in Illinois and other states, are so hopelessly underfunded that they haven't a prayer of ever again being made whole.

We've frequently argued that public pensions in the U.S. are nothing more than elaborate ponzi schemes being propped up by unrealistic accounting assumptions that make them seem more healthy than they actually are.  As it turns out, the State Budget Director of Kentucky, John Chilton, is coming around to our way of thinking.