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John Mauldin's Outside the Box

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  • Looming Crisis: State Budgets Soon to Be Under Siege

    Today in Outside the Box we explore the very sad fact that once again I was unduly optimistic. My good friend Ed Easterling shows that it is quite likely that the pension shortfalls are approaching $4 trillion. And the longer we wait to deal with the problem, the worse it will get.

    The biggest part of the problem, as I wrote back in 2003, is unrealistic assumptions about future investment returns. That has not changed. You can find consultants who will tell you there is “only” a $1 trillion problem. However, if you assume that interest rates will remain low and equity returns will look like they did the last ten years, then the underfunding might look more like $4.6 trillion.

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