Obama Will Grab 401K's To Fund Deficit Spending

Will you be willing to fund the federal government's income redistribution agenda with your 401K savings account? Think about it. You have saved all your life but now the liberals want you to give your life's savings to others that didn't save a dime.

Doesn't this make you feel good kowning you will be making a heart felt contribution to the welfare of others. Oh, and you will be funding a new Mercedes for members of the Obama staff at the same time. It just can't get better than that, right?


Whiskey & Gunpowder
By Dan DenningJanuary 18, 2010
Melbourne, Australia

Will the Feds Fund Deficits with 401(k)s? The writing is on the wall for retirement assets held in conventional ways. A report last week in Business Week shows that the U.S. Feds have 401(k) assets in their sites.

“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.
“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 U.S. 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 asked earlier in the week. What you can’t take, you’ll have to print. But 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) like it. So they have to dress the plan up as something that’s better for savers. 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 years.

A defined contribution plan (what we have now) just guarantees money flows into the stock market (which is good for the financial services industry, but don’t guarantee you’ll have any money when you really need it later in life).The U.S. Treasury Department and the Obama administration are exploring ways to encourage U.S. savers to buy more annuities or investment vehicles composed of “safe” assets. What constitutes safe?

Why 30-year U.S. government bonds of course! Thus, the government can encourage people to buy what the Chinese and the Japanese and most other U.S. creditors don’t want to touch any longer.

The trouble with an annuity or 30-year bond is that you get crushed by inflation. In principle, it’s not different that 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, instead of working harder for you elsewhere. It’s obvious what the Fed’s get out of this: a ready source of new funds to buy their bonds. 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 U.S. fiscal policy.

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