Reaching for yield

The unfunded liabilities of the San Diego County Employees Retirement Association have increased every year for the last five years, reaching $2.45 billion last year, more than quintuple the level in 2008. The calculation of how big the shortfall is assumes that the fund is going to be able to earn a 7.75% return on its investment after subtracting administrative costs. If it earns less than 7.75%, the shortfall will be even bigger. A 10-year Treasury bond currently pays 2.4%, and a typical stock has a dividend yield under 2%. So what do you do if you’re in charge of the system’s $10 billion in assets?

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The National Savings Identity, Crowding-Out, and Apocalypse Predicted

Consider this prognostication from 2011:

Americans face the most predictable economic crisis in this nation’s history. Absent reform, the panic ahead is no longer a question of if, but rather when. A deterioration of confidence by investors in government’s ability to pay its bills will drive interest rates up, increasing borrowing costs for government, small businesses and families alike. A vicious cycle of debt will compound upon itself; the available exit options once the crisis hits will be limited; and all will involve pain. (p.59)

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