Social Security Trust Fund II

[jtabeb]

Re: Social Security Trust Fund II

I'm in a similar situation to jk in that most (about 85%) of my liquid investable assets are in a 401k. Those in this thread that have little fear of this issue or feel that jtabeb is being paranoid, whether it be outright Argentine-type confiscation or forced investment in TIPS, you likely have relatively little dollar amounts at risk.

Ash...I don't know your situation, but hypothetically, if you were jk and you had $1,000,000 in your 401k and about $100,000 in the bank, wouldn't you be worried about relying on the goverment annuity idea for your retierment if retirement were staring you in the face? Try to put yourself in that position and you can see how scary this issue becomes. You become totally beholden to the government for the rest of your life. You have gone from being a strong, independent, successful, proud indivuidualist to being on the goverment teet for a bi-monthly check. Sad.

jtabeb...The only thing holding me back from also liquidating my 401k is I still believe that grabbing 401k balances would be HUGELY unpopular, even mob-inciting, and I feel that Uncle Sam has an alternative...keep printing dollars. I don't have a good answer yet to the question "Why wouldn't Uncle Sam simply print the dollars he needs rather than confiscate private retirement monies?"

No offense to any of the great minds on this site, but I sure wish Fred or EJ would weigh-in on this topic. It's important to many of us. Hell, even the sanest among us iTulipers have said this issue may finally incite us to pitchfork status. EJ...any thoughts?

I don' think ANYONE is advocating incitement. I think most all of us our very concerned with the behavior of this administration (Esp. the "We are doing this for the general good" that is not ANYTHING of the sort).

R.E. I don't have a good answer yet to the question "Why wouldn't Uncle Sam simply print the dollars he needs rather than confiscate private retirement monies?"

I DO have a good answer for this. It is the same reason our government is making sure that liquidity DOES NOT flow to the real economy. They want to MAINTAIN their ability to capture seinoriage. If they were perceived as just printing money and just handing it to people, faith in the dollar would collapse and increasing emission of dollars would ONLY produce increased inflation. Now how matter much currency was issued, it would continue to amount to less and less in real terms. They would eventually get to the point where even an INFINITE amount of currency emission would not increase the REAL money supply.

The government wants to PRESERVE it's ability to capture
seinoriagefor as long as possible (you can see for yourself who the beneficiaries of this policy are). At this point it would seem that QE is hitting a wall (in terms of maintaining credibility in the dollar) so the only way to increase seinoriage through currency emission and not have it feed directly into real goods all price inflation is to find some other source of monies to monitize the treasury debt issuance. Hence, I don' think it is an OPTION for them to NOT forcibly compel the large captive stock of pension funds to buy treasury debt. If the DON'T do this, then their ability to harvest seinoriage is lost.

By printing money OUTRIGHT, a government would give up this abiliy (seinoriage). So it is my contention that they will be forced to do this to maintain their ability to collect seinoriage by exactly the same forcing function that required the Argentinian Government to have to do so.

That forcing function is Soverign Debt repudiation by the marketplace.

(Notice how PIMCO and the other large bond funds are dumping Soverign debt? There is A REASON for this IMHO)

The BIG players are dumping Soverign risk, so someone must be compelled to take on this risk.

Where could a government find a big enough pool of captive funds that could be forced to take this risk through government mandate?

Well, I think we have our answer now, don't we?

[jk]

Re: Social Security Trust Fund II

I'm in a similar situation to jk in that most (about 85%) of my liquid investable assets are in a 401k. Those in this thread that have little fear of this issue or feel that jtabeb is being paranoid, whether it be outright Argentine-type confiscation or forced investment in TIPS, you likely have relatively little dollar amounts at risk.

Ash...I don't know your situation, but hypothetically, if you were jk and you had $1,000,000 in your 401k and about $100,000 in the bank, wouldn't you be worried about relying on the goverment annuity idea for your retierment if retirement were staring you in the face? Try to put yourself in that position and you can see how scary this issue becomes. You become totally beholden to the government for the rest of your life. You have gone from being a strong, independent, successful, proud indivuidualist to being on the goverment teet for a bi-monthly check. Sad.

i think ash addressed this:

I assess the risk of the government confiscating my retirement accounts without enough warning to exit them as less than 0.1%.

