From Birch Gold Group
Pension programs may suffer due to a new round of currency wars that are poised to begin between the ECB (European Central Bank) and the U.S.
Last week, the ECB made the first move by lowering its already negative benchmark rate by another 10 basis points to -0.50%.
Dave Gonigam described the ECB’s move in a recent “5 Minute Forecast”:
The ECB will also resume its “quantitative easing” after a pause of only eight months — buying both government bonds and corporate bonds to the tune of $22 billion a month.
Referring to the easing monetary policy, Jim Rickards said, “The decision aims in part at weakening the euro relative to the dollar. Washington is certain to fight back… and a new round of currency wars will soon be underway.”
Now, the Federal Reserve has retaliated, approving its own rate cut of 25 basis points at this week’s FOMC Meeting. The latest cut drops the Fed’s target rate range to 1.75% to 2.00%.
It’s this new trend of monetary easing that could brew big trouble for pension programs in the U.S. Yet this week’s cut in rates probably won’t be enough for POTUS (emphasis ours):
The Fed’s approach may make some market pros unhappy, and it will certainly disappoint President Donald Trump, who said the Fed were “boneheads” and called for zero or even negative rates.
While ZIRP (Zero Interest Rate Policy) or NIRP (Negative Interest Rate Policy) may temporarily stimulate the economy, it could spell disaster for pension programs.
Potential for Negative Rates Creates New “Pension Tension”
Who would invest in something that does not provide a return and, in fact, costs the investor money? Pension funds may have to.
And here’s why: Pension funds are required to invest a certain portion of their funds into fixed investments like bonds.
So if the Fed were to cut rates below zero, Gonigam notes that pension programs may “have no choice but to buy negative-yielding debt… even if it destroys their returns.”
Public pension plans are already severely underfunded, so anything that further jeopardizes their ability to generate positive returns could be catastrophic.
Not to mention that more tax increases may be in the cards if state and local pension programs get desperate.
And even though domestic interest rates are still positive (for now), corporate pensions are taking a hit, thanks to Treasuries taking a dive in August. Corporate pensions ended August underfunded with only 82% of the funds needed to pay obligations.
That’s getting frighteningly close to the limit of 80% that companies often use as a time to use cash flow to bolster their pensions.
Corporations that are focused on shoring up pensions aren’t using those funds to grow their businesses or pay out dividends.
If rates do end up going negative, it would make things exponentially worse for all corporate pensions and pension holders.
Don’t Let Negative Rates Drive Your Retirement Into the Red
Now is the time to ask yourself, how low will the Fed go when it comes to cutting rates?
You should also consider how to guard your financial future against lawmakers who may decide where more of your tax dollars go. Especially if they need to shore up local and state pension programs.
A good place to start would be to take back control of your own retirement. Consider shifting some of your financial assets into precious metals, which tend to perform well during times of inflation and uncertainty.
With global tensions spiking, thousands of Americans are moving their IRA or 401(k) into an IRA backed by physical gold. Now, thanks to a little-known IRS Tax Law, you can too. Learn how with a free info kit on gold from Birch Gold Group. It reveals how physical precious metals can protect your savings, and how to open a Gold IRA. Click here to get your free Info Kit on Gold.
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal
-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)
I’ll say it again. The money is already gone from pensions, 401Ks, IRAs, etc. You will never get the value you currently percieve them to be worth. It will be a fraction, exactly what, who knows? But definitely not what you percieve its value to be. It’s already gone. Thats a bitter pill for sure but know this and plan accordingly.
First the government forces, coerces or tricks the average person into plans that are intentionally easy for them to rob. Then they rob them tackiest crassest ways.
The lady next door gets about 1250 a month retirement. Her medicare B premium is 135 per month but she also has a yearly deductible of $1,350.00 that comes right away, not after a threshold. With her health it means another $110.00 monthly. so she basically pays 245.00 per month. Why don’t they just call it a premium instead of a deductible.
I’m not debating what she may have put in or if she deserves the money. It’s the sleazy way they take the money that irks me.
Tampa thinks that’s cynical. I call it naming it for what it is. Once I identify it and name it I can choose a course of action.
If they offer you a cash, net present value, take it! With these low interest rates you will get approx 55% of what they say they would pay you over 30 years. However the rates they are paying you today are approx 7%. Which is a farce. They do this to entice you to take the payments instead of lump sum. Once you choose payment you are stuck. Take the money in lump sum….i warned you.