Friday, January 8, 2010

The U.S. Looks to Go All Argentina on 401(k)s

I've been crafting my Socionomics Trendspotting 2010 post and hope to have it up soon. Meanwhile, big hat tip to Karl Denninger on a story straight out of Conquer the Crash:

Americans Oppose Initiatives Limiting 401(k) Choice ICI Says
by Jeff Plungis
Jan. 8 (Bloomberg)-- U.S. investors oppose federal initiatives that would force them to give up control over their 401(k) accounts, the Investment Company Institute said...

...The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort...

I agree with Mr. Denninger that there actually are people at Treasury who can do math and are looking for a replacement buyer for the Chinese if/when TSHTF later this year. This comes as no surprise to students of history, but since there are very few of those left these days, I imagine the coming restrictions or forced conversions may come as a shock to most.

Or, more frightening to me, a forced conversion of 401(k)s to Treasury holdings might actually be welcomed by a populace angry at Wall Street and fearful of risking their capital in productive ventures.

This is the reason I subscribe to Elliott Wave products and try to always keep the big picture in mind when making decisions. Robert Prechter talked about this back in 2002 in Conquer the Crash. I was able to plan accordingly. Hopefully you won't get screwed by when the U.S. starts turning Argentinian. See Chapter 23: What To Do With Your Pension Plan (First Edition) -

Make sure you fully understand all aspects of your government's individual retirement plans. in the U.S., this includes such structures as IRAs, 401Ks and Keoghs. If you anticipate severe system-wide financial and political stresses, you may decide to liquidate any such plans and pay whatever penalty is required. Why? Because there are string attached to the perk of having your money sheltered from taxes. You have to do only what the government allows you to do with the money. It restricts certain investments and can change the list at any time...

...What is the worst that could happen? In Argentina, the government continued to spend more than it took in until it went broke trying to pay the interest on the debt. In December (of 2001, FJ), it seized $2.3 billion dollars worth of deposits in private pension funds to pay its bills...

Bold emphasis mine. History not only rhymes, it occasionally repeats itself.

FutureJacked bold prediction #1: Sometime between now and 2012 the U.S. Federal Government will seize a majority, if not all, of the funds held in IRA and 401(k) style accounts, taking the money in those accounts and replacing them with long maturity U.S. Treasury Bonds that are not valid for sale on the open market.

To get there, the power of Wall Street will have to be shattered. I think Primary Bear Wave 3, coming to a stock market near you soon, will be the hammer that does that shattering.

More to come on this, I am quite sure.


Scott said...

Nice analysis of the implications of this activity by Treasury and Labor. An alternative possibility to converting the account balances to Treasuries would be simple confiscation offset by the promise to pay the affected savers the annuity mentioned. Going that route would avoid rolling term Treasury notes.

Flagg707 said...

@Scott. Interesting point. Maybe some sort of Executive Order to "rescue savers" during a market plunge, slap a fancy acronym a retiree payment plan and be done with it. It would be "cleaner" in that sense.

I have a bad feeling we'll get to find out.