GRAYLL | Economic Perspective

GRAYLL
GRAYLL
Apr 15 · 3 min read

The economy is changing the way people view money, saving, investing, work & retirement.

Pensions Fund Performance vs Real Inflation Rate

According to the OECD, the US pension funds had a real investment ROI of 1.3% between December 2016 — December 2017, yet during the same period the year-on-year Real Inflation Rate averaged 2.1% based on data from the Federal Reserve and U.S. Bureau of Labor Statistics.

The United States pension funds held the largest amount of assets ($16.2 trillion), followed by the United Kingdom ($2.9 trillion), Australia ($1.7 trillion), the Netherlands ($1.6 trillion) and Canada ($1.4 trillion), Japan ($1.4 trillion) and Switzerland ($1 trillion).

Unfunded Liabilities = No Pensions for Generations X, Y, Z

The reality; it is highly improbable that Generations X, Y (Millennials) and Z will ever receive the benefits of the Government pensions fund they paid into. The U.S. Treasury Department estimates a Unfunded Liabilities gap of $55 trillion, many experts and research institutes think this is an overly optimistic estimate.

Former chairman of the SEC Chris Cox and former chairman of the House Ways & Means Committee Bill Archer calculated this to be closer to $87 trillion (2012). The renowned economist Laurence Kotlikoff has estimated this to be over $200 trillion. Whatever the real figure might be, it is unlikely to be reduced. There is a recession on the horizon, and likely by 2022 the effects will become more pronounced.

US National Debt = 78% of GDP

The U.S. National Debt is now over $22 trillion, 25% of the US Gross Domestic Product (GDP) is spent on the interest payments on this debt. According to the Congressional Budget Office the debt could grow to 96% of GDP, $29 trillion by 2028.

Student Loan Debt

Student loan debt outstanding reached a record $1.465 trillion in Q4 2018, doubling since the 2007/08 recession. Over 90% of student loans are guaranteed by the U.S. Department of Education, according to Paul Della Guardia, economist at the Institute of International Finance, any recession would cause a rise in youth unemployment and trigger mass defaults, this contingent liability could prove burdensome for the US government budget.

Savings

The median the median savings account balance across American households was around $4,830 in 2018. The median and average savings have increased for all generations since the last economic crisis, most retirees would only be able to live off their savings for about 10 years.

FDIC Scheme Unlikely to Function When it Matters Most

Banks in the US that are insured by the Federal Deposit Insurance Corporation (FDIC), cover up to $250,000 per deposit holder with each insured bank that the depositor holds deposits. The FDIC only holds a 1.3% ratio of all deposits insured. Any significant economic crash that would impact the banking system would render the FDIC scheme useless.

Sources: Congressional Budget Office ,OECD, US Bureau of Labor Statistics, FDIC, Federal Reserve, US Treasury Department, SEC, WSJ, Bloomberg

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