- The $3.4 trillion public retirement system funding deficit we have currently will only continue to get bigger when expected returns are lowered from science fiction levels of 7% to realistic levels of 3% to 4%.
- Insurance companies and banks are also at risk as their business models are in jeopardy.
- Low interest rates are good in a crisis situation, but harmful in the long run. However, politicians have hesitated globally to make changes.
The fact that interest rates are low is not news. While many are discussing whether the FED will raise rates or not, few analyze what the long term costs of such an artificial environment will be.
The environment is artificial because if it weren’t for the low rates, or negative rates in many parts of the world, there would be no lending as you don’t lend below a certain interest rate. In any case, this will have severe consequences on the economy, liquidity, inflation, banks, insurance companies, and retirement funds, and could create bubbles that will take years to deleverage. More →