Posts Tagged ‘pensions’

The real state of “safe” investments and purchasing power parity

March 16, 2011

This is going to be boring for regular readers of this blog. But if I post it often enough maybe someone will be able to share it with someone that can make a difference.

via 135 – The 30yr US Treasury Bond valued in terms of gold bullion.

The Long Bond is what most pension and insurance funds, not to mention sovereign wealth funds and sovereign foreign reserves, are stuffed with.

As a corollary, I am not convinced Japan can sell their holdings of US paper in order to raise funds for reconstruction. If they did, they would likely further worsen the value of the ocean of US paper held globally.

In my opinion, Japan can only float even more sovereign debt…. thus going into head-to-head competition with all other Sovereigns requiring financing… $10Trillion may be a conservative estimate for Western funding needs this year.

Alabama town failed pension is a warning

December 23, 2010

If you followed my “tic, toc…” posts, this press article is the first shot across the bow of state finances in the Western world.

http://www.nytimes.com/2010/12/23/business/23prichard.html?_r=1

As I mentioned before on this blog and on comment pages of some news papers like The Telegraph, at this stage of the crisis, options are few and very well defined. Whatever we may do going forward, pension promises across the West cannot and will not be kept in their original form and, in some cases, will be terminated outright.

Our options today are:

Save the banks and let society alone shoulder the costs of this developing crisis that, incidentally, is about to get worse.

Let the banks sink and ensure that all share the burden of the crisis

Curtailing public spending a precursor to war…

July 30, 2010

Today Greece, tomorrow a nation near you.

As governments tax revenue dwindles and as their ability to borrow is progressively hindered by a slowing economy and rising unemployment, the social promises of the past thirty years cannot be met.

As a result public anger will rise and though initially it may be viewed as a localised phenomenon, eventually as more countries succumb to the same dynamic, social unrest will spread across borders and will ortanize too.

If tax revenue continues to collapse, revolution becomes a distinct possibility.

But it would be most unbecoming to allow revolution to happen anywhere in the West. Revolution is something that happens to banan republics but certainly not in the “civilised” West that purports to be a beacon of morality.

But when simple arithmetics tells you that Greece is only the prologue of what is to come, then what do you do?

Typically, at this juncture with nowhere to turn in order to increase tax revenues, the West engineers large scale conflicts.

http://www.guardian.co.uk/world/2010/jul/29/greek-police-tear-gas-striking-truckers?CMP=twt_gu

Government issues emergency order as fuel shortages strand tourists and disrupt food and medical supplies… […] But hopes of a return to normal were quickly dashed when riot police fired tear gas at thousands of truckers gathered outside the transport ministry this morning.

Next in line for a bailout: pensions

February 7, 2010

… once again… this post is to be read in conjunction with all previous posts titled “curtailing public spending; a precursor to war” on this blog.

Of course, if someone like me says this, I could be mistaken for a crank. But this is Forbes. So; there!

http://finance.yahoo.com/focus-retirement/article/108747/next-in-line-for-a-bailout-social-security?mod=fidelity-readytoretire

A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits. […] But this year’s Social Security cash shortfall is a watershed event. Until this year, Social Security was a problem for the future. Now it’s a problem for the present.

Church urged to publish advice that led to 400M Pound stock market gamble

November 9, 2009

The thing about deflation is that it is an egalitarian dynamic. It spares absolutely nobody including the servants of your chosen God.

If you are not in debt, you should embrace deflation and look forward to a much more wholesome and comfortable life style.

http://www.guardian.co.uk/business/2009/nov/08/pensions-crisis-church-of-england

And, by the way, I have the feeling the Church has another thing coming too.

You may recall that governments in the West are allowing banks to bypass certain accounting rules the application of which would cause them to declare immediate bankruptcy. This subterfuge means that banks can appear sound from an accounting point of view thus they can maintain investment grade ratings. As sound companies enjoying high investment grade ratings, banks also attract substantial investment money from institutions…. like pension funds….or insurance funds…. yours, mine and the church’s as, indeed, Mr. Buffet’s too…

What’s that light at the end of the tunnel you ask… ?

Deflation – Massachusetts

October 6, 2009

Massachusetts governmetn to announce emergency budget cuts

http://www.reuters.com/article/politicsNews/idUSTRE5916BX20091002

Pensions

May 14, 2009

This is not a problem that is going to go away. Both the government and corporations have played fast and loose with pensions. The government has effectively spent the money that was in the kitty replacing it with a bunch of paper IOUs. Corporations have made use of the funds in the kitty alternatively to make up for profit shortfalls in lean years and for trading purposes during financial market booms. Most corporations however, lost money on trading. The result is that pensions in the West are woefully underfunded.

As mentioned here and attested here, in a deflationary recession, pension dues will break the back of governments. However, before that happens, governments will re-direct funds from public services deemed less critical to those public services like pension payments the absence of which will more readily show that there is a problem at state level.

I’ll repeat here that deflation is not an undesirable dynamic. Deflation should be embraced and welcomed. A bout of deflation will make for a substantially better life style and for a much improved quality of life. Deflation is not the end of the world…. unless you are in debt.

The holy grail of government intervention today globally, is to restart inflation. That is because in the absence of inflation, government and the political process die. Inflation is the necessary precondition to running a fiat monetary system and fractional reserve banking. In the absence of inflation, the monetary system’s back is broken. This is the problem we are facing today.

This is the reason I am telling you that unless someone somewhere can restart inflation in some asset or some market, our leaders will plunge us into a world war within the next 3 to 5 years maximum.

http://www.telegraph.co.uk/finance/newsbysector/utilities/5304741/Royal-Mail-pensions-deficit–to-cost-taxpayer-12bn.html

http://uk.reuters.com/article/businessNews/idUKTRE54C31S20090513?feedType=RSS&feedName=businessNews

Fat pensions spell doom for many cities

April 21, 2009

And here is one of the more undesirable results of inducing inflation aggressively and artificially in a system. If you’ve read this past essay, you will know that there is a limit to how much inflation can be forced into a monetary system. Once the limit is reached and you tip into deflation, one of the more pernicious problems is that governments cannot maintain the promises to and services for the public. That’s because in order to spend liberally, government must induce inflation into the system. The more you need to spend the more you need to goose inflation. Making pension promises to unions, is one way of inducing inflation. However, as attested by the velocity of money the effects of inflation diminish over time. Once money velocity approaches zero or goes below zero, no amount of monetary expansion can revive inflation.

In the absence of inflation, governments can no longer spend liberally. At the end of a fierce and artificial inflationary cycle governments find themselves saddled with huge promises they cannot hope to make good on.

Once again. Unless someone somewhere comes up with a bright idea to get inflation going again, the West is bankrupt. You know where I am going with this…

http://money.cnn.com/2008/06/02/pf/retirement/vallejo.moneymag/index.htm