Is the Federal Government Considering Raiding Our Individual Retirement Accounts?

Steverno~POTL~PWCM~JLA 2011/07/26 20:41:33
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The notion of government raiding personal retirement accounts for funds may seem extreme. Perhaps it shouldn't. Other governments have done it. Argentina did in 2008. Ireland has indicated it might. The worsening financial crisismay eventually move other countries in that direction.

Surely the US would never do so.

Actually, there is little basis for assuming they would not and factual evidence they would. Here are three good reasons to believe they would:

    1. Financial Ratios The US financial ratios are arguably as bad as the weakest countries in Europe. Unlike Europe, the US government has shown no willingness to meaningfully cut government spending and/or balance the budget. Europe has signaled austerity programs, although time will determine whether they adhere to such programs.
    2. Rule of Law All modern governments believe they are above the law. They justify violation of the law on the grounds it is necessary for the "good of the nation." The US government has frequently demonstrated that property rights should not stand in the way of public policy. Abuses of eminent domain are numerous. The automotive bailout was a flagrant example. Not only was the bailout without legal precedent, but US bankruptcy law was violated in order to reward unions at the expense of bondholders.
    3. Behavior Pattern The US government has a despicable record with regard to honoring retirement obligations. The government raided the Social Security trust fund so that politicians could spend at higher levels. That continuing raid put Social Security in a liquidity crisis that should not have occurred for another couple of decades. President Clinton and Congress reneged on the promise that Social Security benefits would never be taxed. Now Treasury Secretary Geithner routinely raids public pension plans in order to allow government to continue spending.
    • Most politicians in the US believe (or behave as if they believe) they can continue to kick the spending can further down the road. Apparently many believe the spending/debt problem will somehow magically go away or at least metastasize after they have left government. Unfortunately, the problem is not going away and will get much worse unless political courage and will is found to enact substantial spending cuts. These cuts must be larger than numbers discussed in current political discussions.

      What About The Debt Ceiling?

      The debt ceiling problem will eventually be resolved with an increase in the ceiling. Unfortunately, that solves nothing, as previously discussed. The problem is not debt; it is spending.

      Raising the ceiling does not mean that markets will provide funds at interest rates acceptable to the government or its financial condition. In my opinion, QE2 was never expected to stimulate the economy. It was a holding action to protect government from the bond vigilantes who might have refused to purchase government debt at current interest rates.

      Some politicians might have naively believed that the economy would begin to grow during the six-month QE2 period. Instead, the economy deteriorated. QE3 or QE10 will not solve underlying economic problems. Reductions in spending and regulatory uncertainty are necessary. Companies will not hire or invest when they cannot determine future costs and taxes.

      When the ceiling is increased, government will be able to lawfully issue new debt. Depending upon the market's reception, three outcomes are possible:

        1. There will be enough buyers in traditional credit markets to absorb the debt at "reasonable" interest rates.
        2. The Fed will institute QE3.
        3. A combination of 1 and 2 will be necessary.
        • My guess is that number 3 will be required. There will be demand at reasonable interest rates, but probably not enough to meet government requirements. The amounts required are truly enormous. For example, in August the financing required is about $600 billion -- about $130 billion of new debt and almost $500 billion of debt rollovers (see detail). Subsequent months are comparable. Credit markets are unlikely to be confident or deep enough to provide the this level of funding for long.

          Why Raid IRAs?

          The simple answer was provided by famed bank robber Willie Sutton: "That is where the money is."

          Total market capitalization of the US stock market is about $16 trillion and 40% of that is estimated to reside in IRAs and 401Ks. They are big, visible, vulnerable, and mostly immobile targets.

          This $6 trillion, if it were grabbed in some fashion, would satisfy the next 4-6 years of government deficits. Whatever can be used from IRAs lessens the amounts needed from sources 1 and 2 above.

          Before proceeding, it should be noted that the term "IRA" as generally used in this article generally refers to Individual Retirement Accounts and self-directed retirement accounts such as 401Ks. Many of the comments pertain to both even though the IRA abbreviation is used.

          How Might Government Go After This Money?

          There are innumerable ways. Here is some speculation regarding what might happen.

          It is unlikely that government confiscates IRA funds, at least directly. That is likely too big a step, at least as a first move. More likely, government mandates that a percentage of IRA funds be invested in Treasury securities. The percentage would start out small and then likely increase as government insolvency worsened.

          Let's imagine a scenario. After proper citizen conditioning, the government would require that all IRAs must be at least 20% invested in Treasuries. The rationale would be that we must all do our share in assisting the country out of its economic hardship. Those with IRAs certainly are better off than those without. Therefore it is only fair that they invest in the future of their country.

          The reason to enact such legislation is that markets are driving up the costs of borrowing for the government. By forcing investments from existing IRA funds, the government achieves two objectives:

            1. It reduces the amounts necessary to raise in capital markets and/or
            2. It reduces the amount of new quantitative easing necessary.
            • Although unnecessary, a special series of Treasury bonds called "Patriot Bonds" could be created. These bonds would be the only ones that counted for IRAs and could have lower interest rates than traditional Treasuries. If so, you would be coerced into funding the government by purchasing bonds for more than how the market values them. But, after all, you are a patriot and one of the "winners in life's lottery." So it is the least you can do.

