Fed Credibility Dwindles, Pension Funding Crisis Looms

pension_collapseBy Clint Stiegner

Fed officials jawbone the markets and spread disinformation. They figure it’s part of their job as central planners. It’s not enough to pull the levers and twist the knobs on interest rates, the money supply, and asset prices. They also use propaganda to manage investor psychology. It’s all smoke and mirrors.

Frustrated metals investors wonder just how long officials will maintain their hold over markets when so much of what they say turns out to be garbage and so much of what they do ends in failure.

The answer is perhaps not much longer. There are real cracks emerging in the credibility of Fed banksters. It has taken years, but investors and pundits are finally questioning whether the Fed knows what it’s doing. They have progressed from the blind worship of Alan Greenspan, who engineered first the Dot.com bubble and then the housing bubble that made people feel so wealthy, to wondering if they can believe a word Janet Yellen says.

Following the most recent FOMC meeting, CNBC’s Steve Liesman, heretofore one of the Fed’s biggest apologists, asked Janet Yellen this difficult question; “Does the Fed have a credibility problem in the sense that it says it will do one thing under certain conditions, but doesn’t end up doing it?”

Yellen responded with typical “Fedspeak” and did nothing to shore up confidence:

Well, let me start — let me start with the question of the Fed’s credibility. And you used the word “promises” in connection with that. And as I tried to emphasize in my opening statement, the paths that the participants project for the Federal Funds rate and how it will evolve are not a pre-set plan or commitment or promise of the committee.

Indeed, they are not even — the median should not be interpreted as a committee-endorsed forecast. And there’s a lot of uncertainty around each participant’s projection. And they will evolve. Those assessments of appropriate policy are completely contingent on each participant’s forecasts of the economy and how economic events will unfold. And they are, of course, uncertain. And you should fully expect that forecasts for the appropriate path of policy on the part of all participants will evolve over time as shocks, positive or negative, hit the economy that alter those forecasts.

So, you have seen a shift this time in most participants’ assessments of the appropriate path for policy. And as I tried to indicate, I think that largely reflects a somewhat slower projected path for global growth — for growth in the global economy outside the United States, and for some tightening in credit conditions in the form of an increase in spreads. And those changes in financial conditions and in the path of the global economy have induced changes in the assessment of individual participants in what path is appropriate to achieve our objectives.

Translation: Yellen and the rest of the FOMC find the economy totally unpredictable and no one should rely on what they say.

Evidence shows that investors are losing faith as they realize just how artificial and micro-managed the markets are. Steve St. Angelo from SRSRoccoReport.com reports on the collapse of trading volume in Dow Jones stocks, even as stock prices move higher. Fewer and fewer retail investors care to play, while a handful of major investors – almost certainly including the Fed and its primary dealer banks – busily “paint the tape” with a picture of growth.

stockmarket-abnormal-tradingConfidence may erode slowly, but at some point markets can collapse suddenly. Fed officials and their misguided policy is vulnerable now to some trigger event that destroys whatever faith people still have.

The chickens are coming home to roost. For example, last week the city of Chicago lost the battle to curb public employee pensions. The Illinois Supreme Court upheld the state’s constitution which protects public pensions from being “diminished or impaired.” Now Chicago will struggle to avoid bankruptcy as it must find billions of dollars to shore up its massively underfunded pension obligations.

Much of the blame for the debacle in Chicago and for huge pension shortfalls across the country should be laid at the feet of the Fed and its Zero Interest Rate Policy. These retirement funds planned for much higher interest yields than the Fed has permitted in the last several years.

Now pensions are woefully short of what is needed to meet their obligations and some very hard choices must soon be made. Elected officials will need to decide whether to impose major tax hikes to cover the generous benefits that were promised, make big cuts (where allowed), or default.

Retirees have long been frustrated that banks pay nothing in interest on savings, and yet they are getting crushed by a rising cost of living. (This problem has been discussed frequently by our friend Larry Parks of the Foundation for the Advancement of Monetary Education).

So far, the above concerns have not held much sway at Fed policy meetings. Perhaps the burgeoning pension crisis will be the final straw.

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Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals‘ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

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19 Comments on "Fed Credibility Dwindles, Pension Funding Crisis Looms"

  1. The Fed knows what its doing because it is owned by the very people its policies are engineered to help. They aren’t stupid people. They’re just corrupt and greedy.

