I have said repeatedly that it is not mathematicallypossible to borrow your way to success, though god knows we’ve tried at thegovernment, individual and business levels. When borrowing costs can no longer be reduced through lower interest ratesand creative, or is that reckless, lending standards fail to produce asufficient number of new borrowers and or borrowed funds to keep the partygoing, bad things happen ala the Dot.Com and 2008-2009 financial crises. The pending slashing of Central StatesPension Fund is but the latest example of unrealistic assumptions coming hometo roost, be they founded on debt or investment return, or both. JP Morgan is out with a new report statingthat the pension underfunding and debt problems faced by New Jersey areunsolvable, Illinois, Connecticut and Kentucky face similar circumstances. This using an assumed rate of return of 6%,frankly generous, because actuarial studies have shown that 4.5% is much closerto reality and is a figure 25% less than the 6% estimated. In fact, all of the states with the exceptionof Oklahoma face significant pension, benefit and debt issues. The report goes on to note that absentdramatic increases in taxes, investment return or contributions benefit cutsare mathematically unavoidable. The daysof extend and pretend, can kicking and plain old wishful thinking are rapidlyapproaching their rendezvous with harsh mathematical reality.
This is Caleb Lawrence Registered Investment Adviser ScottsValley Drive and Willis Road in the Scotts Valley Plaza, Suite 202 or call metoll free at 888-RICH PIG / 888-742-4744.
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