It was just a matter of time: with the government set to take over every aspect of the economy, its next holding will be the perpetually underfunded and soon to be bankrupt State and local pension system. Bloomberg notes that state and local government pensions are underfunded by $1 trillion and may need to seek federal guarantees for their debt. Another insolvent institution, the FDIC, will undoubtedly be happy to guarantee one broke entity's obligations with another broke entity's worthless guarantee. The only question is why it took them so long. And what is a trillion? Nothing more than twenty $50 billion 5 year auctions: the way these have been selling like hot cakes, courtesy the nuclear option that if even one auction were to fail the US emperor would have to seek repudiation or immediate Fed monetization, we expect this "underfunding" to miraculously become "funding" within a few months. At some point the government should think about funding the $2.3 trillion in consumer debt in a comparable fashion: after all Bernanke and his puppet Obama have now released all stops on fiscal and monetary prudence. Who cares if the next administration is saddled with $16 trillion in debt (which is where were are headed in 3 years). After those two, the proverbial flood (of worthless dollar bills).

More from Bloomberg:

Pension underfunding eventually will make it impossible for some governments to raise money in bond markets and will require federal intervention through explicit or “implied guarantees” of municipal debt, Kramer, 64, said in an interview today at Bloomberg News headquarters in New York.

“The collective deficits should not be and will not be overcome by an aggressive investment strategy,” Kramer said. “I think that actually, ultimately, the severity of the problem will become publicly visible and you’ll have more entities that will have difficulty accessing the bond markets.”

And here is where the idiot money feeding the market, chasing Medallion's low-volume induced momentum spurts in the S&P is coming from:

The 100 largest U.S. public-employee pension plans had assets of $2.2 trillion as of June 30, down from $2.8 trillion a year earlier, according to a U.S. Census Bureau report. The 21 percent decline compared with the 28 percent fall in the Standard & Poor’s 500 Index during the worst recession since the Great Depression.

With politicians obviously not caring about a sustainable debt situation, and unwilling to break Wall Street's gridlock over the fate of this country, and with the administration taking their play by play cues directly from such grizzled Wall Street professionals as Dick Bove and Lloyd Blankfein, one can only stand back and watch as the future of America is traded away to Chinese vassal interests, in the hopes of buying one or two more years of record bonuses on Wall Street. And before the Fed accept a pure monetization posture, and does away with such pleasantries as QE, at least retirees can receive whatever money they are owed for another several years to spend as they see fit (as long as said spending does not involve trips to Europe and the purchasing of Euros).