  2. In Australia, if you are under 55 you will never see retirement or your retirement fund. The trick is, you cant touch your retirement fund until you retire. Those billions and billions of dollars of retirement funds are just sitting there waiting for the government grab. Don’t think it will happen? Watch what happens when GFC part 2 comes to town. It will be big enough for the government to convince everyone that its about ‘rebuilding a nation’. I can hear it now and, its what they have always planned…

  3. PERS ponzi 1st repsonders | March 30, 2016 at 11:49 pm | Reply


  4. Garry Compton | March 31, 2016 at 7:52 am | Reply

    I’m retired so I had plenty of time to see what happened to Soc Sec. -America- and so I started to do some # crunching on the pay out now vs my Fathers payout. His dollars was worth more than todays payout and this was 30 years ago. So, SS should have doubled by now – just like the Gov. pensions have quadrupled but SS got stolen. As many countries from Greece to Ukraine– the World banks, IMF, Feds – once they enter your country of debt, the first they do is steal 1/2 of your private Pensions and then go after the Gov ones. Next, I painstakenly calculated how much was stolen from Amer. SS accts – I figure 6-9 trillion dollars. Not the 3 that the Gov stole and replaced with fake souvineer notes. But poor Ukraine – they used to get 100 to 150 dollars a month { equilivant} but now they were cut to 40 -60 bucks a month. These Bankers/Governments have no Conscience – none– only the people together can stop it.

    • You make a good point. While Republicans have voted to raise the retirement age (ie pay more taxes for fewer benefits) and propose raising it again, the actual buying power of the average SS benefit has decreased.

      ” study by the Senior Citizens League found that Social Security benefits have lost about 22% of their buying power since 2000, despite the benefit increases due to the COLA.”

      That is why progressives want to expand and increase Social Security to maintain its actual value. Anything else is cutting it. With the top 1% increasing their incomes and wealth by nearly 300% since 1989, it is cruel and hypocritical to cut the meager benefits (average is about $1200 a month, ie below the poverty level) to maintain tax breaks for the rich.

      Austerity is just another name for theft, whether in the US or UIkraine or Greece, whereby public funds are transferred to private pockets.

  5. Worth pointing out: the Federal Reserve is a cartel of private bankers who set monetary policy, as designed by right wing economists. It is not the government; the government does not have control over it, and in fact, the Fed has taken over the Constitutional power granted to the actual government.

    We are controlled by a handful of central bankers, our own communism for the rich and screw the rest of you. The Dept of Treasury is controlled by the big banks, such as Goldman Sachs, and tho it is a part of the government, in fact it is a servant of Wall St.

    Those who seek to convince us that Social Security, which has a surplus of 2.8 trillion and earns interest on the bonds it sells internally, is going bankrupt have the motive to use fear to create the pretext to hand over the SS trillions to Wall St, which collapses ever 20 years and depends on the taxpayers to bail them out, tho when they profit from their gambles (that is why they want that SS money), they pocket the cash.

    When the Boomer Generation finally dies off and the surplus is used up, the next generation of retirees will inherit a larger ratio of workers. Immigrants also increase the ratio and help provide future solvency. The claim that the richest nation in all history cannot afford a minimal standard of living for people who have worked all their lives is one of the most absurd lies of all time. The purpose of these lies is to privatize SS assets so that Wall St can gamble with them, heads they win, tails we lose.

    • Well, Dale. Thats probably the best post I have seen from you; because its very true…

    • Dimitri Andre | April 6, 2016 at 12:00 pm | Reply

      you do realize there nothing in the social security..its been you used to cover some of the deficit spending..its based on a ponzi-scheme which you just kind of explained wit the whole boomer retiring rant…what they are really after is the privatization of SS accounts that are already being paid by the workers today to fund the wall st casino..

      • You do realize the US has NEVER defaulted on its debt payments in over 200 years, don’t, you? The contractual agreement of Social Security is not a Ponzi scheme, but an insurance program. No Ponzi scheme can survive 70 years without missing a payment. Your lie is promoted so that Wall St can have a pretext to take over SS funds to gamble with.

        Boomers paid in nearly 3 trillion surplus to fund their retirement; when the boomers are all gone, having used up the taxes they paid it (earning interest as loans to the Treasury), the worker/retiree ratio will be more favorable.

        We denounce privatization of public funds. Those who want that are the ones claiming SS is bankrupt. You are very very confused, my friend.

  6. I agree Rachel because I did move off grid and we do grow our own veggies…and we have bees too!.
    Problem is there is no way to make money because there are no jobs around. Farming is a full time job but unless you are a corporate farmer you will not make ends meet.

  7. Usury is allowed in the Bible but only against foreigners and non-Jews. Deuteronomy 23:19-20
    Forgiveness of debt is the Jubilee Year which occurs every 50 years. Properties revert back to their original inheritances.
    The shekel-snatchers you rage against DO NOT OBEY TORAH, therefore, they could care less about the LORD God’s law. Ironic, considering they were the first ones given it and have had roughly 3500 years to get it right. I’m guessing after that much time they have no interest in really ‘getting it’. Seriously, those you rail against are going to face an awful judgment in what is to come. What profits a man to gain the whole world yet lose his own soul?

