Zero to negative interest rates policies that subsidize governments addicted to deficit spending at the expense of savers and private investment create numerous dislocations. The BIS, the central bank to central bankers, discussed the consequences of these dislocations in the summer of 2015. Funny how the favor-of-the-month headline focus encourages selective amnesia in the majority.
Gross pointed to a recent annual report by the Bank for International Settlements, the central banks' central banker, which warned there are substantial medium term costs of "persistent ultra-low interest rates."
Such rates, the BIS claims, "sap banks' interest margins...cause pervasive mispricing in financial markets...threaten the solvency of insurance companies and pension funds...and as a result test technical, economic, legal and even political boundaries," Gross said., Bill Gross says Fed recognizing zero percent rates causing harm to U.S.
The flip side of ZIRP and NIRP, unfortunately, is the eventual insolvency of insurance companies and pension funds across the globe. As Gross points out, the BIS eludes to the cost of saving organizations lacking the business-savvy necessary for long-term survival as a crisis of confidence, the core driver of economic, social, and political changes that fill our history books.
Headline: US faces ‘disastrous’ $3.4tn pension funding hole
The US public pension system has developed a $3.4tn funding hole that will pile pressure on cities and states to cut spending or raise taxes to avoid Detroit-style bankruptcies.
According to academic research shared exclusively with FTfm, the collective funding shortfall of US public pension funds is three times larger than official figures showed, and is getting bigger.
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