First of all, do you realize that this would require a change in law which would be debated in Congress? It isn't going to happen suddenly and without warning. This is going to be as contentious as healthcare reform.

Second, do you realize that this is an anti-FIRE initiative? Tax-deferred capital gains on retirement investments is to equities what the mortgage interest deduction is to the housing industry. It exists, partly, to funnel money INTO equities, equity trading, and equity management fees. Contrary to what some think, this is not a big money-making opportunity for Wall Street. Did you read the article? The group that funded the poll is FIRE industry... they don't want this, because it involves more of the pie going to Uncle Sam and less to FIRE. There is a LOT more money to be made churning trades into and out of stocks, and managing stock funds, and inventing ETFs, than there is to facilitating regular trade in government bonds. So, off the bat, FIRE is going to be lobbying against it.

Third, conversion of all existing retirement holdings into Treasuries is much less likely than a law that says some fraction of new retirement savings must be channeled into the new Treasury bond anuity fund.

Fourth, it is highly likely that the government will allow savers to exit their retirement plans once the new policy is announced, because they are looking for short-term tax revenue. Almost no one in Washington is trying to solve a problem 5 or 10 years out; they are trying to solve their cash flow problem today. That is why conversions out of Traditional IRAs to Roth IRAs is allowed this year for high-income types; the government wants the immediate tax revenue, even though they are giving up a much larger potential revenue in later years.

jtabeb...The only thing holding me back from also liquidating my 401k is I still believe that grabbing 401k balances would be HUGELY unpopular, even mob-inciting, and I feel that Uncle Sam has an alternative...keep printing dollars. I don't have a good answer yet to the question "Why wouldn't Uncle Sam simply print the dollars he needs rather than confiscate private retirement monies?"

i think a bit of both is conceivable. the fed will monetize, but there is an issue of pace- it must do so as slowly as possible. i imagine that bernanke, et al are quite aware that the dollar will be much less valuable a decade from now, but the path to get there is quite variable. they want a MANAGED decline. they hate the notion of "disorderly." so forcing some retirement savings into treasuries is attractive. but i think ash's analysis is spot on- it's what's stopped me from cashing out- no penalties at my age but a big tax hit. and the loss of sheltered compounding, as ash points out, is potentially a big deal- i just went to a life expectancy calculator, which informed me i've got roughly 26 more years here. that's long enough for compounding to matter A LOT.

The BIG players are dumping Soverign risk, so someone must be compelled to take on this risk.

the fed prints, we ALL take on the risk in the form of inflation.

[c1ue]

Re: Social Security Trust Fund II

I'd just like to point out that whatever the government's INTENTION, that there may well be events outside of the government's CONTROL.

One scenario: via changes to laws as well as more unsubtle methods, 50% of American's savings gets directed into Treasuries.

Then the currency crisis/debt crisis ensues as a political change in China coupled with a bubble popping leads China, then Japan to sell large parts of their Treasury holdings to raise cash.

Dollar falls, interest rates jump to 12%, etc etc. All that was pushed into Treasuries get a 50% haircut in 6 months. Annuity payments are unchanged, but what you can buy with them falls by half.

Second scenario: Same divertissement of retirement money into Treasuries. Government then does a Volcker: deliberately raises interest rates to 18% to 'kill inflation expectations'. American's retirement money is thus used to subsidize foreign lenders. Economy takes another 2 year vacation. Inflation loss only 15%, but net worth losses due to job losses and property values falling adds another 25%.

Again - don't know if either WILL happen, but either COULD happen. Once the retirement money goes in, it ain't coming out.

JT's point is quite valid for this purpose.

[dummass]

Re: Social Security Trust Fund II

Mark my words -- any proposal to actually confiscate existing individual retirement savings and convert them into Treasuries will float like a lead balloon.

