World interest rates?

[Mega]

Questions:-

Is the FED lifting rates to save the pension industry?

&

Will everyone else have to follow them?

Mike

[dcarrigg]

Re: World interest rates?

Questions:-

Is the FED lifting rates to save the pension industry?

&

Will everyone else have to follow them?

Mike

Don't see why. Big benefit of zirp for the bosses was that it was a quiet way to abolish pensions without there ever being a vote in congress. I can't imagine many Henry Chalmers Wigglesworth IV, or corporate leaders, or anyone else with the purse to hire high powered lobbyists is gonna go out on a limb and crush their own stock values to save working Joe's pension. Especially now where I'd bet this year US finally crossed the 90% of private sector workers with no pension figure.

I mean, in most ways, the US's fiscal system is still in Reagan mode. Still using a slightly modified tax code based on the Tax Reform Act (1986), complete with section 401(k) loophole that has bumbled into becoming the primary retirement vehicle (and an abject policy failure). And meanwhile The Tax Equity and Fiscal Responsibility Act (1982), The Retirement Equity Act (1984), and The Tax Reform Act and Single Employer Pension Plan (1986) all but conspired to eliminate pensions in the United States. And they did a bang up job. By Nixon's second term, half of American private sector employees had pensions. Now only 9 or 10% do. Only took 40 years. And they raised the age for Social Security too. So long retirement in America for anyone but the top 10 or 20%.

Think this is probably exactly what it seems. The fed loading one in the chamber late in the expansion hoping it's enough to defend against the coming recession.

[jk]

Re: World interest rates?

one would think higher rates and a lower stock market would reduce the underfunding of pensions, which appear to continue their existence solely for public sector unions. however liability matching would require buying long-dated maturities, and those rates have not gone up lately- to the contrary.

[dcarrigg]

Re: World interest rates?

one would think higher rates and a lower stock market would reduce the underfunding of pensions, which appear to continue their existence solely for public sector unions. however liability matching would require buying long-dated maturities, and those rates have not gone up lately- to the contrary.

John Arnold has made it his personal mission this past decade to abolish public sector pensions, and he has done a very good job of it. Other billionaires have joined them and helped him succeed by lending him the think tank and media infrastructure they already built. So public sector pensions have been dying at a fast and furious rate these past few years. Cities, counties, and states all across America. It's a complex, multi-pronged approach. There's the think-tank money you can see on the surface. But then there's 501(c)4 and 527s and super pacs they spin up out of nothing supporting candidates (in both parties) in their pockets. Here's one take as to why it's happening. And it makes sense to me. But regardless, hundreds of millions of ill-gotten Enron money has found its way into lobbying to take retirements away from cops, firefighters, teachers, and the like. And probably most of their neighbors view it as a victory and think it will keep taxes lower for them. They may save $100 per year or something. But the billionaires are wresting control of billions. And those billions would have gone to local folks who would use them as an income stream. They would have shopped in local stores and hired local contractors and ate at local restaurants. Now, instead, the money goes to Sand Hill Road and get invested in some iPhone app to analyze dog farts and spy on you that pays its 22 year old software engineers $150k/year to give to a landlord in Mountain View, California. I mean, if you want to see one clear vector for how wealth gets sucked out of local communities and dumped in Silicon Valley and Fairfield County, here it is. Clear as day.

The thing is, this isn't a Marxist argument. At its core, it's not materialist. Capital lets you move stuff around, sure. But I think the real power isn't material. It's the authority it gives you to make decisions. The rise of dual-class shares is the proof in the pudding. One man; one vote is a principle. One share; one vote is a racket. Now you don't get even that. Corporate Jim Crow. Anyways, pension funds can build that authority up. They can divest from bad actors. They can demand changes. In short, they have at least a modicum of ability to concentrate sufficient capital to gain decision-making power on behalf of people who actually work for a living. And that's why they're intolerable to our central-planning overlords who work on that half-mile of Sand Hill Road or who run their hedge funds out of Fairfield County. They can tolerate the big college endowments because the biggest are at the wealthiest schools, and generally have trustees from the same circles as them. And they can tolerate the passive funds (for now, but note they're getting skittish). Yet they simply cannot tolerate the idea of a giant active investment fund collectively owned by the working class people. They spend so much of their own money trying to kill the last few pensions that survived the 1980s legal onslaught and the greenspan put combination attack, that the idea there'd be some cabal at the Fed to save them seems completely implausible to me.

[Mega]

Re: World interest rates?

we up to almost 3% in the US, UK still only .75%
Lets hope the US drags everyone else higher
Mike

[jk]

Re: World interest rates?

