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The July 2, 2010 New York Times business section had an article about Diageo, the English maker of Johnnie Walker Whiskey. Seems the company has found an innovative way to plug its gaping pension hole: handing over two million barrels of maturing whiskey from its distilleries in Scotland. Diageo said it would transfer ownership of $645 Million (US) worth of whiskey to a pension finanacing partnership. Diageo employees will not receive their pensions in whiskey rather than cash, but they will have a guarantee that they will not walk away empty-handed should the company default.

I’ll bet given how things are going in Europe right now there are plenty of Diageo workers who would prefer the whiskey to the cash. Diageo’s Pension deficit at the beginning of April was approximately $1.3 Billion (US) underfunded! Diageo also makes Guinness Stout and Smirnoff Vodka. I wonder why they didn’t agree to do a more diversified portfolio of the three liquors instead!

All of this points to the growing pension deficit crisis that is looming in many of the largest socialist companies overseas. These companies are searching desperately for new ways to reduce their pension deficits, as people continue to live longer. The British supermarket chain J Sainsbury said earlier this year that it would transfer property into a pension vehicle, Whitbread agreed to handover a share in its portfolio of restaurants and hotels and The Man Group, a British investment firm, moved hedge fund assets into a trust as security for its pension plan this past March.

All three of these companies and many others are betting that these assets will appreciate more in value than their own company profits, which would normally be used to fund their pension liabilities. Does this theory really hold true?

Back to Diageo. If it truly believed in the value of its assets (the booze in the barrels it is giving over to the pension fund) than why not just hold the asset and sell enough to profit enough to fund its pension liabilities? Yes, Diageo is handing over the barrels of whiskey as a “down payment” and collateral towards its plan’s liabilities with a guarantee to pay the pension plan close to $40 Million (US) a year as it sells the whiskey, but what if it can’t? Who gets stuck holding the barrel then?

I have been traveling around the country leading 401(k) Advisor Bootcamps since the beginning of the year. These training programs are sponsored by a variety of money management firms. Each has a traveling economist who speaks about the global economy and their companies view on a variety of issues. Every one of these economists, to a tee, has acknowledged that the single biggest threat to economic growth and prosperity is the unprecedented growth of Sovereign Debt in every major industrial/developed country across the globe. Since the credit crisis, governments have taken over the debt service of the world’s consumers to the tune of Trillions of dollars.

We are witnessing an unprecedented era in the acquisition of debt by the world’s governments. Frankly, the numbers are staggering enough, but when you begin to imagine the enormous unfunded liabilities that the social countries of the world (forget about our US company’s unfunded pension liabilities) have on top of the debt these governments have taken over. well, it would make all of us sit up and start drinking Diageo’s Johnnie Walker Red & Black in large quantities.

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