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Senate Passes Pension Bailout

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Senate passes PPT-backed legislation to bail out dinosaur defined-bennie pension funds:


For the next two years, the formula would be based on a composite of investment-grade corporate bonds [instead of 30-year Treasury yield]. Companies will save about $80 billion over two years under the new formula, says the Pension Benefit Guaranty Corp., which insures the pensions of 44 million people in more than 30,000 single and multi-employer defined benefit plans.


The Senate bill separately would allow airlines, steelmakers and others with underfunded plans who must make catch-up deficit reduction contributions to waive large parts of their catch-up pay over the next two years. They could waive 80 percent of those payments the first year and 60 percent the second year.


The Matrix doubles down


Here we go again ... distortion piled on top of distortion. Interest rates are artificially depressed in Al Law's administered Treasury market. Corpses are forced to pony up more cash each year, as the present value of their pension obligations gets driven higher by lower discount rates. So Congress allows them to use higher rates by assuming more credit risk.


The provision to waive catch-up contributions for two years is telling. You can see what's being set up here. A 2004-2005 boom based on phony puffed earnings. Then when the pension funds are 100% long equity and corporate bonds, a bear market in both in 2006. Then they'll pass a bill to base the assumed yield on single-B-rated junk bonds. And so it goes, behind the hollow edifice of the centrally-planned state.


I don't doubt that the authorities will engineer a couple of more business cycles after 2006. But they will be increasingly inflationary, as currency printing is the last resort for an overborrowed, clapped-out credit system. By 2008 I expect the 1980 highs in CPI inflation will be tested ... and broken.

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Guest sigmoidoscope

Good article, MH thanks.


The pension system is in deep trouble, and the Pension Guaranty Agency is just about tapped.


This is starting to smell like the S&L bailout in its earlier stages of meltdown.

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