Hardly Alone

The dilemma the Fed faces--besides just being genuinely incompetent and the horrible ramifications that can have on ordinary peoples' lives--is they raise rates and growth remains slow.

Part of their reason for raising rates anyway is to give the impression they will have some breathing room should Katy have to try to bar the door. Millions of American lives center on pension returns either now or in the immediate future. And public pensions like those in California, Illinois and New York are huge with huge obligations and in many case huge deficits.

The Fed's excessive monetary stimulation policies proves once most things can bite two ways. According to the Wall Street Journal, "Pension Returns to Hit New Lows," "Connecticut now allocates 10% of its budget to pay down unfunded pension liabilities that more than doubled over the past decade."  To be sure, there are other causes for this turmoil, mostly politicians who in good times kick pension funding obligations down the road in the name of their favorite giveaways, but that decade also coincides with Fed policies.

One thing we know if things go down the drain, politicians will deny the blame. And that leaves those bureaucrats. Chicago, the city Carl Sandburg once described as "hog for butcher of the world...City of Big Shoulders," has enough problems to make a preacher cry. A homicide rate that gets manipulated more often the Fed jobs data, a growing exodus out of town and, yes, a "$20 billion pension hole" giving its fund a junk rating.

And there's more. A lot of people once they retire move away from where they spent their working careers. States and municipalities take a dim view of that for the most part, showing their attitude you made it here you should spend some of it here as more seek to tax these contributions. These pension liabilities are another way to spell bubble. And bubbles are becoming so frequent  today, so many of them, they're difficult to keep track of.

Now politicians, bureaucrats and academics will no doubt destroy reams of paper, recycled or otherwise, debating and defining what's a bubble. An obligation coming due  seldom meets their criterion. The common lie these so-called fiduciaries tell is short term volatility matters little. It's the long term that counts as these people have a fondness for relying on the future to bail them out.

But as the Journal notes there's been a drop in 20-year annualized returns, those same numbers insurance and annuity firms used to love to quote before the 2008-09 crisis. Long term expectations and performances have suffered from two recessions and abnormally low interest rates over the last  15 years. All three of  these entities--pension funds, insurance and annuity sellers--depend on steady long term returns to meet their needs.

Two California funds, the largest in the U.S. By assets, managing a combined $484 billion for 2.6 million public employees and retirees, saw their 20-year returns target fall below 7.5% to 7.3% for one and 7.1% for the other. Taxpayer or workers are usually on the political hook for funding any shortcomings, the Journal notes. But here's the real rub according to the Center dot Retirement Research at Boston College: "Every one percentage drop in investment returns represents an increase of 12% in liabilities."

So if you think social security is a landmine waiting to be detonated, it's hardly alone.