/Pogled.info/ The state pension funds in the USA lack significant sums to pay all their obligations.
One of the largest American funds, PIMCO, warned the US authorities that Washington’s sanctions against the Russian Federation could lead to losses in US pension funds, and if the attempts of the US authorities to achieve a default of the Russian Federation are successful, this would allow Moscow to preserve its foreign exchange reserves. In other circumstances, they would go to pay their debts to Western creditors.
Shortly before that, the US Treasury already eased some of the sanctions against Russia and allowed some transactions. In particular, he removed transactions related to the payment of pensions to Americans from sanctions against Russia. Indeed, according to a study as of March of this year, the investments of the US Pension Fund in government securities alone amounted to almost one and a half trillion dollars. But more than 6 trillion are in securities of commercial companies.
In addition, a so-called bear market has begun in the US – stock prices are falling, and the decline has already broken records both in terms of the amount of evaporating investor funds and the speed of money outflow from falling assets.
Pension funds have been hit before, but now falling stocks are threatening the pensions of millions of Americans. Between March and April alone, funds lost a whopping $220 billion as the war in Ukraine affected markets.
At the end of the second quarter of this year, the 100 largest public pension funds in the United States were funded at only 78.6% of their total liabilities, compared to 85.5% at the end of 2021. Public pension funds held increasing amounts to cover their payment obligations.
Nearly $13 billion worth of pension bonds were sold in 2021, more than in the previous five years combined. Now they are taking big risks by investing borrowed money. The Teacher Retirement System of Texas, the nation’s fifth-largest public pension fund, is also leveraged as of 2019. “We need all the arrows in the quiver we can get our hands on, and private debt is one of the most important,” said Dan Bienvenue, associate chief investment officer at CalPERS. — There is no choice without risk. “
Leverage can help increase market gains in a “bull” market (when stock prices rise), but it also increases losses during “bear” periods. And in 2022, it’s time for a bear market. Players are losing money at an alarming rate.
Professor Valentin Katasonov wrote in 2017 about the precarious situation of pension funds in America: “Back in 2014, the world’s largest hedge fund, Bridgewater, in a study on the future of US pension funds, came to a disappointing conclusion: 85% of US pension funds should fail in the next 30 years.
According to the organization’s estimates, the yield of pension funds in the foreseeable future will not exceed 4% per year. At the same time, their total assets amount to $3 trillion and liabilities to $10 trillion. According to Bridgewater’s calculations, all payouts should generate a return of 9% per year.
In 20% of the scenarios Bridgewater looked at, pension funds would run out of money within 20 years. In 80% of the scenarios, almost all funds will fail in the next half century. The situation is similar at the state level. According to research by the non-profit Pew Charitable Trusts, the pension funding gap in individual states is as high as $1.5 trillion, with Kentucky, New Jersey, Illinois, Pennsylvania and California growing at the fastest rates.
Not surprisingly, funds began to acquire riskier assets during times of growth and low interest rates, trying to compensate for their failure. “Risk appetite is most pronounced among funds whose backers have the least ability to take on additional risk,” says the Boston Federal Reserve. Instead of raising fees or expenses to fill the funding shortfall, pension fund managers decided to raise their annual growth target and take riskier investments to meet it. In many states, if funds fail because of this strategy, the burden of meeting repayment requirements will fall on taxpayers.
US public pension funds are severely short of cash to pay all their obligations to future retirees. More and more people make a risky decision: they invest borrowed money. “It’s like a player who loses but keeps betting in the hope of making up some of the losses”, writes Meryl Matthews, a scholar at the Institute for Policy Innovation. If last year most state pension funds were already underfunded, what happens to them today, when the market is in a six-month decline?”
According to Pew Research, of the approximately $4 trillion in assets managed by public pension funds in the United States, more than two-thirds go into risky investments such as stocks and alternative instruments, including private equity, real estate and hedge funds. This means that the pension systems’ ability to meet their obligations depends on stock market fluctuations.
Judging by this picture, we can conclude: the reasoning in the Western press that the 300 billion “lost” by Russia and the Central Bank should be expropriated and transferred to Ukraine is a bluff or a dream. It is enough for the West to do something like this – and that’s it, the pension funds of the USA will be left without payments. Playing the stock market does not help to compensate for the lack of funding, on the contrary, it takes away the latter.
However, in any truly serious financial responses from Russia to the US and Europe, it will not be cities, factories and infrastructure that will be blown up, but the pension system, stock markets and the entire Western economy.
Translation: ES
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