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Tuesday, September 21, 2010

Taking My 401(k) Offshore

By Jeff D. Opdyke of The Sovereign Society

"I am increasingly disenchanted with the direction politicians are taking my country. Moreover, I worry about the implications of America’s debt problems … and those problems aren’t just the size of the debt, but the challenge of rolling it over from month to month and year to year.

"The U.S. has to sell increasingly more Treasury bills, notes and bonds to finance America’s debt. But foreign and domestic buyers can only absorb so much paper before their appetite runs dry.

"The U.S. government is, for the time being, in the markets alongside China and others buying its own debt – an oddball scenario that can only last so long. After all, a snake eating its own tail ultimately consumes itself.

"If traditional – and even the untraditional – sources of cash become bloated with U.S. debt and curtail their purchases … then what?

"My concern is the possibility that lawmakers and bureaucrats might one day look upon America’s retirement assets as a source of ready capital to buy U.S. government debt. What I’m talking about is essentially the nationalization of America’s 401(k) plans and IRAs.

"I’m not saying this will happen. But it is clearly an option, and not one out of the realm of reality.

"Indeed, Argentina, circa 2008, nationalized its pensions under the bogus guise of protecting plan participants.

"And here at home, the state of New York recently looked to borrow $6 billion from a state pension plan in order to … drum roll … make its contribution payments to that very same pension plan!

"Americans have some $16.5 trillion stuffed into various kinds of retirement plans, according to the Investment Company Institute. If foreign buyers slow their purchases of Treasury debt, that retirement money suddenly becomes very appealing to politicians.

"After all, if foreign inflows into the Treasury market slow or stop, interest rates in the U.S. balloon quickly … meaning higher interest payments on outstanding debt … meaning less cash for politicians to spend here at home. The chain reaction would ripple across the country, and politicians would latch onto any fix they could find.

"The government could write rules mandating that U.S. retirement plans convert some or all existing holdings, and some or all future worker contributions, to U.S. Treasury paper.

"Lawmakers might couch such a decree in “We’re guaranteeing the safety of workers’ futures by ensuring that Wall Street’s hell-demons don’t destroy retirement assets by investing in stocks. Workers need their money in the world’s safest asset: U.S. Treasury bonds.”

"Do I think this will actually happen? I can’t say that it will ... but given what Washington has done in recent years across so many different areas of the economy and society, I can’t be certain that it won’t.

"Preparing for the future means accounting for Black Swans that appear unexpectedly. With the fiscal challenges America faces, and the storms that will assault the dollar, count me as one future retiree who does not want the “safety” of American debt."

Jeff D. Opdyke of The Sovereign Society

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