John Arnold has made it his personal mission this past decade to abolish public sector pensions, and he has done a very good job of it. Other billionaires have joined them and helped him succeed by lending him the think tank and media infrastructure they already built. So public sector pensions have been dying at a fast and furious rate these past few years. Cities, counties, and states all across America. It's a complex, multi-pronged approach. There's the think-tank money you can see on the surface. But then there's 501(c)4 and 527s and super pacs they spin up out of nothing supporting candidates (in both parties) in their pockets. Here's one take as to why it's happening. And it makes sense to me. But regardless, hundreds of millions of ill-gotten Enron money has found its way into lobbying to take retirements away from cops, firefighters, teachers, and the like. And probably most of their neighbors view it as a victory and think it will keep taxes lower for them. They may save $100 per year or something. But the billionaires are wresting control of billions. And those billions would have gone to local folks who would use them as an income stream. They would have shopped in local stores and hired local contractors and ate at local restaurants. Now, instead, the money goes to Sand Hill Road and get invested in some iPhone app to analyze dog farts and spy on you that pays its 22 year old software engineers $150k/year to give to a landlord in Mountain View, California. I mean, if you want to see one clear vector for how wealth gets sucked out of local communities and dumped in Silicon Valley and Fairfield County, here it is. Clear as day.

The thing is, this isn't a Marxist argument. At its core, it's not materialist. Capital lets you move stuff around, sure. But I think the real power isn't material. It's the authority it gives you to make decisions. The rise of dual-class shares is the proof in the pudding. One man; one vote is a principle. One share; one vote is a racket. Now you don't get even that. Corporate Jim Crow. Anyways, pension funds can build that authority up. They can divest from bad actors. They can demand changes. In short, they have at least a modicum of ability to concentrate sufficient capital to gain decision-making power on behalf of people who actually work for a living. And that's why they're intolerable to our central-planning overlords who work on that half-mile of Sand Hill Road or who run their hedge funds out of Fairfield County. They can tolerate the big college endowments because the biggest are at the wealthiest schools, and generally have trustees from the same circles as them. And they can tolerate the passive funds (for now, but note they're getting skittish). Yet they simply cannot tolerate the idea of a giant active investment fund collectively owned by the working class people. They spend so much of their own money trying to kill the last few pensions that survived the 1980s legal onslaught and the greenspan put combination attack, that the idea there'd be some cabal at the Fed to save them seems completely implausible to me.

there IS a problem with public sector pensions which does not relate to the issues you raise. i live in ct, which i've read is 2nd only to illinois in its pension problem.

the public sector pension is negotiated by current politicians to place burdens on future politicians and future citizens. the current politician is incentivized to trade off generous future pensions to somewhat reduce current expenditures. this both buys the support of the union members and lowers the immediate financial burden on state citizens. everyone wins! but everyone wins only for the moment, until the future pensions come due. then the state is squeezed and must reduce services, raise taxes, or some combination of the two.

there's something wrong with this process. because the incentives are so skewed, a forced arbitration process e.g. would make more sense.

[dcarrigg]

Re: World interest rates?

there IS a problem with public sector pensions which does not relate to the issues you raise. i live in ct, which i've read is 2nd only to illinois in its pension problem.

the public sector pension is negotiated by current politicians to place burdens on future politicians and future citizens. the current politician is incentivized to trade off generous future pensions to somewhat reduce current expenditures. this both buys the support of the union members and lowers the immediate financial burden on state citizens. everyone wins! but everyone wins only for the moment, until the future pensions come due. then the state is squeezed and must reduce services, raise taxes, or some combination of the two.

there's something wrong with this process. because the incentives are so skewed, a forced arbitration process e.g. would make more sense.

In the end of the day, I let a little of my disgust for what I think will happen show. But I think it's gonna happen anyways. CT will probably be next. You do know John Arnold and Dave Koch are behind that Yankee Institute for Public Policy bullshit, right? What cracks me up royally there is that a Texan seeded something called the Yankee Institute to push southern politics on the north. John Brown's body lies a'mouldering in its grave.

Anyways, Shaheen's on their payroll in NH too. Others all over the place. Might be a few years till they get the dark horses they need at the state house in Hartford. Can't tax those big swinging dicks down in Greenwich. So the work-a-day schlubs up in Hartford are going to lose their retirements just like the work-a-day schulbs in Providence did a couple years ago and in Frankfurt barely fought off this year. It's one thing I gotta give the teachers down south. They got shit on so long that they got more fight in 'em now.

But by hook or by crook, they'll steal every last penny from from the working man and woman. They believe in ardent and inviolable property rights handed down by God himself, but only for the upper class. Pensions are eminently revokable, and with no recompense despite the 5th amendment.

