401k/IRA Screw Job Coming?

Market Ticker ^ | 01/08/2009 | Karl Denninger

[Zeddicus]

Now this is a guaranteed rape job.

In a short conversation this noontime that CNBC apparently has omitted from their archives (Why's that folks?) Rick Santelli was talking about a potential to effectively force money into the Treasury market.

Where would they get this?

From your 401k and IRA accounts!

From Businessweek:

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.

Let me tell you what this is - it is an attempt to prevent the collapse of the Treasury market!

Forcing people into Treasuries as an "annuity" is exactly what Social Security allegedly is. Except that Treasury stole the money that was collected in FICA taxes and spent it!

Guess what? They'll do that here too - you're going to "invest" in Treasuries which of course are effectively a CALL option on the future taxing ability of the government.

The problem is that with an aging population and the immigrant problem (illegal immigrants that is), along with offshoring, the aggregate wage base will drop and thus this is the most dangerous investment of all!

What's even worse is that the government has intentionally suppressed Treasury yields during this crisis (and will keep doing so by various means, including manipulating the CPI - the "inflation index" - as they have for the last 30 years) so as to guarantee that you lose over time compared to actual purchasing power.

THIS HAS BEEN THE CASE SINCE THE 1980s AND IT WILL NOT CHANGE!

I have been talking about this for quite some time and recall writing a Ticker on it a year or more ago, although I can't find the entry immediately.

Let me be clear:

I have no quarrel with the government mandating that you have a choice in your IRA or 401k account to buy short-duration Treasuries - much like the "G" fund that government and civil-service workers have.

But - "choices" have a funny way of turning into mandates, and this looks to me like a raw admission that Treasury knows it will not be able to sell its debt in the open market - so they will effectively tax you by forcing your "retirement" money to buy them!

This may be the only way for Treasury to hold down interest rates to something reasonable in the intermediate term, but doing so will instantaneously remove a major source of funding for the stock market - that is, the monthly and quarterly inflows from retirement accounts.

You can bet this won't be good for you, the ordinary American.

You can also bet that once such an "option" is made available there is a very high probability of the government doing things that either promote or simply don't stand in the way of another stock market crash as a means of "herding" your money into Treasuries - so they can blow it - all under the guise of being allegedly "safe".

Of course this begs the question - what if the government can't pay down the road when you retire, just as they can't pay on a forward basis with Social Security and Medicare?

This "proposal" can only mean one thing - Treasury smells smoke. Maybe you should pay attention to what they're huffing!

And before you say "oh they'd never do that" I want you to read this:

Here is a warning to us all. The Argentine state is taking control of the country’s privately-managed pension funds in a drastic move to raise cash.

...

My fear is that governments in the US, Britain, and Europe will display similar reflexes. Indeed, they have already done so. The forced-feeding of banks with fresh capital – whether they want it or not – and the seizure of the Fannie/Freddie mortgage giants before they were in fact in trouble (in order to prevent a Chinese buying strike of US bonds and prevent a spike in US mortgage rates), shows that private property can be co-opted – or eliminated – with little due process if that is required to serve the collective welfare.

Any questions?

[RFEngineer]

“Face it, the money’s gone and they’re trying to hide that fact as long as they can.”

Well, if they can’t borrow it, they’ll have to take it.

Interesting thing here is that they’ll get to tax folks who take their money out of retirement plans in fear of the government, and then if it’s not enough, they can take the rest and “invest” in treasuries to finance more spending.

The other thing this might do is convince people NOT to put more money into 401k’s and spend it instead - increasing consumption.

They’ll get money on the rumor alone.

These are diabolical folks.

[ladyvet]

I never understood people that went postal before.....this last year.

[WKUHilltopper]

This is all by design—to impoverish you. So you’ll beg for a crumb of food by your new world order masters. Look who the hell is in charge of the White House if you need proof.

[AngelesCrestHighway]

Just more ammunition for the liberal massacre in the next election....

[Drill Thrawl]

Yup. See the tag...

[RexBeach]

Just to keep current: The Chi Coms haven’t bought any Treasuries since May, 2009.

The biggest buyers of Treasuries has been - the Treasury!

[OB1kNOb]

Argentina seizes pension funds to pay debts. Who's next? - 10/21/08

[RexBeach]

Have you ever wondered about how a fool and his money got together in the first place? :)

[listenhillary]

It would be nice to get 20 to 30 million tax payers to not file 1040’s and a million businesses refuse to remit withheld payroll taxes. Put them in escrow out of reach somehow.

[Mich Patriot]

What’s worse is that even if they don’t end up doing anything, the mere whisper of this will hurt the markets. Once people (like me) hear of this, they’ll STOP CONTRIBUTING TO THEIR 401k PLAN, and if possible, PULL MONEY OUT. Once again, the unitended consequences of policies penned by ignorant bureaucrats will screw us all.

[Polynikes]

Hello Iceland/Argentina. It will be a win/win for TPTB (The Powers That Be). You will get snagged on taxes if you liquidate early to avoid confiscation or get slowly ground down as the interest rates on T's are kept artificially low. As the Ticker says Turbo Tax Timmy and company smells smoke. You can see the equities market crash with this insanity and greed. What was once considered Tinfoil is about to be real. On the bright side maybe this will wake J6P up.

[dumpthelibs]

You can bet on that. When are we going to stop this madness?

[Kozak]

AS soon as this looks like a reality, the market will crash as everyone, yours truly included, will go to cash out their 401k’s and IRA’s, tax penalty be damned.

[Jim Noble]

I already paid the taxes and spent the money.

I know they would come for it.

[tgusa]

Not filing? Hell, these clowns in DC may drive 20 or 30 million taxpayers into rebelliion.

[happilymarriedmom]

We found $$ in the ammo boxes that were supporting my in-laws bed. We use to think that was crazy but not so much anymore!

[darkwing104]

If, as students, we bothered to read the History Books of the Pre-PC era the reader would soon discover that the Revolutionary war was started for less offences than we have seen in the last few years.

[MediaMole]

I would certainly prefer to control my own 401k and IRA. Miller acts like the market will never recover (Yeah, if the rats maintain control, it won’t), but my investments are already approaching the levels they were in 2008 despite the recession. I don’t want the government “helping” me with my money.

[laxcoach]

"If something like this becomes a reality, then the biggest dupes were those who converted traditional IRAs to Roth IRAs in the last ten years — and paid income taxes on the conversion in the process."

I would argue that Roth Conversions were a scam perpetrated by the feds. Here's why:
1 - Most people have a larger marginal tax rate while saving in IRAs than they do during retirement when the withdraw. Supposing you only have X dollars to contribute, you are better of with X (pretax) than with the post tax amount in your Roth. The larger principal grows faster, and you pay a lower marginal rate when retired.
2 - The Roth conversions were a windfall for the feds. They got to tax money they otherwise were not going to tax for decades.
3 - Does anyone really believe they won't change the rules? I suspect at some point, they will means test Roth IRAs. For example, if you have more than $1M in assets, you have to pay taxes during withdrawals.

My final gripe, in general, is with putting my money into an account that has strings attached. This is true of all these retirement accounts. I would rather pay my taxes and have my money be free and clear of all the rules.

[Hoffer Rand]

Sounds good, doesn’t it? Until they would change the rules so as to deprive you of most of it.

Yup. Just like GM's bond holders had nothing to worry about from the government stepping in. Nothing at all...