Zero Hedge: The past decade was a uniquely smooth stretch of financial highway. Pretty much every major asset class – stocks, bonds, real estate, fine art, you name it – did well, making it hard for conventional investors to lose money and easy for them to earn outsized returns.
So why then are US public sector pensions (which own a ton of the above assets) a looming disaster that could trigger the next great financial crisis?
Several reasons, ranging from negligence and criminality.
Opinion: “No matter how much water you pour into a leaky bucket the bucket will never be full”. Ted Siedle
Pensions are the only savings tens of millions of the worlds workers have. They were promised a secure retirement that in so many cases was too good to be true based on ridiculous assumptions of 7-8% yearly return on investment.
The graph shows the bad news:
The growth of liabilities (what is owed) vs the performance (what is available) of 109 pension plans shows an almost impossible gap. While the Standard and Poors index of 500 stocks recovered from 2002 to 2018, the returns were no were near 7%:
The S&P 500 Has Gained Only 3.4% Per Year Since 2000
Worse news: pension plans are forced to have up to 40% of their portfolio in government bonds. So while the global stocks market recovered thanks to government stimulus, quantitative easing (money printing) brought interest rates to zero giving poor returns on a major portion of the plan portfolios.
Now the horrible news: the world now records the largest elderly population in history.
Without government/tax payer bailouts, and more central bank stimulus (QE), the disparity between rich and poor will grow to dangerous levels as the children of the elderly are forced to support their parents.
In the meantime …
(growth of S&P 500 2000 – 2018 here)