Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy Government PANICs! Sterling Collapses! - 19th Mar 20
Coronavirus Market Crisis - Nowhere to Hide! - 19th Mar 20
Coronavirus Most Likely GDP Economic Outcome for Q1 and Q2 2020 - 19th Mar 20
How COVID-19 Leads to 2008-Style Bank Crisis - 19th Mar 20
Coronavirus Impact on Global Economic GDP Numbers - 19th Mar 20
Bticoin Crash Big Channel Review - 19th Mar 20
Gold is Doing Its Job…Silver Will Come Back as a Safe-Haven Asset - 19th Mar 20
The Chartology of Coronavirus Deflationary Event - 18th Mar 20
Fed Slashes Rates to Zero and Introduces QE in Response to COVID-19. Will Gold Rally Now? - 18th Mar 20
Coronavirus - Nothing to Fear but Fear Itself - 18th Mar 20
The Stocks Bear Market Is Upon Us... Or Not - 18th Mar 20
US and UK Coronavirus Containment Incompetence Resulting Catastrophic Trend Trajectories - 17th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

How Ben Bernanke Is Destroying Your Retiremen

Politics / Pensions & Retirement May 23, 2013 - 12:41 PM GMT

By: Money_Morning

Politics

Martin Hutchinson writes: Uncle Sam has an unfunded pension liability of $800 billion.

Corporate pension funds have an unfunded liability around $400 billion.

State and local pension funds have an unfunded liability in the tony neighborhood of $3 trillion.


That's over $4 TRILLION in UNFUNDED pension funds.

And if you're not lucky enough to be in a "defined benefit" pension plan (which fewer and fewer people are these days) there's undoubtedly an "unfunded liability" in your own savings - in other words, you haven't saved enough to retire.

It's a huge problem and it's getting worse. And there's one individual to blame for all that $4.2-plus trillion of money we need to find - Ben Bernanke.

The Killer of Nest Eggs
Bernankeism exerts a double whammy on pension funds, because of the accounting.

To determine the cost of all the pensions that must be paid, the actuary makes assumptions about people's lifespans (another problem - they're lengthening), gets a future stream of cash flows, then discounts the cash flows back to the present at an assumed rate, based on what he thinks the fund can earn on its money.

If the discounted amount is less than the current value of the fund, the fund has a surplus; if it's more, the fund has a deficit.

Still awake?

Here's the kicker: When interest rates are held at very low levels year after year, they make it more difficult for pension funds to achieve their desired returns, and they move the goalposts farther and farther away from the ball.

Unlike the Peanuts strip where Lucy removes the football just as Charlie Brown is about to kick it, in this case the Bernanke Fed playing Lucy lets Charlie Brown (us) kick it but moves the goalposts into the far distance, so that Charlie has no chance of reaching them however hard he kicks.

Look Back to Look Ahead
In the 1990s, even though interest rates were too low from 1995 on, all was well with pension funds. The U.S. stock market zoomed upwards, so many funds' value soared far above their actuarial liabilities.

Many companies stopped contributing to their funds, and General Electric (NYSE: GE) even found a way to make profits on its pension funds goose the company's reported profits - thus siphoning more bonuses and stock option gains into management's pockets.

After 2000, the profits went into reverse. Pension funds then responded foolishly; they transferred a huge percentage of their money into "alternative investments" such as farmland, forests, private equity funds and hedge funds.

Essentially, they bought a lot of assets at inflated prices - like, well, anything to do with real estate in 2004-07 - and paid inflated fees for mediocre performance.

However, apart from the losses from the market crashes of 2000 and 2008, the real problems for pension funds came from the steady decline in interest rates engineered by Alan Greenspan and Ben Bernanke.

For example, even though stock prices are at record levels, and the asset sides of the pension funds ought to be doing fine, Bernanke's low interest rates have swelled the liabilities sides to enormous heights, so pension funds' funding deficit is at levels more typical of the bottom of bear markets than several years into a recovery.

What's more, the problem won't go away when interest rates rise again. That will make stock and bond prices decline, reducing the asset side of the funds' balance sheets. It will also push leveraged hedge funds and private equity funds into bankruptcy, wreaking further havoc.

No One Is Exempt
The problem of pension funds also extends to baby boomers' own retirement savings. You see, what may look good on your statements isn't usually put through the same actuarial calculations that pension funds build.

That means what looks like a fairly decent pile of money when looked at in cash, translates into an absolutely pathetic annual sum if you try to turn it into an annuity (because annuity calculations are based on the same arithmetic as pension fund accounting).

The fact is, most retiring baby boomers keep their IRAs and 401(k)s in cash, withdrawing the amounts of money they need to live on.

What needs to shouted from the rooftops is, more likely than not, the withdrawals they make are too large, and will exhaust the available funds long before the unfortunate owners expire.

Baby boom retirements are destined to be thoroughly miserable, mostly thanks to Bernanke; those with funded pension plans will find their plans in bankruptcy, while those without pensions - the IRA and 401(k) majority - will simply find the bankruptcy transferred to their own finances.

The solutions are simple, but not easy: save every penny you can, pray QE ends quickly and just in case, work till you drop.

In all seriousness, to the extent you invest, buy into emerging markets with good growth rates and no Ben Bernanke. They may have risks, but at least they avoid the Bernanke risk you have to live with in the rest of your life.

Source :http://moneymorning.com/2013/05/23/how-ben-bernanke-is-destroying-your-retirement/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules