When we think of cities that are struggling with debt, we tend to to look at Detroit, Chicago, and some of the larger cities in California. However the problem extends across the nation and into nearly every major metropolitan area, including Dallas, where the economy seems to be relatively strong. This widespread combination of debt and underfunded liabilities represents a significant factor in the looming debt crisis that threatens the financial system. And it could be a major catalyst for rising gold prices in the years to come.
“What is happening in Dallas is an extreme example of what’s happening in many other places around the country. Elected officials promised workers solid pensions years ago, on the basis of wishful thinking rather than realistic expectations.” Dallas Stares Down a Texas Sized Threat of Bankruptcy
And therein lies the rub. After the financial crisis of 2008, investment markets have not been the same. The models used to calculate returns on pension investments were not reworked to reflect the new reality of low or zero interest rates. Instead, funding models continued to project returns of 7 to 8% per year. The gap between those projected funds and reality is now coming home to roost.
The impact of a widespread pension crisis on the global financial system should not be underestimated. It has taken several years, but the reality of the degree to which pension funds are in deficit is now becoming evident. We do not know the creative ways which governments and central banks will address this problem. We can be reasonably certain however, that whatever they do will interject volatility into the markets at some point in the not-too-distant future. That is when gold and silver prices could begin a sustained advance as they once again act as a hedge against financial system instability.
Exactly when that begins nobody knows. But the table is set for it.