Banksters and speculators love our current ultra-low interest rates, as it allows them to borrow inexpensively. It’s party time for them, aided and abetted by the always banker-friendly Fed. The problem is, cheap money is absolutely killing pension funds, which rely on bonds for steady income. Bonds that used to yield 8% can be one-tenth of that or less now, which makes it difficult, sometimes impossible, for the fund to meet obligations.
So, if they are allowed to, they cut pension benefits and / or do risky trading to make up the difference. This is a worldwide problem. Here in the states, ginormous Calpers made 0.6% for FY 2016. It needs 7.5% to hit its targets. Ouch. Costa Mesa and San Jose have crushing pension debt loads that increase each year and threaten to swallow up entire city budgets. Yes it’s that bad. And California law makes it very difficult to cut public pension benefits.
Those with private pensions can be ever worse off. Multiple Teamsters pension funds are in dire shape and may be taken over by the feds within a few years. If that happens, benefits will be decimated. These workers were promised pensions. They paid into the fund for decades. Now it just gets vaporized?
Low rates helped pull down assets of the world’s 300 largest pension funds by $530 billion in 2015, the first decline since the financial crisis, according to a recent Pensions & Investments and Willis Towers Watson report. Funding gaps for the two biggest funds in Europe and the U.S. have ballooned by $300 billion since 2008, according to a Wall Street Journal analysis.