Most state governments and corporate pensions are under funded to the tune of ~$3.2 Trillion dollars.  The Federal Reserves is on track to begin another round of Quantitative Easing (QE).  Rumors abound about how it may be possible that the FED is indirectly contributing to the stock market run up over the past year. This got me to thinking, is there a hidden Pension Fund bailout happening?  Explanation: 16 of the 18 Primary dealer (these are Banks and Investment firms that deal directly with the federal reserve to help it carry out its open market operations) think that the Fed will commence with QE during the fourth quarter of this year. Personally I believe they have never stopped but that’s another blog post. Essentially they will print (create)  more money and pump it into the system by buying debt in companies, The US Government, mortgages and other debt instruments. That in essence is a open market operation.  That gives said financial institutions the capital to go forth and purchase stock, lend money or whatever. This self sustaining loop in part contributes to stock market price increases.  At the same time according to TrimTabs, the group postulating that the Fed is behind the recent stock market rally, pension funds and hedge funds have moved nearly $112 billion into the stock market during the rally. Hmmm?
These under funded pension funds are of course invested heavily in the stock market. The rally in stocks which  has the Dow Jones back in 10,000 territory started in March of last year and has since contributed to trillions of dollars in gains over that time period, especially to stocks of big banks and financial institutions. See where I’m going with this?  Most of these under funded pension are that way because they made wild-ass assumptions on the rates of return they would receive, crazy ass numbers like 7% and 8% per year every year.  This is a clever idea by the Fed, but will lead to those stock market returns being enviably worth less when those gains are realized because the value of those dollars (because of this QE) will be shit.  However, that is still enough to push the pension crisis down the road and to keep rates of return in line with wild-ass assumptions for the time being.
Couple this with the federal government bailout through multiple stimuli to state and local governments and you have a systematic attempt to prop-up the pension systems of states. It is to two-pronged approach via the Treasury and the Federal Reserve. Â Again clever strategy to avoid this collapse and focus on the $46 trillion dollars collapse of Social Security and Medicare or the $13 trillion dollars in other debts. Â Pick your poison.