“The ship of democracy, which has weathered all storms, may sink through the mutiny of those on board.”

– Grover Cleveland, the 22nd and 24th president of the United States

“It is your concern when your neighbor’s wall is on fire.”

– Horace

The biggest mistake investors make is to believe that what happened in the recent past is likely to persist. They assume that something that was a good investment in the recent past is still a good investment. Typically, high past returns simply imply that an asset has become more expensive and is a poorer, not better, investment.

– Ray Dalio, Founder, Bridgewater Associates

When you spend a couple of decades writing weekly letters to hundreds of thousands of people you think of as friends, your readers naturally come to associate you with a few key ideas. I have certainly become known for at least one. My longtime regular readers think of me as the “Muddle Through” guy. That’s not an image I have tried to cultivate, but I have it anyway.

I have to confess that it’s usually accurate. In a typical letter I will describe some sort of potentially scary problem, explain what might happen, then conclude that we’ll probably avoid the worst and muddle through. That has almost always been the right call. The worst doesn’t happen, and we all survive. “Muddle Through” can mean widely varying outcomes for individuals, but for the world at large, things generally work out OK.

As a statistical matter, this stance makes sense. The extreme tails of any distribution curve comprise outcomes that almost certainly won’t occur. The most probable outcomes cluster around the fat middle.

Yet there is one problem that is very definitely coming our way that I really don’t think we can Muddle Through and where even the middle-of-the-road scenarios are terrible, and that’s the public pension crisis. I really see no way it can end well. It’s going to hurt just about everyone.

“But wait,” my Canadian and German friends will say, “that’s an American problem. Leave us out of it.”

I wish I could. The sad fact is that the US is the big fish in the global economic pond. One way or another, our problems affect everyone. You catch cold when we sneeze. The “Disappearing Pensions” crisis I described last week will hurt you, too. The only question is which transmission mechanism will bring it to you. Further, most developed countries have their own version of the pension crisis in the form of government promises that can’t be kept. Same song, different verse.

Today I want to delve a little deeper and explain why pension angst is completely reasonable and not at all overblown. If anything, it has been understated.

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