Pension Crisis: aka I Actually Agree For Once with Glenn Reynolds
I know I’m behind on this one but Conor F. interviewed Mssr. Instapundit about a month ago (a man with whom I wouldn’t normally find myself in much agreement to put it very charitably). Insta responded this way to a query from Conor regarding the most underreported current story in the blogosphere:
The biggest under-appreciated looming crisis right now is the impending public pension collapse. That’s tracked at a blog called Pensiontsunami.com (which also tracks the bad, but not nearly as-bad, private pension debacle). Between payroll bloat, underfunding, and the stock market decline, many cities and states won’t be able to meet their pension obligations. That’s likely to make the housing bubble-burst look minor by comparison, but most politicians are just trying to ignore the problem.
Tragically this is hammer meeting head o’ the nail.
A good introduction to this issue is Roger Lowenstein’s book While America Slept. Here is Lowenstein awhile back on the Diane Rehm show discussing his book.
Watch the video above (the whole thing if you can). If you only have a few minutes watch starting at minute 18 to about minute 22 as Dr. David Martin tells you (as someone who actually knows the game) that Wall Street is rigged. It’s a charade and a criminal essentially legal mafia/casino enterprise. The housing bubble has already hit and is still deflating, the credit card bubble is bursting as we speak, and the pension bubble will likely surface sometime this fall or winter. There will be then nowhere left to delay the inevitable reckoning that as a country we have a huge percentage of people entering retirement who do not have sufficient funds for it and the country lacks a basic safety net to protect them. The game will then be up.
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[The earlier portions of the talk describe how without anyone noticing it China has already dumped the dollar and that the dollar is heading to a crash. After minute 22 he offers a radical re-vision of an alternative economic future].
We could always make smoking legal again.Report
We are going to have to get into the dope business.
Also, don’t forget that commercial real estate is getting ready to crumble.Report
The number one thing that worries me is what is going to happen to the stock market.
When the boomers start retiring, en masse, they are going to start cashing out their 401ks because they need the money more than they need the stock anymore.
There will be fewer people buying the stock than selling it, creating a downward pressure on the price.
The downward pressure on the price will result in lower prices, all other things being equal, and the boomers will say “holy crap, my portfolio is not worth as much as it was yesterday! SELL!!! SELL!!!!” because, again, they will want the money more than the stock.
And this will create a downward pressure on the price of stocks.
The downward pressure on the price of stocks, at that point, will create a feedback loop where no one will be willing to buy stock because they know that it will be worth less tomorrow than today. And you know what? It will be.
And that particular crash will make 2008-2009 look like 2003.
That said, young folks who are interested in stocks as a long-term investment for, among other things, company dividends (remember when *THOSE* were the reason you bought stocks?) will be positioned to make a fair amount of long-term money.
If, of course, it’s not the end of the world as we know it.Report
Hopefully,speaking as a self-centered, evil, business-owner, they will invest in real estate.Report
good luck with that one mike. yikes.Report
Have you read the Deep Capture blog at all, Chris?Report
no, should I check it out?Report
It’s interesting for sure. Maybe totally bunk, I don’t know, but it certainly delves deep into the Wall Street mess.Report
The pension fund systems are in a world of hurt right now. The declines in their portfolio values are substantial with certain asset classes being hit harder than others. I know the California public pension funds through their alternative investments divisions have some sizable positions in investments that have probably (at least for now) lost most of their value.
Sitting from my perch in commercial real estate, what has happened is that pension funds, either due to market uncertainty or due to the denominator effect (i.e. changes in portfolio value making the fund overallocated in a certain asset class), are not putting out any money right now, even on pre-existing committments (they can easily do this to fund managers simply by “suggesting” that a capital call now means they will no longer invest in future funds).
From my perspective, pension funds are already out of the market and it sucks.
Mike Farmer,
Commercial real estate has been crumbling for at least 18 months now, it just may not be visible to those who don’t follow it on a daily basis.Report