Creditors and Debtors

It has long puzzled me that people think that their pensions are secure in face of all the facts to the contrary. Not only are pension funds underfunded at current asset valuations, their assets are greatly inflated in value as well. Yet, no-one seems to care.

All pension funds, private or public, are heavily invested in sovereign debt, which means that future pay-outs are tied directly to the ability of the state to deliver on its promises. However, a state that's trillions of dollars in debt will never pay back what it owes. No sophisticated maths is required to figure that out. Yet, many counter this argument with the proposition that sovereign debt is money that we owe to ourselves, and therefore not a problem. But this argument is lame for at least two reasons:

1. It assumes that the state and the people invested in pension funds are the same individuals.
2. It fails to recognize that money is not in itself savings.

The state is not equivalent to future pensioners, and money is merely an alias for real savings. Sovereign debt is tied to future tax revenues, which are not going to increase as long as there's no real savings in terms of durable goods and productive manufacturing capacity.

This means that the state will soon default on its promise to pay their debt. Pensioners will feel this either directly through smaller pay-outs or indirectly through monetary inflation. Either way, future pensioners will be sorely disappointed. Their promise of a comfortable retirement will be broken. Only those with savings in gold or silver will coast through this coming crisis with their purchasing power intact. The reason for this is that gold and silver are real savings. They are not tied to the state's ability to pay their debt. Rather, they are a part of the economy of the physical world. They are commodities that will always retain a relatively stable position in the price hierarchy of things.

Gold eagle

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