Confounded Interest just
posted a nice summary of a McKinsey report on the growth of global
debt during what some persist in calling the "great deleveraging." Turns
out that since the crisis of 2008, debt has actually risen by $57 trillion,
and the ratio of debt to GDP is up 17 percentage points to 286%. Meanwhile,
central banks are monetizing 100% of newly-issued sovereign debt.
The obvious response to this is 1) wow, nothing has been fixed; in fact just
the opposite, and 2) these stats, horrendous as they are, are incomplete
because they don't include unfunded liabilities of governments and private
pensions, which are just as real as any other kind of debt.
But unfunded liabilities must be getting better, what with the stocks and
bonds in pension fund portfolios soaring lately. Right? Since that's an effortless
Google search, that's what I did. And the results were both counterintuitive
and scary. It seems that even with pension fund investment portfolios booming,
obligations to future retirees are rising even faster, making these entities
even more underfunded today than in 2007. Here's a sampling of the headlines
just from February, in the order they appear in the search window:
Unfunded
liabilities and the investment smokescreen
US
teachers state pensions near $500 billion in underfunded liabilities
Teacher
pensions: the math adds up to a crisis
Unfunded
pension liabilities up for Pittsburgh
Cascade
report exposes $26 billion unfunded liabilities
Prescott
unfunded pension liability surpasses $70 million
Sacramento's
'wall of debt' grows dangerously high
Absent from this list is the US federal government's number, though that's
also easy to find. From Forbes: You
Think The Deficit Is Bad? Federal Unfunded Liabilities Exceed $127 Trillion.
That's about 6 times the reported federal debt.
Now, easy money advocates argue that the solution to this and all other unbalanced
economic equations is to borrow and spend enough new cash to get asset prices
up and put people back to work. But stocks and bonds are currently at record
highs and the unemployment rate is below 6% (peak-of-the-cycle kinds of numbers
that have historically preceded corrections in which investment returns and
tax receipts both plunge, raising unfunded liabilities).
So it looks like we've thrown our best punch and the problem is still standing
there, wondering if that's all we've got. Which leaves the US and the rest
of the world -- where debt and unfunded liabilities also continue to rise
-- with the question: If debt was the thing that nearly destroyed the global
financial system in 2008 and debt -- both narrowly and broadly defined --
is way up since then, what happens in the next downturn? The answer is who
knows, because this is uncharted territory both in terms of the size of the
imbalances and governments' policy responses.
The only thing that's certain is that there are more cities, states and related
pension funds poised to blow up than ever before.
