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Alarmist? Irresponsible?

Not content with taxation, the feds wants to grab your retirement savings entirely...

The WRITING is on THE WALL for retirement assets held in the conventional way, warns Dan Denning for Whiskey & Gunpowder.

A report last week in Business Week shows that the US Feds have 401(k) retirement account assets in their sites...

"The US 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.

"Annuities generally guarantee income until the retiree's death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview."

Now ostensibly, the plan to offer an annuity option for 401(k) plans will seem sensible. But don't be fooled.

This is the beginning of a money grab by the Feds for the $3.6 trillion in assets held by US 401(k)s. The Feds need that money to finance the deficit. This is where some of the money to fund the deficits may come from, answering a question we're not alone in asking.

Because what you can't take, you'll have to print.

Right now, the Feds can't just take that 401(k) money. Well, they could. But it would crash stocks and infuriate the public, leading to some civic violence. What's more, it would feel like theft as well as looking (and being) precisely that. So they have to dress the plan up as something that's better for savers first. Hence they're trotting out the idea that a defined benefit pension plan is better than defined contribution plan. Which is true, if it's funded well.

A defined benefit plan guarantees you income in your old age. A defined contribution plan on the other hand – which is what we have now – just guarantees that money flows into the stock market today. Which is good for the financial services industry, but doesn't guarantee you'll have any money when you really need it later in life.

Back of these proposals, the US Treasury Department and the Obama administration are exploring ways to encourage US savers to buy more annuities or investment vehicles composed of "safe" assets. What constitutes safe? Why 30-year US government bonds of course! Thus, the government can encourage people to buy what the Chinese and the Japanese and most other US creditors don't want to touch any longer. But the trouble with an annuity or 30-year bond is that you get crushed by inflation.

In principle, a long-dated annuity or Treasury bond is no different from a zero coupon bond. You get your nominal investment back upon redemption. But you are not compensated for inflation and your money is tied up meantime, instead of working harder for you elsewhere.

It's obvious what the Fed's get out of this: a ready source of new buyers for the Treasury's bonds (i.e. debts). This kicks the can of unsustainable deficit spending down the road a few months, or perhaps a few years. But it doesn't change the fundamentally destructive path of US fiscal policy.

What it also tells you is that mischief is afoot among the wealth stealers of the modern nation state. Faced with a failed funding model, they are beginning their cash grab. This takes the form of higher taxes. But the big bounty is the retirement savings of millions of Americans. It would solve the problem of having to sell new government debt to foreign investors. And it solves the problem of having to make tough budget deficits.

Just issue more debt and make the super funds buy it with your money.

If you think that's balderdash or won't happen, you're being naïve. It won't happen overnight. But it will happen gradually. It's evolving towards that already. If they can't get it through tax or royalty revenues, the tax posse will get it by any means necessary, which means your super assets are an obvious target.

Alarmist? Irresponsible? You decide. But we can see the evolution of this as clear as day, even if saying it in public is bad form or taboo. And now is the time to say those taboo things early.

Ready to Buy  Gold...?

Best-selling author of The Bull Hunter (Wiley & Sons) and formerly analyzing equities and publishing investment ideas from Baltimore, Paris, London and then Melbourne, Dan Denning is now co-author of The Bill Bonner Letter from Bonner & Partners.

See our full archive of Dan Denning articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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