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Uncle Sam Wants Your Retirement Plan!

Kat Von Rohr (March 10, 2010)

Why the Next Phase of the Treasury Bubble Could Play Out in Your 401k

As a CFP and CIMA, I’ve watched as Wall Street guys vie for your retirement plan for years.

Like snake-oil salesman on crack, they peddled their wares on unsuspecting, hard-working Americans. Naturally they wanted their clients to buy the investments that would hand them the most fees.

So these smooth talkers pushed the most boring U.S. blue-chips, the “safest” (read: lowest yielding) bonds, and recommended the “tried and true” mutual funds that had seen their heyday years prior for all retirement plans. (Not even currencies or commodities were on the menu.) It was textbook rear-view mirror investing.

For the most part they got away with it – that is until the credit market crashed in 2008, and everyone learned how fickle those stocks and mutual funds were.

Yes, it was disgusting to watch.

But as annoying as this Wall Street pandering was, it’s nothing compared to what Washington is trying to do to your retirement plans right now.

In short, they want to govern your retirement plans with the same arrogance and stupidity that made us the world’s biggest financial deadbeats in the first place. More on that in a moment. First let me set the scene for you…

Uncle Sam Needs Another Sugar Daddy

The guys in Washington are getting desperate.

For years, our government has relied on the major Asian players like China and Japan to finance our debt. I’m sure you’ve heard this story. We bought their stuff, and they bought our Treasuries and other U.S. paper.

This system worked out great for us.

We spent like teenagers with our Daddy’s credit card, and then foreign investors essentially picked up the bill. All we had to do was offer them to pay them back at some later date (and honestly, with the world’s reserve currency – we could afford to print whatever we owe them in the future).

But some funny things happened as politicians wallowed in their own brilliance for arranging this deal…

Financial Losers Scream “Hey! Buy Our Debt!”

First, we quickly became the biggest financial losers on earth.

As of yesterday, our debt stands at $12.5 trillion. It’s estimated our country-wide debt will climb to $14 trillion by the end of this year. So complacency happened – we became used to the idea of being in debt.

Then, 2008 happened. Subprime happened. The credit crunch happened. Worldwide recession happened. And now trillions of dollars in bailouts later…

Suddenly the U.S. issues Treasuries like crazy to pay for all that debt. Many of my colleagues are calling this massive Treasury issuance the biggest financial bubble of all time – very close to popping.

But there’s another phase to this Treasury Bubble. Right now, we’re in danger of losing our best customers who pay for all that debt. China and Japan have already started scaling back their Treasury purchases – at the worst possible time.

In February, the “tepid” 30-year Treasury auction was so bad that the Federal Reserve had to dive in to the market and buy up the long-dated Treasuries that didn’t sell.

In short, they need Treasury buyers. So the guys in Washington are turning to you..and your cash-rich retirement plan to buy up those unwanted Treasuries.

The Logistics of the Greatest Government Theft in Years

Now I need to give a caveat: This is NOT happening yet. But the proposals themselves are scary enough.

The Department of Labor and U.S, Treasury Department are looking into ways to promote the conversion of retirement plans into an “annuity payment.” You can read about that in sources like Business Week and Bloomberg.

But here’s what you need to know: An “annuity payment” is really government speak for forcing you to buy U.S. Treasuries with your retirement plans.

And most likely, the government wants to lock you into those low-yielding 30-year Treasuries that foreign investors no longer want. That way, they can finance a mountain of deficits for decades to come.

This isn’t the only government move to force the purchase of Treasuries. They also announced recently that money market accounts will soon have to hold 10% of their assets in Treasuries or equivalents.

Imagine that, 100% of your retirement tied to the dollar, a declining asset and backed by a practically worthless government IOU. It’s the last asset you’d want to own for your retirement.

What’s more, the timing coincides with the beginning of the retirement of the Baby Boomers. This could create economic strains to an entire generation if they’re limited to such low-yielding investments.

Also, remember the Treasury Bubble? If the government forces you to hold Treasuries in both retirement plans and money market accounts, you can bet the ranch that this bubble will just to continue to swell to the breaking point.

Defend Yourself Now!

Right now, it’s 100% legal to pick up your retirement plan and move it outside the United States.

In my opinion, that’s the best plan of action to defend yourself against this attack on your retirement plans because if Uncle Sam does go forward with this plan, chances are you will be exempt if your plan is already set up offshore.

But if you’re not interested in the offshore option, keep in mind that you can help hedge against these moves by investing some of your other assets outside the U.S. dollar.

One of the easiest ways to do that is by buying foreign currencies and precious metals. Specifically I like commodity-backed currencies above all – currencies like the Australian dollar and Canadian dollar.

You can also short U.S. Treasuries. (All this U.S. paper is likely to drop in price as the government forces you to buy them wholesale.) The only way you can short treasuries in a retirement plan is through a short ETF or mutual fund.

But whatever you do, don’t let yourself be a victim to all this. You can’t afford to be complacent when the government talks about using your life savings to pay their bills.

Best Regards,
Larry Grossman, CFP®, CIMA®
www.offshoreira.com
lgrossman@offshoreira.com
727-784-4841

About the Author: Today’s guest writer, Larry Grossman is the world’s leading expert on liberating your retirement offshore. A CFP and CIMA, he has spent the last two decades creating customized retirement plans for high net worth individuals. For more details on how to liberate your retirement plan, please see our latest special report.

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