“You do allude to the danger of inflation, which is proper. But in that case, federal retirees will suffer the effects just like every other American.”
I agree with your assessment with one caveat. With CPI-W - 1 indexing, federal pensions (and Social Security) will keep pace with inflation at least conceptually. Unfortunately, COLA indexing for many types of federal programs may lead to an inflation spiral. At some point, no one will want dollars so COLAs will not matter. Massive reductions in government spending will be necessary to restore the dollar value. Without massive realignment of government spending (including pensions), individuals will hold other currency or barter.
“Without massive realignment of government spending (including pensions), individuals will hold other currency or barter.”
Well, I don’t think we’re going to sink to a Germany 1923 type of situation. And at any rate, federal pensions are such a tiny part of the federal budget that I don’t see the federal government altering the COLA formula for current retirees. For future retirees, possibly including many current employees — maybe.