02/22/2010 (11:21 pm)
BusinessWeek reports that the Treasury and Labor departments are asking for public comment on “the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams.”
Sound innocent? Newt Gingrich and Peter Ferrara over at Investor’s Business Daily explain at some length what it means: it means the Obama administration is taking a look at turning your 401(k) account into the government’s piggy bank.
Here’s how it would work: the government would first require that your bank or investment house offer that you receive the proceeds from your 401(k) as an annuity. Later, they would mandate it; they would probably be nice and offer you three different repayment plans to fit your particular needs. The annuity would exist in the form of Treasury notes. Meanwhile, behind the scenes, they would take all the funds in your account and spend them on federal budget items, leaving you with a promise by the government to pay you back. Just the way they did with the Social Security and Medicare trust funds.
From the viewpoint of the Obama administration, this is a logical step. They’re running massive annual deficits, and the 401(k) pool represents probably more than a trillion dollars in available revenue to finance the deficits. They’ve already done exactly the same thing with Social Security, and they imagine that Treasury bills are the safest, most secure investment on the planet, so in their minds it’s not really stealing. In the odd rigidity of the liberal mind, there is no possibility that “the full faith and credit” of the government could ever become anything other than the absolute guarantee that it has been all their lives; they have no notion that their actions can, and will, produce genuine insolvency.
But insolvency will come, as night follows day. As the world’s investors see the irresponsibility of the government’s actions, they will abandon the T-bill, and then the Fed will have to crank up the presses to buy American debt with inflated dollars — and then pay the investors back with those inflated dollars. A retirement nest egg that should have sufficed for a comfortably middle-class old age will barely ensure survival, and God help the retiree whose nest egg was only just enough.
Either that, or massive new taxes will have to be drafted, which will break the back of the economy. They will never think of the only solution that would have a chance of working, to privatize as much of the massive entitlement programs as possible. Reducing their own power is against their nature.
The authors added:
Argentina provided a precedent in 2008, taking over that country’s private retirement accounts for forced investment in government bonds to cover spiraling deficits. Ambrose Evans-Pritchard editorialized at the time in Britain’s Daily Telegraph that this may be “a foretaste of what may happen across the world as governments discover .. . that the bond markets are unwilling to plug the (deficit) gap. . .. My fear is that governments in the U.S., Britain and Europe will display similar reflexes.”
This is just the latest chapter in what is developing into a war by the left on America’s seniors. All that class-war rhetoric about “the rich” ends up targeting seniors, who tend to have accumulated the most in savings and investment on average because they have been around the longest.
The attorneys at PowerLine think the Obama administration will not be able to get away with this. They point out that a large percentage of the nation’s lawyers have million-dollar retirement accounts, and will scream bloody murder if the government attempts to force them to finance the deficit. It is not clear that the Obamanites will willingly abandon their own base in this fashion; the Obama machine runs on money.
That’s plausible, but hardly reassuring. The mere threat that the government might take this step, an idea that’s been quietly floating on the air for a few months, is already slowing the rate of investment in retirement accounts. PowerLine’s Hinderaker notes:
Earlier today I learned that a relative on Wall Street has stopped accumulating funds in his retirement accounts precisely because he thinks they may be confiscated by the Obama administration. Instead, he is acquiring untraceable, tangible assets–gold and silver–that the government won’t be able to steal without a physical search of his property.
If major investors deflect their retirement savings into hard assets, like gold or collectibles, that will take those savings out of circulation, making expansion capital that much rarer and extending the recession that much further.
Socialism has failed the world in every imaginable way. No nation can afford what is planned for it by those who imagine themselves the rightful engineers of the perfect society.
5 Comments »
Comment by suek
The question is – what next. Suppose we win the majority in both houses. We still have Obama and the veto power which will overcome any reversion of what is going on. In order to overcome _that_, we’d need 67 votes in the Senate. I’d love it – but I don’t think it will happen any time soon.
If Obama is pushing us towards a crisis rebellion, then maybe he should get what he’s asking for. He, of course, assumes that he – or his cohorts – will take control of the crisis and the outcome. How do we make sure he doesn’t? How do we begin over, and what can we do to prevent such a situation from developing again? or can we?
Comment by suek
Pretty surprising entry, considering that this is an economic blog…
Comment by Phil
Very interesting, suek. Denninger is a smart guy, and a lot of what he says makes sense. He’s a Keynesian, though, and he’s touting that “derivative instruments are poisonous” stuff as an essential part of all this. I’m not sure I agree, but I don’t have his knowledge. Everything he says apart from that sounds basically right.
Comment by John Cooper
Instead, he is acquiring untraceable, tangible assets–gold and silver–that the government won’t be able to steal without a physical search of his property.
Oh, the government is working on that little “loophole” as well.
Title: A bill to amend the Internal Revenue Code of 1986 to treat gold, silver, platinum, and palladium, in either coin or bar form, in the same manner as equities and mutual funds for purposes of the maximum capital gains rate for individuals.
Sponsor: Sen Crapo, Mike [ID] (introduced 6/25/2009) Cosponsors (3)
Latest Major Action: 6/25/2009 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.
Comment by suek
How could they do that? I mean – yes – if you go through a broker, then you have a record of sales. But on a private all cash basis? Rots of ruck.
Personally, I see us going to a barter or all cash system. There will be an underground economy and the government is going to have one heck of a time collecting taxes.