[Editor’s Note: lots of deals(!) equal few(er) posts.]
A prolonged period of very low interest rates will decapitalize defined-benefit pension funds”both private and public”throughout the country. In California, for example, pension actuaries presume a yield on their asset portfolios of about 7.5% just to break even in meeting their annuity obligations, even if they were fully funded.
–Ronald McKinnon, “Where Are the Bond Vigilantes?”; The Wall Street Journal (9/30/2011)
Can’t make heads or tails out of the above?
Allow me to translate.
“Zero percent interest rates will ultimately bankrupt the nation’s pension plans, both corporate and public.”
What happens after that?
Poor pensioners spend less money, which further weakens the economy, which . . . . presumably necessitates even more quantitative easing.
Anyone else spot the fatal flaw in this approach?