The Pension Bubble: How The Defaults Will Occur

Monday, June 20, 2016
By Paul Martin
June 20, 2016

Experts worry about stock, bond and real estate market excesses.
But a bubble is forming that dwarfs them all: pension plans…

By Peter Diekmeyer:

Millions of Americans and Canadians who are counting on pension benefits to fund their retirements risk being severely disappointed.

The hard money community has, of course, been aware of this for some time. However in recent years, even the elites have been taking notice.

One such group, the International Forum of the Americas, will be holding its fourth annual pension conference in Montreal next Monday.

There politicians, financiers and monetary policy officials will discuss the declining rates of return in public and private sector pension plans.

The picture they will paint is increasingly grim.

Pension funds, which have been issuing over-optimistic revenue forecasts for years, aren’t going to earn nearly enough money to pay the benefits recipients expect.

Much of this relates to secular stagnation in the economy.

Bonds, which form a major part of most plans’ holdings, earn next to nothing in interest.

Stocks, which are trading at record levels, despite falling corporate earnings, look to have more downside risk than upside potential.

Worse, if bond returns average 2%, balanced portfolios projecting 7% to 8% annual returns have to earn 12% to 14% on equities investments to make up the difference. That’s unlikely to happen.

At least private sector plans have some money in them – public sector plans are in even in worse shape.

Governments have almost nothing put aside to fund future retirees – and they don’t even fully list their debts.

That process of “cooking the books” ramped up in a major way during Bill Clinton’s administration, whom Hillary Clinton, the current Democratic Presidential nominee, has promised to “put in charge of the economy.”

The upshot is that most Americans and Canadians have no clue how far in debt their countries are. Researchers such as Laurence Kotlikoff , a professor at Boston University and a write-in candidate for President in 2016, suggest that unfunded pension and other liabilities run into the tens of trillions of dollars in the United States. The Fraser Institute has shown that Canada isn’t much better.

The Rest…HERE

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