              Over time the required percentage would be raised to, say, 40 or 60 or even 100% as financial conditions worsen. Finally the government defaults, making whatever portion of your IRA represented by government securities worthless.

              In effect, that part of your IRA has been confiscated by government.

              Is This Possible?

              Those who believe our government is too honorable to raid private retirement accounts had better wake up! The seriously dangerous and wounded animal we know as government is fighting for its survival. It will do anything short of dying, reducing spending, or revealing itself as the Ponzi scheme it truly is.

              Your notions of integrity, law, and morality do not apply to this animal. The biggest, meanest man in town is trying to escape death and will use whatever means possible. Rightly or wrongly, he believes you are his antidote and he is going after whatever he can get.

              One hurdle to preventing government from taking such action might be the stock market. The shift in asset allocations required in retirement accounts would presumably be detrimental to the stock market. Whether it would crash or not is moot. Any such action would certainly reduce its value, which might be the best protection retirees have.

              Unless government spending is reduced to the point that new debt grows slower than GDP, most retirement accounts will diminish dramatically. This conclusion is independent of whether government raids your IRA account. Hyperinflation will eventually result from continued quantitative easing (printing of money). That will destroy most savings and all fixed income obligations like bonds and pensions whether these funds are in or out of IRA accounts.

              Things are going to get ugly. Prepare for the worst and hope for the best.

              From : The American Thinker
              BY : Monty Pelerin

            • Read More: http://www.americanthinker.com/2011/07/is_your_ira...

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              • CUDDLY BUT STILL CRABBY 2011/07/27 01:19:06
                Yes.The Federal Government is getting desperate for more money!
                Yes. They. Are and Yes. They. Will. if they think they can get away with it.

                They are trying to level the playing field. Everyone, except the political elites, will have nothing.

                How's that Hope and Change working out for ya?

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              • Dwight 2013/05/28 15:43:30
                Yes.The Federal Government is getting desperate for more money!
                They have been for a very long time. I think the first mention of it by any leftist was from Jesse Jackson back when he ran for president.
              • V~POTL~PWCM~JLA 2013/05/28 14:20:47
                Yes.The Federal Government is getting desperate for more money!
                As much as any drug addict is hooked on drugs, our government is addicted to spending.

                When the government can't collect enough taxes, it continues to spend anyway. When it can't BORROW enough to keep up with spending, the government will steal anything it can get its hands on.

                Socialism fails when you run out of other people's money. Sooner or later, even the liberals will be outraged.

              • Barbara Hasler 2013/05/28 01:05:17
                Yes.The Federal Government is getting desperate for more money!
                Barbara Hasler
                This was mentioned quietly during the first term of the occupant of the WH. There are trillions in the accounts and you know the mantra of the libs is tax and spend. Forget that is not their money to spend. Would any such action be considered robbery? It is not their money to take it is the investor's. Why don't the idiots in DC stop spending and trying to interfere in peoples' lives with promises of free stuff and get with what we, the people want. We pay the bills and we are being taken for a ride into bankruptcy.
              • SimpleAmerican BN-0 2011/08/02 17:55:34
                Yes.The Federal Government is getting desperate for more money!
                SimpleAmerican BN-0
                There is no stop to the rob, steal and spend mentality that they have! They will "follow the money". Hell the current majority (liberals) have fought hard against privatization of Social Security, because they wouldn't be able to use that money or use it as a social "scare tactic", so why not go after our retirement accounts! They already penalized us if we need to tap into it to stay above water, and if we leave anything behind when we die they tax the hell out of our loved ones we left it to.

