Donald Trump has been rattling the establishment in his presidential run. It isn’t because the things he is saying are necessarily right. It’s more that he is a loose cannon that cannot be controlled.

It makes it worse for the establishment and the Republican insiders that Trump is a billionaire. He can’t be easily bought. Maybe he has a price, but it isn’t in the millions.

When you enter politics, there seems to exist certain guidelines that candidates are expected to follow. This goes for many upper level bureaucrats as well. You are just not supposed to stray outside of a certain range of opinion. There are also some subjects that you should never bring up, and if asked about, you should carefully redirect the conversation.

One of those subjects is the pension crisis that exists in the United States. This is happening at local levels (think Chicago), state levels (think California), and the federal level. At the federal level, pensions for government employees are a big enough problem. It gets a whole lot worse when you start to include the so-called entitlement programs.

The subject isn’t completely off limits when it comes to the federal government, but there are very few details offered by candidates, let alone politicians who are actually in office already. Any talk of reform is quickly swept under the rug.

In the first Republican debate, the issue was not brought up at all by the “moderators”. They were too busy asking Donald Trump about the mean things he has said to other people.

Ironically, the only person who really brought up the topic of the unfunded liabilities was Chris Christie. I say it was ironic for two reasons. First, he is one of the more establishment candidates in there. Second, New Jersey is a fiscal mess.

Now, Goldman Sachs – an establishment financial institution if there ever was one – is warning people over the crisis of unfunded pension liabilities for state and local governments.

The overall report from Goldman somewhat downplays the situation, but it isn’t pretty when you look at some of the details. It is not something you would really expect to hear out of Goldman Sachs, but I think it just points to the depth of the problem. If Goldman is warning about this, even subtly, then you know it is going to be a problem. Goldman is not typically unnecessarily pessimistic.

Government Problems at Every Level

While the federal government is the worst off, they cover this over in the short run by creating money out of thin air and issuing more debt. Due to the existence of the Federal Reserve, they can kick the can for a longer period of time.

The first signs of trouble are going to come at the state and local levels where they cannot print money. They are also more limited in their use of debt because of this.

Goldman Sachs pointed out that there are several factors behind the fiscal problems with the underfunded pensions. The investment returns have been lower than expected, which ironically is partially due to the low interest rates from prior Fed policies.

Another factor is that there are insufficient contributions going to pension plans by state and local governments.

Perhaps Chris Christie shouldn’t be telling us about solving pension problems since he helped create one in New Jersey. Goldman specifically mentions New Jersey, saying that the state has only contributed around 40% of its expected contribution to pensions over the last few years.

Of course, what Goldman does not explicitly say is that governments all over have been spending too much and making promises that are too big to keep.

Goldman concludes that in order to meet their actuarially required contribution, governments would have to contribute around $100 billion extra per year. This could come from additional taxes or from cutting elsewhere.

The obvious is not pointed out, which is that governments could just partially default on these promises. I know that many government workers would not be happy with this, but should they get cushy pensions for the rest of their lives so that all of the other workers can work twice as hard to fund someone else’s retirement?

In the private sector, most companies are doing away with big pensions. They are moving to 401k plans. Most companies will offer some contribution, but it is a defined contribution. It is not a defined benefit 40 years down the road. Governments should be copying this model, but the special interests are still too strong.

If you are a government worker looking forward to a good pension later in life, then you might want to have a backup plan. At some point, a majority of taxpayers may revolt and tell the pensioners to figure something out. At some point, the burden becomes too heavy, especially as people work hard and struggle to pay their own bills.

I think Goldman Sachs is trying to send a subtle warning that there are problems ahead. Unfortunately, most people will not pay much attention until the problems become more evident. Maybe we should look at the situation in Greece and learn what not to do.