U.S. companies are finding out the hard way the effects of unnaturally suppressed interest rates. For Ford Motor Company, $5 billion will flow into pension funds this year as a means to shore up a flagging system. That’s as much money as the car manufacturer spent last year on building new plants, buying equipment and developing new cars…combined. All because the guaranteed-pay pension systems can’t keep up with payments as interest rates make current returns abysmal.
It’s bad enough that the company and many others like it are beholden to big labor in the first place, but to see them struggling so mightily now to pay pensions that were negotiated years ago by unions is even more disheartening. Ford isn’t alone in this problem. Companies like Verizon Communications put $1.7 billion into the company pension plan in the fourth quarter of 2012. Boeing Corporation is having such difficulties with pension contributions that it now reports on "core earnings" in order to separate pension contributions from expenses. The problem is, those pension contributions ARE expenses, and they’re pulling the company down.
If anyone wants to vent their frustration with the system that is keeping interest rates low, look no further than Keynesian economists like Paul Krugman and others who irresponsibly spout the nonsense of a disproved economic theory from a bygone era. Little good that will do, however, as the U.S. government’s top policy makers believe firmly in the approach of making money out of thin air and keeping interest rates unnaturally low. It is, after all, what keeps them in their jobs. Whether the U.S. can withstand this onslaught of irresponsibility is anyone’s guess. Until then, enjoy your pension. It may not be there tomorrow.
It’s bad enough that the company and many others like it are beholden to big labor in the first place, but to see them struggling so mightily now to pay pensions that were negotiated years ago by unions is even more disheartening. Ford isn’t alone in this problem. Companies like Verizon Communications put $1.7 billion into the company pension plan in the fourth quarter of 2012. Boeing Corporation is having such difficulties with pension contributions that it now reports on "core earnings" in order to separate pension contributions from expenses. The problem is, those pension contributions ARE expenses, and they’re pulling the company down.
If anyone wants to vent their frustration with the system that is keeping interest rates low, look no further than Keynesian economists like Paul Krugman and others who irresponsibly spout the nonsense of a disproved economic theory from a bygone era. Little good that will do, however, as the U.S. government’s top policy makers believe firmly in the approach of making money out of thin air and keeping interest rates unnaturally low. It is, after all, what keeps them in their jobs. Whether the U.S. can withstand this onslaught of irresponsibility is anyone’s guess. Until then, enjoy your pension. It may not be there tomorrow.