Prepare Now to Escape Obama's Retirement Trap

Jim Crum and Chris Johansen both forwarded an e-mail containing Ron Holland's article "Prepare Now to Escape Obama's Retirement Trap." Holland offers a nightmare scenario for the private employee benefit system. While I don't think it will happen, it very well could. I was interested that Theresa Ghilarducci and Alicia Munnell, two pension researchers from academia, figure in this scenario.

My reaction to this scenario is that while it is certainly possible, there are three stumbling blocks: the political power of plan sponsors, the lack of value added to the government of confiscation of plan assets in the event of a crash (there will be little to confiscate) and the potential aggravation of middle class voters.

First, the political power of corporate America and labor unions combined, both of which interests have heavy investments in the current employee benefit system, will likely forestall attacks on the system as now constituted. Nothing has ever been done to the US pension system that was completely unpalatable to either of these two interests. Note that the recent health care proposal met with some labor union resistance. If health reform ever passes, the limits on rich union health plans will be deleted. Perhaps more so for pensions, which have advocates on Wall Street and in the banking and insurance industries as well as big labor and corporate America generally. While politicians are greedy fools, they respond quickly to their corporate bosses.

Munnell and Ghilarducci can devise plenty of benefit schemes, but when big business calls and calls heavily, Congress listens carefully.

Holland notes that the dollar's days are numbered because of federal debt. He writes that the US government is thrashing about, looking for additional revenue. All true. Holland argues that "wealth confiscation" is a realistic likelihood, that there is $15 trillion in retirement assets, and Congress might well tax or otherwise confiscate this money. Holland states that Alicia Munnell proposed a mandatory federal retirement system that would be financed by taxing existing pension assets.

Teresa Ghilarducci, another pension researcher now at the New School, advocates putting $600 up to $12,000 plus 5% of your compensation above $12,000 into a "Guaranteed Retirement Account". This would be accompanied by a cap of $5,000 on contributions to 401(k) plans and a tax on retirement plans' income. Also, there would be a prohibition on international investments (I'll bet commodities too, but that's just a guess).

Holland suggests that a "crisis" such as a downgrade of US treasuries or a run on the dollar could trigger a move like this. He notes:

"At some time during the next decade, a global run on treasury debt and the dollar will also likely take the American stock market down past lows not seen since the financial meltdown crisis in 2008 and 2009. The 50% to 75% stock market pullback during the actual bankruptcy of the Washington debt and paper dollar will send shock waves through retirees and current plan participants as their private retirement plan balances plummet." Upon the stock market crash, argues Holland, the American public will be bamboozled into switching to Ghilarducci's retirement concept, a new federal plan.

I agree that the stock market is capable of falling by 75%. However, confiscation of the $15 trillion in retirement assets is unlikely to be very helpful. To retire Baby Boomers in an acceptable way will cost $15 trillion. Let's say there are 50 million boomers earning an average of $40,000. If each retires at age 67 and receives an annuity of $30,000, the cost will be (not really but an order of this magnitude): $30,000 x 10 x 50 million = $15,000,000,000,000, $15 trillion. So I'm not sure what the Federal government would gain by taking the $15 trillion from the retirement funds and putting it into a government plan. It's a wash.

Of course, the current allocation of the 15 trillion on deposit is skewed heavily toward the higher income earners. But do you believe that this massive number of potential higher-income retirees, with tremendous voting power (much more than the people who don't have assets) will quietly watch the government take its assets, even given an emotional crash? And if the stock market falls so that the pension assets are worth half that, how would the government benefit?

This scenario assumes that the chief goal of the US government is to impoverish the affluent. While I do believe that the government is in the process of impoverishing us, rich and moderate income, I do not believe that they will do this in a heavy handed way. They can destroy the nation simply through the Fed and inflation.

Thus, I think the more realistic scenario is inflation. Inflation was invented to limit tax revolts. It slams people on pensions the hardest, and Americans have docilely accepted bankers' propaganda via university academics and media sources that inflation helps them. Since Americans have behaved like drooling idiots about inflation since World War II, it seems a safe bet that they will continue to do so.

It is the duty of the Federal Reserve Bank to extract wealth from the hard working and give it to the non-working, both as welfare for the poor and mostly welfare for the rich, especially stock holders and derivatives investors. Why bother with directly confiscating pension money when all the Fed needs to do is print money, hand it to commercial banks, who in turn lend it to government, hedge funds and investment bankers, who then repay the loans in depreciated dollars as everyone else in the country sees their savings and wages decimated? I think something like that is more likely than confiscation of pension assets. Confiscation is too messy and too controversial. Inflation is a good way to get the suckers to thank you for stealing from them.

Nothing beats a nice healthy inflation to feed government and Wall Street snakes.