Your words have been marked. The current discussion on this subject is a trial balloon, not a "lead balloon." When the time comes, there will be no discussion. These types of measures are passed during an emergency event.

There is no doubt, the legislation has already been written. That is how the system works. When the proper triggering mechanism presents itself, the legislation will be presented and passed, with only token debate.

Imagine the amount of discussion that the Patriot Act would have generated, especially among the liberal universities and human rights groups, had they opened it for discussion.

The system needs to sell Treasuries. The system will sell Treasuries. A buyer will be found, willing or not!

[ThePythonicCow]

Re: Social Security Trust Fund II

I'm in a similar situation to jk in that most (about 85%) of my liquid investable assets are in a 401k. Those in this thread that have little fear of this issue or feel that jtabeb is being paranoid, whether it be outright Argentine-type confiscation or forced investment in TIPS, you likely have relatively little dollar amounts at risk.

Good point.

For those of us who are less wealthy, I'd recommend taking out some money from 401K's and IRA's each year, while making some effort to minimize the worst of the tax brackets and early withdrawal penalties. This is easier to do if one is older and poorer (my situation.)

For the younger and wealthier ... good luck.

[big67]

Re: Social Security Trust Fund II

The discussion is interesting.

My point of view from Europe is that they will do this using fear, as somebody else suggested.

Fear is a powerful tool.

In Italy they did this that way:
1. the government started a press campaign that they will not be able to pay good pensions sometime in the future.
2. The government told people that they need to have a "second pillar" for their pensions, a private one to support the public one.
3. The government offered people to convert part of their mandatory savings at companies into private pension plans, in order to build their "second pillar" so that you can only opt in - no opt out was allowed.
4. The plan was completed in... 2007, so a lot of Italians opted into a private pension plan at the worst possible time.

Now, I think this game can be played in USA in a different form to have people opt in a public pension plan at the worst possible time. Just persuade them the sky is falling and they need government "protection".

[ThePythonicCow]

Re: Social Security Trust Fund II

The discussion is interesting.

My point of view from Europe is that they will do this using fear, as somebody else suggested.

Agreed. What you suggest sounds likely.

I don't expect to see a serious push for this until we get another nasty stock market crash that causes more 401K/IRA losses and raises the fear level. Then "they" suck everyone out of their 401K/IRA mutual funds into Treasuries, slamming the stock market further down and strengthening the dollar and Treasuries further. The long anticipated collapse of the U.S. Dollar may still be a couple twists and turns away from happening.

Over the last month, I've exited all my gold mining stocks, purchased some June 2010 PUT options on SPDR S&P Homebuilders ETF (XHB), sold some of my gold and continued adding to my local store of durable goods and backups for food and water.

[rjwjr]

Re: Social Security Trust Fund II

Your words have been marked. The current discussion on this subject is a trial balloon, not a "lead balloon." When the time comes, there will be no discussion. These types of measures are passed during an emergency event.

There is no doubt, the legislation has already been written. That is how the system works. When the proper triggering mechanism presents itself, the legislation will be presented and passed, with only token debate.

Imagine the amount of discussion that the Patriot Act would have generated, especially among the liberal universities and human rights groups, had they opened it for discussion.

The system needs to sell Treasuries. The system will sell Treasuries. A buyer will be found, willing or not!

I agree with this point and your reference to the Patriot Act is a great example. As a poker player, I have another example. The bill that made online poker "illegal" was attached to the Port Security bill by Bill Frist during a midnight passage. Discussions about the bill were in progress when he took an oppotunity to get it signed as a last second addition to a much more important and urgent piece of legislation.

I hope that Ash is right that there is plenty of discussion and we have plenty of warning, but when an issue is unpopular, as was the online poker proposal, who knows what TPTB will do to get what they want?

