STEPHANIE POMBOY: It's terrifying to me to watch it, because you're talking about these fanciful notions are really gaining--

GRANT WILLIAMS: Yeah.

STEPHANIE POMBOY: --traction

GRANT WILLIAMS: It's the boomer generation that is going to be the trigger for this because they're the guys that have all the money. Until the millennials, they were the biggest generation that the world had ever seen. But the boomers are also the ones in power at the moment.

You know, we have this situation where you have the millennials-- I spoke with Neil Hair about this recently. He said, you know, the Gen X generation, basically, skipped politics. They, basically, just didn't take an interest in it.

STEPHANIE POMBOY: Mhm.

GRANT WILLIAMS: So you have this tug-of-war for power in politics, with the AOC and these young Democrats coming through with all these ideas, which, whilst you and I are fanciful and our decades of experiences tell us that it won't work, they don't know any better. Their entire lives they've been witness to the state-- we'll use that pejorative term-- but the state funding everything, and printing money, and everything's been fine. So you can totally see how they think that this is the solution.

STEPHANIE POMBOY: Right.

GRANT WILLIAMS: But I just wonder how that resolves itself. Not so much from the money point of view, but from this battle between the guys who have power, and who are essentially voting on whether to pay themselves an annuity, and the people coming through who are going to say, no, grandpa that's not going to fly.

STEPHANIE POMBOY: Right.

GRANT WILLIAMS: How do you see that battle playing out?

STEPHANIE POMBOY: Wow, I mean it's terrifying to me to watch it, because of you you're talking about these fanciful notions are really gaining--

GRANT WILLIAMS: Yeah.

STEPHANIE POMBOY: --traction. In a way that-- you mentioned MMT as a serious proposal a year ago, I wouldn't even--

GRANT WILLIAMS: Right? I thought it was a cage match.

STEPHANIE POMBOY: Give me a break.

GRANT WILLIAMS: I had no idea.

STEPHANIE POMBOY: Why are we even wasting their breath talking about this? Because there's no chance anyone would do something so asinine.

GRANT WILLIAMS: Except maybe Japan.

STEPHANIE POMBOY: Right. Well, but, so that's interesting, because that's always held up as the example.

GRANT WILLIAMS: Yeah.

STEPHANIE POMBOY: See? It can work. It's the perfect crime. You know, no one loses. It's what could go wrong?

Well, there happen to be some pretty important differences between the US economy and Japan. And the most obvious to me is that they're internally financed. They don't rely on the rest of the world to finance themselves.

So as we sit here running dollar bills off the printing press, you know, China, Japan, and Russia, and all these people, say, yeah, that's good by us. No problem. You can completely inflate away all of the obligations that you owe us.

So it's very difficult for me to wrap my head around it, and see how it plays out. But I will confess to being scared at how much traction it's gaining.

GRANT WILLIAMS: Yeah.

STEPHANIE POMBOY: And that I really need to start to figure out how this could possibly happen. Because talking about how this is a long term problem that we might have the luxury of not addressing right away, I think the catalyst for this whole pension crisis becoming immediate is going to be the bursting of the corporate debt bubble. Because, obviously, if you can't make 8% in a 0% risk free world, you've got to load up on all of the most toxic claims you can out there.

So we know that the pensions have massive exposure to this corporate debt bubble. And it wouldn't take much of an increase in rates to really wreck havoc in that corporate market. I think there's an appreciation now about the increasingly low quality of corporate debt, even in the investment grade sphere, where half of the investment grade debt now is one--

GRANT WILLIAMS: One rung.

STEPHANIE POMBOY: --rung, right? I like to call it pre-junk.

GRANT WILLIAMS: Pre-junk?

STEPHANIE POMBOY: And then, of course, you've got another $1.2 trillion in actual junk, and then you've got $1.2 trillion in levered loans with no covenants. So you've got about $5 trillion in corporate debt of the $9.5 trillion out there. So more than half of it that's really vulnerable to any increase in rates.

And we're going to really find out who can withstand an increase in rates, because we've got almost $800 billion of that debt rolling this year, and another $900 billion next year. So there's no relief in sight. It's not like, oh, if they could just make it to the end of this year--

GRANT WILLIAMS: We're OK.

STEPHANIE POMBOY: Everything's all clear.

GRANT WILLIAMS: We're home free.

STEPHANIE POMBOY: So this is really going to be an issue, I think, moving forward. It will be interesting to see how it unfolds over the course of the year. But it will certainly reveal the degree to which the averages that everyone looks at, in terms of the health of the corporate sector, in terms of corporate profits, really don't tell you anything.

GRANT WILLIAMS: Yeah.

STEPHANIE POMBOY: It's so much like the consumer, where you've got the top that have all the assets and none of the debt, and then you've got the bottom that, obviously, are in the reverse situation. And, frankly, I think the numbers in the corporate sector are even more dramatic than they are on the consumer side. I was just looking at with the fourth quarter numbers for S&P earnings the top 20% of companies accounted for 75% of the earnings.

GRANT WILLIAMS: Right.

STEPHANIE POMBOY: That's in the S&P 500. Those are the largest 500 companies out there. If you looked at those government profit numbers that I like to look at, the skew is even more dramatic, obviously. And then when you look at cash positions, it's even more profound. The top 20% have 80% of the cash.

In fact, if you add up the cash of the top 3 companies in the S&P, the biggest cash holders, they have more cash than the bottom 450 companies.

GRANT WILLIAMS: Is that right.

STEPHANIE POMBOY: Just 3 companies. So I mean, it's remarkable the complacency around the corporate sector's ability to service all of this debt. Because really outside those top 20%, there is no ability to service--

GRANT WILLIAMS: Right, right.

STEPHANIE POMBOY: --any increase-- there is no ability to withstand any increase in debt service. And who knows if they can even handle what they've got already--

GRANT WILLIAMS: Sure.

STEPHANIE POMBOY: --depending on what happens with economic activity and where that profit growth number actually goes this year.