They're Coming for your Retirement Funds

Stocks fell hard on Monday, bounced on Tuesday, and came to a rest on Wednesday. Which way does this market want to go? We don’t know. But so far there was not much follow through in either direction.

So we wait…glance up at our ‘Crash Alert’ flag from time to time…and watch…from the sidelines, of course.

In Barack Obama’s State of the Union address, he announced a new way for Americans to save for their retirement. The LA Times explains:

The president signed a directive Wednesday ordering the Treasury Department to create MyRA (my retirement account). A pilot program is expected to be rolled out this year.

The MyRA effort is designed as a "starter" program in which employees can accumulate up to $15,000 before transferring savings to tax-free Roth individual retirement accounts.

Money would be invested in a government bond fund that’s been offered to federal employees for years. Principal would be protected so that workers would never lose money.

But they probably wouldn’t earn significant returns. In 2012, the fund had a 1.47% return. The 10-year average annual return was 3.61%.

Wait just one cotton pickin’ minute. This program has a familiar…and sinister…sound to it.

Ten years ago, we guessed that the US economy was following Japan into that long, dark passage… We wrote about it so often readers got sick of hearing about it.

And then we looked like an idiot when, instead of stalling after the crash of 2000, the US seemed to take off. Instead of a Tokyo-style bust, we got a Las Vegas-style bubble…complete with million-dollar house trailers and enough mortgage-backed securities to blow up every major player on Wall Street. It didn’t seem at all like Japan.

Now, we discover that all that sound and fury of the last decade signified nothing. Household incomes fell. No new jobs (net) were added. Almost zero real growth happened. For all the Sturm und Drang, it was a lost decade in economic terms. Just like Japan, in other words.

And now, too, we seem to be locked into a low-growth pattern with little consumer price inflation and an aging population that cares only about preserving the benefits it has misappropriated for itself.

And like Japan, the US economy holds off the day of reckoning by borrowing money at super-low interest rates. Rates are low partly because the feds force them down by buying bonds…and partly because no one really wants to borrow and spend in such a funky economy.

Japan’s government debt is now the highest in the world – 230% of GDP. How will it ever pay it off? When we last looked, the feds spent twice as much as they collected in tax receipts.

Don’t worry about it,‘ answer the pundits. ‘Japan owes the money to itself.

That is more or less true. Japan’s government bonds were bought by its own old people (or their pension funds). They put their savings in the safest possible place – government bonds – to be used to finance their retirements.

How will the Japanese government make good on all these bonds? In other words: how will this debt-financed hullabaloo turn out? Answer: Japan will stiff its own grey-haired creditors. Either by inflation or by default.

Argentina, by the way, is already ahead of the game. It nationalised private retirement funds – to ‘protect’ them, of course.

And now, Mr Obama aims to protect US retirees in the same way.

Advice to those saving for retirement: stay away from MyRAs…


Bill Bonner
for Markets and Money

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Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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