(By Karl Denninger) You folks who have followed me for a while know I've been all over pension funds and their alleged "8% return" assumptions. What you might not be aware of is that this applies to all other actuarial payout systems that are similar in design
-- including the big one.
That is, Social Security.
The SSTF believes it will earn an average of 4% over this period. That is not possible any longer. I calculate that the most SSA could earn is an average of 2.3% (it could be significantly lower). The drop in yield translates to a reduction in income of $535B over the forecast period. That's a lot of dollars.
Folks, you know I've often talked about five-year windows, which are rapidly closing. You also know that I've lambasted Bernanke for claiming to fix things "in the intermediate term", which is typically thought of as ~5 years out.
Well, we're in year 4.
The problem with "zero interest rates" is, well, they result in zero earnings -- or damn close to it. And with the stated purpose of Bernanke's games being to lower long-term Treasury yields, what he's effectively doing is financing monstrous current deficits by guaranteeing the bankruptcy of the Social Security funds a decade earlier than would otherwise happen -- if not sooner.
At this rate, with the promises made by Bernanke and the deficit spending undertaken by Congress, Social Security is completely screwed.
Bernanke's policies are directly responsible for the acceleration of this catastrophe. Indeed, he has all but made it inevitable at this point, and the longer he continues to play this game the worse it will get.
Social Security benefits, by law, must be cut by 25% immediately when the "special bonds" are exhausted.
And they will be, perhaps as early as 2023.
If you think this is just about private pensions, you're wrong -- and if you're not prepared for this you could easily be dead wrong.
Do the math.