They’re coming for the pensioners

Stocks fell hard on Monday, bounced on Tuesday,  and came to 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 ten-year average annual return was 3.61%.”

Wait just one cotton pickin’ minute. This programme 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.


Bill Bonner on markets, economics & the madness of crowds

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And now, too, we seem to be locked into a low-growth pattern, with little consumer price inflation and an ageing 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, Obama aims to protect US retirees in the same way.

Advice to Americans saving for retirement: stay away from MyRAs.

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5 Responses

  1. 07/02/2014, Harry wrote

    Us pensioners are both a great drain on government and holders of much capital, so a potential source of funds when income from tax is far too little to sustain the intrusion of government into our lives. “What this country needs are more unemployed politicians” (Edward Langley, Artist (1928 – 1995)) and I would add “more unemployed bureaucrats”.

  2. 12/02/2014, rjdorrity wrote

    A famous Roman once said “Aspiratio ad Honores, sit in preclusion!” (Aspiration to High Office should be its preclusion).

    It applied 2000 years ago.

    It applies today.

    Somebody else once said “The only honest politician is the one who stays bought!”

  3. 26/02/2014, Pensiion60 wrote

    Pensions are not a benefit nor is Winter Fuel Allowance.

    Pensioners contributed and continue to contribute to government life-long because of the 75% of personal taxation that comes from stealth taxes in the UK, even on food.

    It is the loss of UK pension payout at 60 from works and state that has caused the high street to die, losing jobs and income tax from wages and business rates from businesses.

    It is pensioners who are the majority footfall into town centres, coming in to shop, bringing in the grandkids or looking after elderly parents to come out for a meal.

    Loss of state pension payout at 60 to women is a loss of income when half women 60-66 are within the working poor due to grandkid and elder and maybe disabled husband care commitments. But the Flat Rate Pension loses wives any pension at all asfter a lifetime of contribution by themselves or their husband, and also morally takes 10 year NI contributions with no state pension.

    Get the wife’s pension today, tomorrow is too late:
    https://you.38degrees.org.uk/petitions/state-pension-at-60-now
    And blog at:
    http://newpensionerparty.blogspot.co.uk/2014/02/flat-rate-pension-2016-even-worse-loss.html

  4. 03/03/2014, MMMarriott wrote

    I’m a newbie here but I feel that when interest rates go up, the government will take our pensions at the very least in order to service the national debt. So much for austerity. Why don’t they use the bankers bonuses to pay off the debt?

    • 03/03/2014, Critic Al Rick wrote

      Probably because the Banksters et al (homo avaricious) are hell bent on reducing us all (homo sapien) to the Lowest Common Denominator in their pursuit of perpetual gain of personal wealth and power.

Commenting on this article closed

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