And guess who marched in to lawyer up that baldly unconstitutional contortion of law? David Boies himself, lawyer for such stellar clients as Theranos and Harvey Weinstein and loser in the classic Bush v. Gore case. When the next Shakespeare writes the next Julius Caesar about the fall of the American Empire, odds are that guy's going to play a key role. Anyways, since, unlike other property, they can take pensions without compensation, they will revoke every last one eventually. It's going on in almost every state. And it's even faster and more furious at the municipal level when they decide they can't take the state head on.

I suspect children born in America in 2020 will never know what the word pension really means.

In case I'm being obtuse, take your neighbor RI for example.
They basically abolished pensions for every non-cop and non-judge with under 10 years in.
They slashed them for everyone with a vested interest.
John Arnold did it by funding a politician for state treasurer and funding the party machine and part of the legislature--including the "progressive" Dem wing speaker who has since gone to prison for corruption.
Then he did it by funding SuperPACs and astroturf groups like the Yankee Institute, but once he got what he wanted, poof, those groups vanished.
Then how did he benefit personally? They pumped the entire state pension fund into related hedge funds, got soaked by fees for 3 years, then pulled out. A huge chunk of the "savings" the state got by stealing workers' pensions just went directly to the 2% and 20% of the sharks.
What happened to the rest? They eliminated the top brackets, so instead of 9.99% after $160k or something it went down to 5.99% after the first $40k. Much flatter tax. Brought in much less money.
Then they cut the corporate tax from 9% to 7%. Then they cut the estate tax and increased the exemption.
The result?
Pensions are ded. D-E-D, ded.
And "structural deficits" persist.
So let's think about what the result was?
Top 10% maybe got a tax cut.
Top 1% and corps got a huge tax cut.
Out-of-state hedge funds made hundreds of millions in fees.
Tens of thousands of middle class lost their retirement income.
State's still broke and running deficits.
Do you really think that's gonna improve economic conditions?
Why after all this time do Americans still never look at the demand side?

[jk]

Re: World interest rates?

In the end of the day, I let a little of my disgust for what I think will happen show. But I think it's gonna happen anyways. CT will probably be next. You do know John Arnold and Dave Koch are behind that Yankee Institute for Public Policy bullshit, right? What cracks me up royally there is that a Texan seeded something called the Yankee Institute to push southern politics on the north. John Brown's body lies a'mouldering in its grave.

Anyways, Shaheen's on their payroll in NH too. Others all over the place. Might be a few years till they get the dark horses they need at the state house in Hartford. Can't tax those big swinging dicks down in Greenwich. So the work-a-day schlubs up in Hartford are going to lose their retirements just like the work-a-day schulbs in Providence did a couple years ago and in Frankfurt barely fought off this year. It's one thing I gotta give the teachers down south. They got shit on so long that they got more fight in 'em now.

But by hook or by crook, they'll steal every last penny from from the working man and woman. They believe in ardent and inviolable property rights handed down by God himself, but only for the upper class. Pensions are eminently revokable, and with no recompense despite the 5th amendment.

And guess who marched in to lawyer up that baldly unconstitutional contortion of law? David Boies himself, lawyer for such stellar clients as Theranos and Harvey Weinstein and loser in the classic Bush v. Gore case. When the next Shakespeare writes the next Julius Caesar about the fall of the American Empire, odds are that guy's going to play a key role. Anyways, since, unlike other property, they can take pensions without compensation, they will revoke every last one eventually. It's going on in almost every state. And it's even faster and more furious at the municipal level when they decide they can't take the state head on.

I suspect children born in America in 2020 will never know what the word pension really means.

In case I'm being obtuse, take your neighbor RI for example.
They basically abolished pensions for every non-cop and non-judge with under 10 years in.
They slashed them for everyone with a vested interest.
John Arnold did it by funding a politician for state treasurer and funding the party machine and part of the legislature--including the "progressive" Dem wing speaker who has since gone to prison for corruption.
Then he did it by funding SuperPACs and astroturf groups like the Yankee Institute, but once he got what he wanted, poof, those groups vanished.
Then how did he benefit personally? They pumped the entire state pension fund into related hedge funds, got soaked by fees for 3 years, then pulled out. A huge chunk of the "savings" the state got by stealing workers' pensions just went directly to the 2% and 20% of the sharks.
What happened to the rest? They eliminated the top brackets, so instead of 9.99% after $160k or something it went down to 5.99% after the first $40k. Much flatter tax. Brought in much less money.
Then they cut the corporate tax from 9% to 7%. Then they cut the estate tax and increased the exemption.
The result?
Pensions are ded. D-E-D, ded.
And "structural deficits" persist.
So let's think about what the result was?
Top 10% maybe got a tax cut.
Top 1% and corps got a huge tax cut.
Out-of-state hedge funds made hundreds of millions in fees.
Tens of thousands of middle class lost their retirement income.
State's still broke and running deficits.
Do you really think that's gonna improve economic conditions?
Why after all this time do Americans still never look at the demand side?

