It seems that a lot of people support the bail outs and fiscal monetary policy because at least they will save people's pensions. But is this true?
Traditional, most pension funds invest a large percentage in government bonds. But, at 0% interest, they are increasingly unable to balance their books.
What we see is that future liabilities increase because people get older, and at the same time future asset value does not increase because the interest is close to 0.
This means that pension funds face a funding ratio below 1, meaning they have to pay more future pensions than there is money to fund it with in the future, at least according to the calculation.
Regulators press pension funds to increase the funding ratio, and pension funds have only two options:
Increase inflow of money, the contributions people make prior to retirement
Decrease the outflow of money, in other words decrease future liabilities
The second option hits people close to retirement, the first those who are still building pension. The latter face that the amount “saved” decreased, the former face that they need to pay more for the same amount of pension of those who retired, a lower return on investment.
Many funds worked both ways to improve their funding ratios, increase contribution and lower liabilities.
Many people lost their savings in the 2008 crisis due to wrong investment, a huge amount of pension “virtually damped” because of the low interest rates to which future asset values are calculated.
Another large part of the problem, is pension funds also invest a large percentage in real estate which is in a huge over-inflated bubble waiting to pop.
All this means that pension funds are now looking at more creative ways to balance their books like investing in corporate bonds. With a super over inflated stock market and an estimated 25% of zombie companies, the whole arena is looking highly volatile.
So, maybe it's not such a good idea to bail out the banks and stock market, after all.
Blame The Fed For The Coming Pension Fund Crisis
Aug. 26, 2019 12:07 AM ETAGG, BIBL,
Most public and private pensions in the United States are underfunded, many severely so.
Back when interest rates floated in a historically normal range, there was not a serious issue of pension underfunding.
Ultra-low interest rates have pushed pensions into riskier assets such as corporate equities and bonds.
Pension demand for corporate bonds has facilitated a surge of debt-funded buybacks.
What happens when pensions are no longer able to keep up their massive procurement of corporate debt?
American pensions are in trouble.
https://seekingalpha.com/article/428782 ... und-crisis
It seems that a lot of people support the bail outs and fiscal monetary policy because at least they will save people's pensions. But is this true?
Traditional, most pension funds invest a large percentage in government bonds. But, at 0% interest, they are increasingly unable to balance their books.
What we see is that future liabilities increase because people get older, and at the same time future asset value does not increase because the interest is close to 0.
This means that pension funds face a funding ratio below 1, meaning they have to pay more future pensions than there is money to fund it with in the future, at least according to the calculation.
Regulators press pension funds to increase the funding ratio, and pension funds have only two options:
Increase inflow of money, the contributions people make prior to retirement
Decrease the outflow of money, in other words decrease future liabilities
The second option hits people close to retirement, the first those who are still building pension. The latter face that the amount “saved” decreased, the former face that they need to pay more for the same amount of pension of those who retired, a lower return on investment.
Many funds worked both ways to improve their funding ratios, increase contribution and lower liabilities.
Many people lost their savings in the 2008 crisis due to wrong investment, a huge amount of pension “virtually damped” because of the low interest rates to which future asset values are calculated.
Another large part of the problem, is pension funds also invest a large percentage in real estate which is in a huge over-inflated bubble waiting to pop.
All this means that pension funds are now looking at more creative ways to balance their books like investing in corporate bonds. With a super over inflated stock market and an estimated 25% of zombie companies, the whole arena is looking highly volatile.
So, maybe it's not such a good idea to bail out the banks and stock market, after all.
[i]Blame The Fed For The Coming Pension Fund Crisis[/i]
[b]Aug. 26, 2019[/b] 12:07 AM ETAGG, BIBL,
Most public and private pensions in the United States are underfunded, many severely so.
Back when interest rates floated in a historically normal range, there was not a serious issue of pension underfunding.
Ultra-low interest rates have pushed pensions into riskier assets such as corporate equities and bonds.
Pension demand for corporate bonds has facilitated a surge of debt-funded buybacks.
What happens when pensions are no longer able to keep up their massive procurement of corporate debt?
American pensions are in trouble.
https://seekingalpha.com/article/4287825-blame-fed-for-coming-pension-fund-crisis