                Time to put it in a shoe box!
              • ReconMa... SimpleA... 2013/05/27 20:29:31
              • star 2011/08/01 00:48:07
                Yes.The Federal Government is getting desperate for more money!
                There have been talk about it and one day they will. And spend it faster than you can blink.
              • Lanikai 2011/07/29 17:40:49 (edited)
                Yes.The Federal Government is getting desperate for more money!
                Obama has said more then once he thinks they SHOULD take over private retirements and spread them to others.
              • ReconMa... Lanikai 2011/07/31 23:39:44
              • Lanikai ReconMa... 2011/08/01 14:30:31
                And over the weekend the news was all aflutter with a new EPA plan to severely limit (again) the natural emmissions of places like yellowstone so that nearly 90 billion in overage fees on emmissions can be collected, cap and tax and a raid of prvate savings-alas, the end is near.
              • ReconMa... Lanikai 2011/08/01 16:29:45
              • Lanikai ReconMa... 2011/08/01 16:33:17
                Didn't you love how obie refused to agree to ANY debt measure unless it went past the upcoming election. Just LOVE when they put themselves and reelection above the good of the nation.
              • ReconMa... Lanikai 2011/08/01 16:45:21
              • Stevern... ReconMa... 2013/05/28 00:55:13
                It looks as there is one less progressive troll (below) on SH...lol
              • Lario B... ReconMa... 2013/05/27 18:42:01
              • Elleryqueen 2011/07/29 13:57:54
                Yes.The Federal Government is getting desperate for more money!
                Before oblunder, yes. After oblunder elected, definitely yes. He would steal the pennies off the eyes of a dead man if it would help him ruin this country.
              • michael 2011/07/29 07:11:34
                I wouldn't be surprised at all the way things are being done in Washington DC
              • Quazimoto 2011/07/29 01:55:44
                Yes.The Federal Government is getting desperate for more money!
              • sick'n'tired PWCM 2011/07/29 00:42:29
                Yes.The Federal Government is getting desperate for more money!
                sick'n'tired PWCM
                I laugh at corporate greed when there is the US government to compare it to.
              • Mel the Witch POTL PWCM~JLA 2011/07/29 00:12:11
                Yes.The Federal Government is getting desperate for more money!
                Mel the Witch POTL PWCM~JLA
                The "Bama" has to buy votes with something, Guess what you are the target, yes you.
              • Pam 2011/07/28 17:48:02
                Yes.The Federal Government is getting desperate for more money!
                Of coarse they are it's money sitting there and it's driving them crazy.They have to get their hands on it somehow.They want their cut and they want it now.They think technically it's their money anyway.
              • Stevern... Pam 2011/07/28 21:19:44
                You know the Feds & Politicians would love to take a big chunk out of the $6 Trillion Dollars,in those private retirement accounts!
              • Lanikai Stevern... 2011/07/29 17:42:04
                But not THEIRS or THEIR FRIENDS.
              • Stevern... Lanikai 2011/07/29 18:59:37
                Thanks for all the great comments,Lanikai!
              • Lanikai Stevern... 2011/07/29 19:32:20
              • Mel the... Pam 2011/07/29 00:13:10
                Mel the Witch POTL PWCM~JLA
                You are so right Pam
              • Michael 2011/07/28 14:39:46
                Yes.The Federal Government is getting desperate for more money!
                But not in the way you mention. It will be the usual way, taxation, regulation, unionization, that will drive corporation either away or into less profitability, and therefore our investments, that our IRA's are holding, will diminish in value and dividends.
              • Stevern... Michael 2011/07/28 21:20:26
                It may happen that way too!
              • Markie 2011/07/28 13:48:17
                No.The Federal Government would never do anything like that!
                Just another stupid rumor
              • Mike W 2011/07/28 06:42:42
                Yes.The Federal Government is getting desperate for more money!
                Mike W
                They have already started moving towards that. Waxman already held hearings on the possibility of the government doing that, but dont worry I hear they'll give you 4 percent on what they take.
              • HOMBRE Mike W 2011/07/28 13:35:37
                I like how they say the federal government. Put the blame where it belongs. This is a Dem move on your 401k. I like how they say federal. Its pelosi and Reid and all the Dem thugs. I remember pelosi talking about this saying it was for our own good that the American people were to stupid to handle their money so they would give you a allowance with your own money and when you die the money stays with them so they could spend it on wonderful projects like the treadmill for shrimp
              • Patriot Unit 2011/07/28 04:19:35
                Yes.The Federal Government is getting desperate for more money!
                Patriot Unit
                Obama has wanted that every sense he got elected, what part of this country are you living in to not have known that?
              • Always Right 2011/07/28 04:11:58
                Yes.The Federal Government is getting desperate for more money!
                Always Right
                Tell me when the government hasn't went after money? Anybodies money!
              • Lanikai Always ... 2011/07/29 17:43:12
                I wish they would go take away all the 60 inch plasma TV's in public housing while they are at it.
              • mae 2011/07/28 01:23:42 (edited)
                This is the fastest way to be removed from office that I can think of! I can hear the screaming of enraged hard-working Americans now!
              • The River Rat 2011/07/28 00:14:25
                Yes.The Federal Government is getting desperate for more money!
                The River Rat
                It has been discussed many times by the Democrats. It was discussed when Clinton was President. Not to take all of it but Hillary wanted a one time tax of 10% on all individual retirement accounts. I was never proposed though.
              • Stevern... The Riv... 2011/07/28 03:17:50 (edited)
                In 1993 the Clinton administration was mulling over the idea of levying a “one-time” tax of 15 % on the outstanding balance of every private sector pension plan, IRA and 401K accounts. The idea here was that there was something inherently unfair about some people having these private accounts while others were going to be left to rely solely on Social Security. This seizure of private pension funds was supposed to even things out a bit. The idea died – well, temporarily – with the voter revolution of 1994 when the Republicans took control of the congress.
              • The Riv... Stevern... 2011/07/29 00:43:44
                The River Rat
                There is something inherently wrong with the Government wanting to steal from those who have tried to prepare for their future while rewarding those who have not tried to prepare for their future.
              • Stevern... The Riv... 2011/07/29 00:58:26
                Think about this.If Clinton was able to get a "one time" tax on private pension funds,in 1993.How many times do you would the Feds hit again that "piggy bank" by now ?
              • The Riv... Stevern... 2011/07/29 01:46:06
                The River Rat
                As many as they thought they could get by with.
              • Stevern... The Riv... 2011/07/29 04:37:06
                Or till everyone's private pension accounts were empty!
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