[rjwjr]

Re: Social Security Trust Fund II

...but i think ash's analysis is spot on- it's what's stopped me from cashing out- no penalties at my age but a big tax hit. and the loss of sheltered compounding, as ash points out, is potentially a big deal- i just went to a life expectancy calculator, which informed me i've got roughly 26 more years here. that's long enough for compounding to matter A LOT.

The sheltered compounding argument means a lot to me too, but I don't think it offsets the fear of government confiscation...in which there's no compounding anymore.

As for the tax bite, our current tax rates are likely to be the lowest they will be for many years to come.

More and more, indications and events are leaning me toward complete liquidation, in spite of penalties. 60% or so of the balance, free of the government, is sounding much better than 100% of my hard earned retirement savings in the hands of the government to be doled out to me as they see fit.

EJ, any 401k/IRA balances that you're worried about?

[ASH]

Re: Social Security Trust Fund II

Ash...I don't know your situation, but hypothetically, if you were jk and you had $1,000,000 in your 401k and about $100,000 in the bank, wouldn't you be worried about relying on the goverment annuity idea for your retierment if retirement were staring you in the face? Try to put yourself in that position and you can see how scary this issue becomes. You become totally beholden to the government for the rest of your life. You have gone from being a strong, independent, successful, proud indivuidualist to being on the goverment teet for a bi-monthly check. Sad.

Hi rjwjr -- to be clear, I have no intention of relying upon the government annuity idea. I'm just arguing that it is not yet necessary to make early withdrawals from retirement accounts on the supposition of what may eventually come from this talk.

If retirement were staring me in the face, I would be doing several things differently. I would be more diversified, I would be trying harder to not lose money, and I would probably be a shade more paranoid about things like this annuity thing.

That said, I think there is a human tendency to perceive things which we feel the most strongly about as being more probable, and this may affect one's assessment of the risk of sudden confiscation. Myself, I do think the government is going to come for my money. No question. But they're going to go for the most milk with the least moo. They are going to do it by taxation, inflation, and maybe some 'soft' nanny-statism like having enrollment in a 401(k) be opt-out rather than opt-in, and having the default investment choice be some Treasury-related annuity plan. They are not going to do it by picking a fight over property rights, because they don't have to.

[jtabeb]

Re: Social Security Trust Fund II

It just keeps getting better and better!

Here is a piece from HuffPo on the same subject. (USA 2010 does not equal Argentina 2001? Right!)

http://www.huffingtonpost.com/garret..._b_417545.html

It's the same damn banks! The people who screwed the Argentinian people back then are the ones screwing us right now! They bought off the corrupt politicians of Buenos Aires to get what they wanted, just like they've purchased the corrupt politicians of Washington today. They won't hesitate for a single minute to treat you exactly the same.

Too late the people of Argentina stood up for themselves, and even then the results were mixed at best. Their government simply didn't listen or care until people took to the streets. That's when their government collapsed and stopped robbing from them.

[charliebrown]

Re: Social Security Trust Fund II

who knows, maybe the rumor mill of higher taxes, mucking around with your 401k or ira will scare enough people to start taking distributions.
Maybe that's the intent.

If your under 50?? then they get to grab an extra 10% plus your marginal tax rate.

[Jay]

Re: Social Security Trust Fund II

Good point.

For those of us who are less wealthy, I'd recommend taking out some money from 401K's and IRA's each year, while making some effort to minimize the worst of the tax brackets and early withdrawal penalties. This is easier to do if one is older and poorer (my situation.)

For the younger and wealthier ... good luck.

Cow, Poor is a matter of perspective. With your mind, you are a rich man in my eyes and will likely navigate through this no matter what happens.

[ThePythonicCow]

Re: Social Security Trust Fund II

If your under 50?? then they get to grab an extra 10% plus your marginal tax rate.

If you're referring to the early withdrawal penalty of 10%, that applies until you are 59.5 years old.

[ThePythonicCow]

Re: Social Security Trust Fund II

Cow, Poor is a matter of perspective. With your mind, you are a rich man in my eyes and will likely navigate through this no matter what happens.

I share your confidence, Jay. Life is good.