The annual report (link below) talks more about risk. The board of directors for the CPPIB has always had an actuary on it and they extensively use the services of the government actuary’s department. I expect they have done ALM-type studies.
I spent my entire career doing international pension work and found fascinating how different countries approach their social security and private pension systems. I like the Canadian social security pension system as the politicians realized just in time that a pay as you go system doesn’t work well with the baby boomer bulge. Actuaries, of course, had been telling them that since the 1970’s but the Canadian politicians only starting listening to them seriously in the 1990’s.
I don’t know how a private firm guarantees COLA. When TIPS were new, they had 3% coupons and that would have been a possibility, they have been under 1% for most of the last 5 years.
My funding would be full cash for benefits earned in this year at a very achievable rate - say 2.5%, with no COLA guarantee, but with a COLA potential.
As an aside, Huxley was very much into psychedelics and mysticism in his later life as chronicled in his book The Doors of Perception. Recommended reading.
That’s not the way TIPS work. The CPI adjustment is to the principle, the coupon is a fixed percent of the adjusted principle.
But, yes, you could say the DB plans can only use TIPS for funding. In that case, the reasonable discount rate for employer contributions is the TIPS coupon rate.
This source has the complete auction history since 1997. The 30-year bonds seem to have better coupon rates, but they clearly vary over time. I think the high is 3.875% back in the very early days and the low is 0.125% recently.
The House is pretty vocal on what they don’t want - spending. A whole lot of confusion about the what and how much part so far. The dems seem content to let the majority party burn the place to the ground.
I am not hopeful. And yes, if the federal govt stops paying on contractual obligations, it is a technical default. Just affects workers mostly, and a few investments. (Fed govt leases a lot of office space. Ceasing “rent” would be a default). If the contractual payments are paying private businesses for work already completed on bridges, highways, or anything else, then somebody gonna be pissed. Some will be bankrupt. Oh well. Let’s do it on principle!
Let’s watch to see what the GOP puts into writing.
The periodic wrangling over the debt limit is one of the most problematic political battles. Do we need greater fiscal responsibility? Yes! Threatening to default on the debt doesn’t do that, nor do temporary government shutdowns. Decisions on budget and taxes are the problem, and should be addressed at the source.
Maybe this time we actually make some meaningful budget decisions. I doubt it though, as its too easy to do some posturing and kick the can down the road. Surely everyone can agree more spending combined with tax cuts is the way to fix this.
I just wish Congress would have passed legislation pre-authorizing interest payments and paychecks for essential workers in the event of a debt-ceiling-triggered shutdown.
That’s interesting. I thought that certainly, hitting the debt limit does not require that we default. The US has plenty of cash flow from taxes to cover all the interest on the national debt. (and, the debt limit still allows us to pay principal by issuing new debt) Just prioritize interest payments.
But, what doesn’t get prioritized? We have some federal workers who provide “essential” services (including the military). We have Social Security checks and SNAP benefits and military and civil service pensions. There are doctors and hospitals who have already provided services for Medicare and Medicaid beneficiaries. The US pays a lot less for those services than private insurance does, are we going to compound that by stiffing them on their bills? There are contractors who have built roads and think they should be paid.
Whoever eventually gets cut is going to complain that the gov’t is paying rich people and foreigners the interest on the Treasuries that they own, while cutting the important government programs that impact me.
When viewed from 30,000 feet, the US has the cash revenue to service the national debt. However, the question is: will the treasury have the cash available when interest payments come due. Both national revenues and obligation-driven expenditures are lumpy. If the government is statutorily unable to borrow, lacks authorization to print more money, and doesn’t have the cash…an interest payment could be late (although I suppose they could do something radical like selling gold reserves).
The essential workers bit is a pet peeve of mine from prior government shutdowns. It makes sense that in a “we don’t have money” situation, the government would discontinue most operations…and when this has happened in the past, there have been portions of the government (e.g. most of the military) that has been able to remain open and (I think) continue to make payroll because money had been allocated and spending authorized before the shutdown.
But the last time we had a shutdown, we had folks like TSA agents who were required to remain on the job, working without paychecks (albeit with the assumption that missed pay would be “caught up” by act of Congress) for weeks…and that ain’t right.
Making it clear that servicing the debt and guaranteeing the pay of folks who have to work even during a government shutdown are things are acceptable reasons to breach the debt ceiling would help limit the economic damage when the major parties decide to play chicken over taxes and spending.
Most people here probably noticed that Speaker McCarthy had a speech yesterday where he kind of put out some ideas on what the Rs might propose as a debt limit deal.
I thought the location was the interesting part. He traveled to NYC and gave the speech at the NY Stock Exchange. Meeting the money people right where they live. I assume there was plenty of time for private discussions before and after the speech. I wish I could have been the fly on the wall.
I’m waiting to see it in writing. Until then, it’s just a trial balloon, looking at his comrades to see if they could stomach it. no predicting possible when you are generalizing about a table with MTG, Gym Jordan, and George Santos. Hell, I bet there’s another dozen or so that would not vote for anything that has any D support at all. Just on principle, mind you. Just on principle.
The timing of the government spending cuts in the Limit, Save, Grow Act is thus especially inopportune as it would meaningfully increase the likelihood of such a downturn. Indeed, under the legislation, GDP growth is so weak that employment declines in the first three quarter of 2024, and the unemployment rate rises by more than a percentage point to 4.6% by the fourth quarter of 2024. Compared with the Clean Debt Limit scenario, by year-end 2024, employment is 780,000 jobs lower, and the unemployment rate is 0.36 percentage point higher
from early in the thread.
