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Blue Model Blues
Pension Returns Reach Record Low

It’s not just California, which we have reported on at length in the last week: State-run pension funds across the country are facing a sustained earnings shortfall that threatens to rattle the foundations of America’s public sector. The Wall Street Journal reports:

Long-term returns for U.S. public pensions are expected to drop to the lowest levels ever recorded, portending deeper pain for states and cities as a $1 trillion funding gap widens.

Twenty-year annualized returns for public pensions in the U.S. are poised to decline to 7.47% once fiscal 2016 results are released in coming weeks, according to an estimate from Wilshire Trust Universe Comparison Service, which tracks pension investment returns. […]

The drop in 20-year annualized returns is significant because officials who oversee retirements for police officers, firefighters, teachers and government workers have long said one bad year or two isn’t as important as the long-term average, and they would earn enough money over decades to pay for retiree obligations.

The grim numbers are a reminder that while the Federal Reserve’s (probably wise) decision to keep interest rates low may be staving off recession, it also threatens to compound the severe fiscal strain on many states and localities, which made transparently unsustainable promises to unions back when pension funds were temporarily raking in white-hot returns in the 1990s and early 2000s.

The window for can-kicking is closing. A few more years of slow returns will finally force radical adjustments to state and local public finances, pitting public sector unions (the core of Democratic political organization at the sub-national level) against competing budgetary priorities, like education, healthcare, and infrastructure. At a time when political coalitions and alliances are already up in the air, the looming “blue civil war” threatens to mix them up even further.

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  • Andrew Allison

    Federal Reserve’s (utterly stupid) decision to keep interest rates low is doing nothing for the economy. What it is doing is driving investors toward evermore risky assets in search of yield. This goes far to explains the abysmal performance of the pension funds. The fact that they are paying huge sums to investment managers and advisers for these miserable investments is an outrage. The 10-year annualized yield on an S&P 500 index fund is over 7%. Of course, investing in a index fund eliminates the opportunity for the corruption which lies at the heart of pension investing.

    • f1b0nacc1

      When FG admits that endlessly raising taxes on high incomes groups might have a downside…

      • M Snow

        I assume you mean never.

        • f1b0nacc1

          OK, how about “When Anthony manages an original thought”

          • Anthony

            Scott, (as I told you before) you have both a low grade manner and sophomoric style – both Drako and the commenter regarding your F-35 knowledge pegged you accurately. Please (as I asked you before) keep my name out of your tag lines as you try hard to find a place. Bye the way, this reply is limited to above since as you know from your initial entry to TAI I try to avoid aspects of the “seven deadly realities.” Once more, I’m done here!

          • Tom

            I don’t know–at least f1bonacci has a sense of humor.

          • Anthony

            I’m here neither for feigned humor nor solicitude (group conformism/spirit). The end Tom.

          • Andrew Allison

            Don’t you mean “When Anthony manages to express a thought intelligibly? Again, should that happen, do let me know.

          • Anthony

            Andrew, from your 1st months here, you critique but with no purpose other than attention seeking. Here’s a simple reiteration of a thought I passed on to you years ago: time has passed you by old man – give it a rest (though you seek internet commiseration).

          • f1b0nacc1

            I see I struck a nerve!

            I believe that another old man said it best…”lighten up Francis”

          • Anthony

            You don’t strike nerves as I told you before – just affirmation.

          • Andrew Allison

            There’s a simple solution to both problems: Block User.

          • f1b0nacc1

            Why bother…they are simply silly, and I could use a good laugh.

          • Andrew Allison

            You are more tolerant of purblind stupidity than I.

          • f1b0nacc1

            Perhaps I just find it funnier….either way, they are harmless enough

          • M Snow

            I’m relatively new here. I don’t really understand some of Anthony’s posts, but I’ll try to pay more attention.

          • f1b0nacc1

            Mostly opaque verbiage, 90% or better lifted word for word (give him credit, he cites) from whatever website caught his interest that week.

            Don’t take my word for it though…just read it yourself.

          • M Snow

            OK.

      • Andrew Allison

        Surely you jest? But should it happen, let me know [grin]

  • seattleoutcast

    “The grim numbers are a reminder that while the Federal Reserve’s (probably wise) decision to keep interest rates low…”

    As a lower middle-class American, I find this decision to be the most wretched example of rule by plutocracy. It only benefits those with immediate access to credit such as the big banks and large corporations. This money then distorts the market as it is not used for wealth creation but for personal gain by the top 1%. Sound interest rates would bring clarity back to the marketplace. It would eliminate those people who only take this cheap money and gamble with it. It would cause deflation in many areas where the poor and middle-class desperately need it.

    • Andrew Allison

      You don’t seem to understand. Fed policy, and the elitist pundits’ opinions thereof, have nothing whatsoever to do with the needs of the non-elite.

      • seattleoutcast

        Silly me! What was I thinking?

    • f1b0nacc1

      Fed policy is too often driven by their (internally generated) need to please their political masters, who desperately long for inflation to bail them out of their debt trap…

  • Andrew Allison
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