Upcoming Pension Crisis?

*This is an older blog post from my previous blog. All info is still relevant *

Martin Armstrong posted an enlightening post on his blog regarding Russia’s current pension crisis.

President Vladimir Putin knows that the current pension system will not last, and has made changes to the Russian pension system. This was very unpopular with the people, and Mr. Putin’s approval rating went from 82% in April to 66% this month (October 2018). 

This will not only occur in Russia, but in western nations as well.

We are already hearing about Kentucky and California’s pension crisis. To get to the root of this, I will discuss a little bit about pension funds.

Pension funds are generally very risk averse. Historically, pension funds have invested in bonds, as they are regarded as safe. Most pension funds are also composed of fixed income traders. Generally, 8% return a year is needed for pension funds to stay afloat and to manage retirements accordingly.

Now…enter low interest rates. With US treasuries going under 3%, pension funds were forced to invest into stocks, a much more risky asset. This money is likely why certain stocks like Tesla and others have reached astronomical prices. If stock markets fall, or correct, there is a chance that these pension funds will roll over. 

Social Security in the United States is 100% government bonds, meaning they are not meeting the 8% per year.

Here in Canada, CPP has gone from 100% government bonds to now heavy equities and heavy real estate. This means that real estate and/or equities have to be up every year in order to maintain the 8% return. Also, central banks will likely aid in making the stock market pullback just so pension funds can get in to ensure they make money. Some say this is what occurred in December 2018.

Central banks are hiking as fast as possible now in order for pension funds to meet the return of 8%. Government are also taxing more because it is thought that due to large deficits, governments have been dipping into pension money.

This is just a big mess, and so many outcomes are linked together. The Fed and the plunge protection team must keep stocks going higher, as many baby boomers cannot survive another stock market bear market. When you add in pension funds to the mix, it does not paint a pretty picture.

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