Saturday, November 14, 2009

Debt Valley Days

The Pension Benefit Guaranty Board has reported a worsening deficit:

The Pension Benefit Guaranty Corporation (PBGC) ended fiscal year 2009 with an overall deficit of $22 billion, according to the agency's Annual Management Report submitted to Congress today. The result compares with the $11.2 billion deficit recorded at the previous fiscal year-end on September 30, 2008.

What's much worse is seen in these excerpts from the news release:

"Exposure to possible future terminations means that we could face much higher deficits in the future," said Acting Director Vincent K. Snowbarger. "We won't fail to meet our obligations to retirees, but ultimately we will need a long-term solution to stabilize the pension insurance program." . . .

As of September 30, the single-employer program reported assets of $68.7 billion and liabilities of $89.8 billion.

Matters may worsen substantially as revenues may decline. Why any employer would want a defined benefits plan is unclear.

Let's look around. The FDIC is more or less broke. The only way it is avoiding a direct Federal bailout is by jacking up insurance rates. The Federal Housing Authority has been guaranteeing junk loans with an immense default rate. The Federal Reserve is one of the largest holders of "iffy" bonds and collateralized securities in the world. California may be bankrupt. Not to mention "stimulus" that was primarily cash payouts to the needy states and the like, with more "stimulus" coming. And so on . . .

The nation's accounts are out of joint. Why is a constitutional lawyer with little or no previous executive experience and little or no financial experience the right person to set them right?

And so the fundamental case for money-printing and therefore gold-owning continues. We are looking at the Japanese scenario, except that Japan largely owes its debt to itself, not to others. Looking to prior economic cycles to guide investing is valuable, but methinks markets have things wrong. The skies ahead are cloudy. We don't know whether the rain is going or gone, or will start up again. Dry powder is good in the rain.

Copyright (C) Long Lake LLC 2009

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