Tensions, pensions, and misapprehensions

John Griffin

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I was momentarily startled yesterday to read that S&P could be responsible for the meltdown of the US economy – I hadn’t realised that the reach of Spence & Partners stretched so far. I then realised, of course, that they were referring to the “other” S&P.

Standard & Poor’s, one of the three main credit rating agencies had decided to downgrade its ratings for US debt because it felt that the recently agreed debt-reduction plan, forced on President Obama by the US Tea Party, wasn’t going to do the trick.

The stance taken by S&P (the ‘other’ one), however, may not be well-founded. For instance, the other two of the three main agencies – Moody’s, and Fitch – are less pessimistic, and the yield on US 10-year Treasury bills is still lower than almost all other nations that still retain the AAA-rating, so lending to the US is still perceived to be a safe investment.

This put me in mind of the American US satirist, P J O’Rourke, who, loosely translated, once described economics as an entire scientific discipline of not knowing what you’re talking about. Who really is in a position to predict the future?

As people with money-purchase pension funds watch their accumulated funds dwindle, and fear for their future income, are we really safe in entrusting our hard-earned money to anyone?

The man (or woman) on the street is constantly dazzled by speculators – sorry, investors – who “predict” future rates of return on investments, and so a rosy retirement. The reality however, is that it’s all guesswork with very few guarantees.

These advisers often caveat their advice by saying we need to look to the long-term (a cynic might infer that this will be long after the adviser has taken his charges/commission and retired to the sun, but I’m no cynic, just a realist).

So-called experts are currently queuing up to explain why the world’s economy is in its current predicament – it’s a pity that more of them are not so expert before the event.