i didn't post above to defend looting public pensions. and if the hedge funds made "hundreds of millions in fees" it wasn't from their 2% admin fees. they must have generated serious profits if 20% in fact generated "hundreds of millions." whether they performed well in fact, or at all, and how much they actually raked off, i certainly don't know, though perhaps that information is floating around somewhere.

corrupt and venal politicians negotiated the contracts, mendacious and/or stupid politicians ok'd the unrealistic return models that allowed them to chronically underfund the pensions they'd signed off on.

essentially the public sector has been strolling down the path that general motors took to bankruptcy. it used to be said that gm wasn't a car company; it was a finance company [gmac] which made cars on the side. in fact that was incorrect. it was an insurance company with both annuity and health care obligations, with both a finance company and a car manufacturer on the side. and they, too, used unrealistic return assumptions, as did just about every company with a pension plan. they underfunded their pensions, or even clawed back money they'd put into their pension funds, by making believe they could generate unrealistic returns. apparently there were no regulators who cared to call bs on these practices.

so the robberies started at the inception point in both the public and private sectors. management buys labor peace in the private sector or even labor union votes on the public side with unrealistic promises about future benefits. they then underfund the pension plans by assuming unrealistically optimistic rates of return, and then they cry poor when it's time to pay out and go through bankruptcy or pass laws revoking prior commitments if necessary to avoid their "obligations."

of course the labor leaders could have, or perhaps did, hire actuaries and consultants, and they could have called "bs" on the original contract and every year of underfunding. but they played along too, because it was in their own short term interest as well. so there's plenty of blame to go around.

[dcarrigg]

Re: World interest rates?

Oh yeah, you're not wrong that sins of the past are baked in now. And zirp cranked up the heat. Question for CT is, do you reneg on them, gutting local economies, and ship the proceeds out to top earners and capital? Or do you do like NY and squeeze top earners and capital to make good on them? Or do you do like RI and squeeze middle class retirees and suffer a public sector youth exodus and brain drain? To some extent NY has power to squeeze the top others don't. But too much adieu was made of the GE move I think too, given that it was lured by the siren call of big cities anyways. Anyways, not sure about Wooden. We'll see. But the leg is probably easier and cheaper to intimidate than you'd think. As for the massive RI hedge fund looting, here's a sample of the madness from 2016, when they finally put a stop to it:

[jk]

Re: World interest rates?

i'm not sure if the ct constitution would allow breaching the contract- just don't know. doubt that's the plan right now as we just elected a democratic gov. if i were tasked with designing a strategy i would worry a lot about a squeeze the rich program- lower fairfield county could empty out pretty quickly. the hedge fund guys could move to florida like that guy from new jersey who moved to florida and - 1 person- deprived the state of hundreds of millions of its income tax revenue.

from the article at the link above:
Connecticut, home to several hedge fund billionaires, now tracks the quarterly estimated payments of 100 of its top earners. Kevin B. Sullivan, commissioner of the Connecticut Department of Revenue Services, said about five or six of the highest earners could have a “measurable impact on the revenue stream.”

the state has already taken some steps to get its money more quickly- e.g. rmd's from ira's are now required to withhold 6.99%- the state's highest marginal rate. i expect a combination of service cutbacks and hidden tax increases:

New budgets fail to restore Medicaid cuts to thousands in CT

The upcoming crisis in Connecticut higher education: a case study for the nation

Do state budget cuts impact school staffing levels? See staffing & funding levels for your town here.

Towns told to make up for state education cuts


this last is interesting. although the state has so far refrained from raising its income tax, the cuts in aid to towns and cities mean the localities are boosting their property tax rates.

here's part of the plan:

Other deficit-mitigation options Malloy cited in his transition budget include: canceling tax cuts; shifting teacher pension costs onto municipalities; maintaining a new hospital taxing arrangement that leverages big federal aid; trimming employee ranks through attrition; reducing municipal aid “without harming our poorest communities;” and cutting health care programs.

the tax on non-profit hospitals plays on a gimmick in the medicaid law.

The U.S. Centers for Medicare and Medicaid Services, commonly known as CMS, approved a significant increase in the state’s annual tax on hospitals — from roughly $556 million to $900 million.

Federal officials must weigh in on this because Connecticut will redistribute much of that revenue right back to its hospital industry. This back-and-forth arrangement — which most states employ — in turn enables Connecticut to qualify for huge federal payments through the Medicaid program.

bottom line they're going to use every means possible of avoiding an income tax increase on the one hand, and breaching the pension commitments on the other. it remains to be seen whether the state gov't will be able to pull this off.