End the Fed and put every one of these fucks on trial. t.co/POaxvXfyxy
— RJR Capital (@RJRCapital) March 1, 2022
ising inflation is driving up expenses for many large U.S. pension funds that have promised retirees cost-of-living raises.
About half of states link pension benefits for some or all of their retired workers to changes in the consumer-price index, according to the National Association of State Retirement Administrators. With inflation reaching 7% in December, some retirement funds are now looking at increasing pension checks by 3% or more for the first time in a decade. At others, board members or state officials are approving one-time cost-of-living raises.
“It’s a hot topic,” said Keith Brainard, the association’s research director. “A cost-of-living adjustment can be an expensive plan provision.”
Pension funds are confronting a challenge shared by institutions and household savers alike: Just as expectations for public market investment returns are dimming, everyday costs are going up. This year, many retirement systems will book a loss on cost-of-living adjustments, rather than the annual windfall they have been seeing for years when those inflation-linked increases came in below expectations.
It’s called “stagflation.”
It is worth recalling how Carter reacted to these events. In the case of Iran, he infamously ordered a rescue mission — Operation Eagle Claw — that ended in humiliating failure on April 24, 1980, when one of the U.S. helicopters intended to evacuate the hostages crashed into a transport aircraft, killing eight American servicemen. But he also imposed economic sanctions, freezing about $8.1 billion in Iranian assets and imposing a trade embargo.
In the case of the Soviet invasion of Afghanistan, Carter again opted for sanctions. He placed an embargo on shipments of commodities such as grain to the Soviet Union and suspended high-technology exports. He also boycotted the 1980 Olympics in Moscow and withdrew the SALT II treaty from consideration by the Senate.
Carter’s approval rating had touched an all-time low of 28% in June 1979 and, despite rallying briefly in early 1980, never got back above 40% as the election campaign unfolded. Inflation, which had stood at 5.2% in the month of Carter’s inauguration, hit an all-time high of 14.6% in April 1980, driven skyward by the surge in oil prices that followed the Iranian Revolution.
In January 1979, the spot crude price for a barrel of West Texas Intermediate had been $14.85. By July 1980 it had more than doubled to $39.50. Carter tried to counter inflation by nominating Paul Volcker to be Fed chair in July 1979. But, as Milton Friedman long ago taught us, monetary policy operates with long and variable lags. Inflationary expectations were not truly broken until 1982.
If all of this sounds strangely familiar, it is because we are living through our own version of these events. Karl Marx memorably observed that history repeats itself “the first time as tragedy, the second time as farce.” But sometimes you just get two tragedies in succession.