This is an opinion piece by West Point economics graduate Mickey Koss. He spent four years in the infantry before transferring to the Finance Corps.
I plan to use the California Public Employees Retirement System.
as a representative of the general pension system. According to Investopedia, CalPERS has invested about a third of its assets in bonds, and the fund targets an annual return of 7%. Bonds are called fixed income because of their predictable coupon payments. They are used for income, not capital growth.
Average Treasury rates through September 30, 2022 Recycling a chart from one of my previous articles - let's say the weighted average of Treasury coupon rates is 2% to simplify the math a bit (because that's according to Treasury data ). If a third of your money is 2%, that means pension funds must make a 9.5% return on the rest of their money each year or risk not being able to fund their pension payments. . There is no room for error.
What happens when you start to feel the pressure, but despite the lack of income you have to buy bonds despite the mandate? You start raising your status, a technique that nearly blew up the UK retirement space a few weeks ago.
The Washington Post has a pretty good summary of the situation, but basically pensions have been forced to use their position to increase income and cash flow due to quantitative easing and low interest rates.
My pet Greg Foss points out if I move a position 3 times your return can go from 2% to 6% but leverage goes down in both directions. 50% loss becomes 150% and starts eating your other positions and investments. This is exactly what happened in the UK, which required a bailout to prevent the liquidation of pension funds and a systemic impact on the banking and credit system.
Enter bitcoin, step left. Instead of boosting returns, pension funds should use alternative investments like bitcoin to help grow their trust asset base and service payments to retirees.
I just wrote an article about the concept of the debt spiral. While central banks are raising rates now, they cannot continue to do so forever, which will inevitably push pension funds back into the low-yield environment that previously caused systemic problems.
Bitcoin has no liquidation risk. Bitcoin does not require leverage. Instead of making risky bets, perpetuating moral hazard and social harm, pension funds can use bitcoins as an asymmetric way to increase their returns.
I see this as inevitable, because more and more asset managers realize that it is their responsibility to give back what is not allowed to pensioners. When someone prioritizes, the dominoes fall. Don't be the last.
This is a guest post by Mickey Koss. Opinions expressed are entirely personal and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine opinions.
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