Shervin Pishevar is one of Silicon Valley’s most revered venture capitalists. He is also an astute economic thinker who regularly holds forth on a wide range of subjects through his heavily followed Twitter feed. With more than 100,000 followers, Shervin Pishevar is a bona fide thought leader and someone who is well worth paying attention to.
Recently, Shervin Pishevar engaged in a nearly 24-hour tweet storm. One of the topics that he addressed is the coming pension crisis that could ultimately threaten the entire economy of the United States. He takes the state of Illinois as an illustrative but by no means isolated example.
Shervin Pishevar has stated that the state’s multiple pension funds are in such bad shape that it would take a virtual miracle for them to remain solvent. He says that with recent downturns in the equities markets, the end may be near for the state’s funds, including the massive pension funds for Chicago police, teachers and firefighters.
Pishevar says that the pension fund woes seen throughout Illinois and the rest of the country are the direct result of the Fed’s interventions in the open market. By suppressing interest rates to historic lows, in some cases resulting in occasional negative real interest rates, the Fed has forced pension funds from coast to coasts to join the collective game of craps known as the stock market. They have been forced into this position by the need to chase yields. The funds simply could not have matched their long-term estimated rates of return without taking the enormous additional risks inherent in the equity markets.
But this has forced the weakest funds into a corner from which it is unlikely that they will emerge intact. Shervin Pishevar has estimated that just one down year in the stock market could spell inexorable doom for all of Illinois’ pension funds. And as the end of the fiscal year approaches, with the Dow Jones currently below its starting point for 2018, the pension bloodbath may commence sooner than anyone would like to see.