President proposes T-bills for IRA and 401(k)s
(Tea Party) – Anytime you hear the government say they want to help you manage your retirement savings , run in the other direction.
WND reported that the Obama administration had been looking for a creative way to finance the trillion dollar annual budget deficits. One of the creative solutions was to force private citizens who hold IRA and 401 (k) accounts to purchase Treasury bonds by mandating that government-structured annuities be placed in their retirement accounts.
It was also reported that hearings were held jointly by the US Department of Labor and the Treasury Department to determine whether government lifetime annuity options funded by US Treasury debt should be required for IRAs, 401 (k)s and other private retirement accounts.
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Now those “creative solutions” for snatching US citizens dollars are drawing closer.
President Obama just announced in his State of the Union address that there is a new initiative to allow first-time savers to build their savings in Treasury Bonds. Eventually these bonds would be converted to traditional IRAs and 401(k)s. This new retirement savings plan is for those workers whose employers do not offers IRAs or 401(k) plans.
It may not be as burdensome as demanding a select percentage be invested in US Treasury bonds but it is clearly a step in that direction by the Obama administration.
Why are they making this move? With the enormous federal budget deficits the Obama administration has run up—about $1 trillion dollars every year since 2009—and the Federal Reserve announcing the “tapering” of Quantitative Easing by buying $10 billion a month less in government debt every month this year until QE hits zero, well, someone has to pay for it by buying all the Treasury debt Obama and his administration plan to issue. Where do they look? To the people naturally.
Americans have put $19.4 trillion into retirement savings and that seems like ripe pickings by the government. In January 2013 the US Consumer Financial Protection Bureau suggested it should help Americans manage those trillions.
“That’s one of the things we’ve been exploring and are interested in terms of whether and what authority we have,” said bureau director Richard Cordray in an interview with Bloomberg.
The Treasury and Labor departments, under the direction of the Obama White House, have increasingly pushed for this type of investment theory. This is because government bonds carry a sovereign guarantee against default. Therefore, funds from a 401(k) or an IRA placed in a Treasury R-Bond would for the most part be considered a government annuity. That annuity would pay the person retiring a lifetime income, no matter how the stock market or bond market performs independently.
And the government’s argument? Investors in IRAs and 401(k) plans lost principal from their retirement savings when the housing bubble burst and the Dow plummeted from a high of 14,164.53 in 2007 to a closing low of 6,547.05 in March 2009.
According to Fidelity Investments, estimated average fund balances in 401(k)s in the approximately 11 million accounts the firm manages dropped from $69,200 at the end of 2007 to $47,500 at the end of March 2009.
But when the stock market rally began in March 2009, the account balances of those Fidelity 401(k)s increased 28 percent. The average account balance at the end of the third quarter 2009 was $60,700—up from the low of $47,500 at the end of the first quarter 2009.
Most IRA and 401(k) investors have registered substantial gains with the Dow in an extended rally since 2009, going up over 16,000 points.
But if the stock market should tank again, anyone with retirement savings in IRSs, 401(k) plans invested in the stock market could take a huge hit and it could take years to recoup the losses.
Could the US follow Argentina’s failing path?
Sadly, those saving for retirement in other nations that carry high debt who have insisted that such savings be put into government debt have fared very poorly. They took huge losses as the debt crises in these nations worsened and bond markets began selling the debt at serious discounts.
In October 2008, Ambrose Evans-Pritchard, business and economics editor for the Telegraph of London warned that G7 nations may begin following Argentina in forcing privately managed pension funds to be invested in government-issued debt. He specifically included the United States in his statement.
Those private pensioners in Argentina holding government debt in their retirement accounts could not be assured that those bonds would have any meaningful value at their maturity since the Argentine peso was devalued to 29 cents on the dollar.
“Here is a warning to us all,” wrote Evans-Pritchard. “The Argentine state is taking control of the country’s privately managed pension funds in a dramatic move to raise cash.”
He warned that the G7 states “are already acquiring an unhealthy taste for the arbitrary seizure of private property, I notice.”
“It is a foretaste of what might happen across the world as governments discover that tax revenue,” he continued.
The Obama administration is desperately trying to find additional ways to sell government dept cheaply and not raise interest rates since the Treasury needs another $1.4 to $1.5 trillion in new debt to finance the anticipated budget deficit.
Poland confiscated one-half of all its citizens’ private pensions in a effort to cut the nation’s debt, according to a September 2013 report in WND. At that same time Reuters also reported that the Polish Prime Minister, Donald Tusk announced that the government decided to transfer to ZUS, the government pension system, all bond investments in privately owned funds within the state guaranteed system.
The Polish government has – for the time being – allowed private citizens to keep equity investments in the state guaranteed pension system that are approximately half of all the private pension investments.
The change will reduce Polish national debt to about 8 percent of the gross domestic product, according to Polish Finance Minister Jacek Rostowski , and allow the government to resume another round of debt creation by borrowing in international markets.
By nationalizing the bonds held by Polish citizen private retirement accounts—or confiscating as the case may be—the government can circumvent two threshold restrictions that deter it from allowing debt to head up over 50 percent of GDP. A second threshold kicks in when Polish national debt reaches 55 percent of GDP.
This shifting of bonds held in private retirement accounts into ZUS means the government can book the assets on the state balance sheet to offset public debt. This move allows the government to borrow and spend more, reports Reuters.
As is becoming all too familiar in the European Union, Poland is dealing with slowing economic growth, a poor job market and declining tax revenues. The country has been forced to borrow to maintain its large social welfare system without imposing austerity measures.
Shock and dismay was the international reaction in the private investment market.
Poland’s plan comes after a similar move by the Mediterranean island of Cyprus where the government confiscated 10 percent of the amount in all bank accounts in an attempt to raise 6 billion Euros. This was done to meet a condition set by international bankers and the International Monetary Fund to finalize a Eurozone bailout.
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