    As for Trump…no one can set our country straight because we are a wicked nation. YOU be the change you want to see because you cannot change anyone else.

  8. By 2033, almost all the demographic bulge will be dead, which will revolve into a ratio of workers to retirees more favorable to solvency. That is why we boomers pay in nearly 3 trillion in surplus to fund our retirement. A slight boost in the payroll tax, or taxing Wall ST or ending corporate welfare or reducing the bloated defense budget…there are many ways to keep SS afloat after it has exhausted its 2.8 trillion surplus.

    Currently, the full benefit age is 66 for people born in 1943-1954, and it will gradually rise to 67 for those born in 1960 or later. So using age 62 is misleading. Also misleading is the figure of $2,362 (the maximum). In fact,
    in June 2011, the average Social Security benefit was $1,180.80 per month, half of what you are misrepresenting.

    Privatization is opposed by most Americans; it is a scheme to hand over the funds to Wall St to gamble with. No thanks. You appear confused.

    You are repeating long obsolete cliches. SS has survived 70 years of such attacks. Small adjustments will extend its life beyond the age when the boomers all rest in peace.

  9. 50 million continue to get their
    SS checks; the govt continues to pay its debts, including to SS with interest.
    It’s a strange death which refuses to die.

    • Dimitri Andre | April 10, 2016 at 10:19 am | Reply

      Like I said It will be here for you (hopefully doesn’t go out before YOU die) but not for me. So you selfish stupid me-me generation boomers enjoy the involuntary ponzi-scheme while its still here or worth anything(they would most likely inflate the dollar to cover this ponzi-scheme so it wont be worth much if it is around)…Have the last word I said all I need to say on this topic.

      The government use all tax money(including SS) to just pay the interest of the national debt…They just print money thru policies like ZIRP(zero interest rate policy) and QE(quantitative easing, basically printing money) to fund the SS and the rest of the government..its called DEFICIT SPENDING!! (now I’m done lol)

      • The govt does not use all tax money to pay the interest on the debt. “Currently, the government’s interest costs are around $200 billion a year.” WSJ

        Almost all this interest costs are from money borrowed from previous wars.

        ” In FY 2016, total US government revenue, federal, state, and local, is “guesstimated” to be $6.6 trillion. Federal revenue is budgeted at $3.3 trillion;”

        So with over 3 trillion collected from taxes (income, corporate, and payroll) in 2015, about 7-8% went to repay interest on the debt.

        Secondly, not only does SS have a 2.8 trillion, but its deficit projected for the future could be easily solved by lifting the cap on SS taxes, which now stops at $108,000. Robert Reich addressed this:
        Back in 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of all wages covered by Social Security. That 90 percent figure was built into the Greenspan Commission’s fixes. The Commission assumed that, as the ceiling rose with inflation, the Social Security payroll tax would continue to hit 90 percent of total income. Today, though, the Social Security payroll tax hits only about 84 percent of total income. It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today the top 1 percent takes in more than 20 percent. If we want to go back to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000. Presto. Social Security’s long-term (beyond 26 years from now) problem would be solved.”

        The other solution is to raise the retirement age, the solution advocated by the rich and the Republican Party By totally lifting the cap on all incomes, we could insure the solvency of Social Security as far as the eye can see.

        The reason they have lied to you is to rationalize taking your payroll taxes and handing them over to Wall St. to gamble with. The fact is, lifting the cap would solve the problem. Legislation introduced by Senator Bernie Sanders (I-VT) and Rep. Peter DeFazio (D-OR) would apply the same payroll tax already paid by more than 9 out of 10 Americans to those with incomes over $250,000 a year.

        So vote for Bernie and support his proposal and you will be assured that you too one day will collect the benefits you are paying for.

      • The boomers created thru their taxes a surplus of 2.8 trillion to fund their retirement. By removing the income cap on payroll taxes, Social Security will be solvent as far as the eye can see.

        I urge you to vote for boomer Sanders, who will help you get a college education, guaranteed healthcare, and a voice in government.

        The last word: learn the truth. The US taxes of 3 trillion use only 1/15th to pay the interest on the debt, almost all of which is debt repayment for past wars.

        SS is not funded y ZIRP or QE but by payroll taxes. It is still accumulating more surplus, which it will soon begin to use as more boomers retire. SS has never created one penny in debt. You are badly misinformed. I urge you to educate yourself and turn your anger on those lying to you (because they want to get your payroll taxes to gamble with on Wall St. by convincing you that SS is bankrupt). Revolt against the liars you have been believing. I am tellng you the truth, my young friend. Refuse to be a useful idiots of the cynical assholes who are lying to you!

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