By: The Room with Dan Steinhart, Managing Editor, The Casey Report
Did you watch the State of the Union address?
I didn’t, because, well… I didn’t want to.
But I did read the transcript the morning after. And boy is there a doozy in there. A lot of news outlets are talking about it. But very few dissected Obama’s tricky language enough to understand its significance.
I’m talking about his unveiling of the “MyRA,” which is ostensibly a new retirement account for working-class Americans. Sounds innocent enough.
But read a little closer, and… well, rather than put words in his mouth, let’s let the skilled orator tell us about the MyRA himself, word for word from his State of the Union address.
Take it away, Barack. (His words, verbatim)
“Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own.”
Can’t argue with that. The personal savings rate has been declining since the 1970s. Reversing that trend would help get America back on track to prosperity. Tell me more.
“And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s.”
Good point. It’s hard for lower-income earners to save enough money to invest in the stock market. Helping them access stocks is a great idea, provided they enlist a competent advisor.
Granted, it’s not a perfect solution. But allocating a portion of one’s savings to stocks is smart—certainly better than allowing inflation to bleed one’s savings account to death.
“That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA.”
Actually, Mr. President, working Americans already have access to IRAs. You’re giving the impression that lower-income Americans don’t have access to tax-advantaged retirement accounts, but that’s not true at all. Even if my employer doesn’t sponsor a plan, I can start one on my own. Anyone under the age of 70½ can open a self-directed IRA, and plenty of brokers allow people to enroll with as little as a $500 initial contribution.
So where are you going with this?
“It’s a new savings bond that encourages folks to build a nest egg.”
Whoa, hang on there. You were just talking about the stock market. How do savings bonds help the average Joe tap into stocks?
“MyRA guarantees a decent return with no risk of losing what you put in.”
Stop it. First of all, bonds neither guarantee a decent return nor protect people from losing their principal. In fact, with interest rates still near historic lows, buying bonds today and holding them for the long term virtually guarantees they’ll lose money.
Second, a bond is not a one-sided transaction. Whoever issues the bond is borrowing money from the buyer. The US government would be issuing these bonds, so that would mean… wait a minute, you wouldn’t be trying to covertly confiscate workers’ earnings to fund the government, would you?
“And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans.”
Don’t change the subject, Mr. President. Do you expect me to believe it’s just a coincidence that your new plan will finance billions of dollars in US debt, just as your pal Bernanke is finally reducing the Fed’s QE bond purchases? You guys are too much.
“Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can.”
Automatic? Now you’re really starting to scare me. I hope that means the payroll deductions would be automatic for participants, and not that everyone at certain income levels will be automatically enrolled in MyRAs unless they proactively opt out. Forgive me for being suspicious.
Regardless, let me see if I have this scheme straight. If someone is lucky enough to be a MyRA participant, the government will skim a percentage of his income from his paycheck. In exchange, it will issue him an IOU, which of course won’t pay out until he retires. So working-class Americans would effectively be giving the government a long-term loan.
Taking money from our paychecks before we ever see it… promising to pay us back in umpteen years… this all sounds eerily familiar. Where have I heard of this arrangement before?
Oh, right. It’s exactly the same as Social Security. Minus the compulsory aspect (for now).
I’m not trying to be sensationalist; it’s all right there in Obama’s language. As I write on Thursday morning, more details are leaking out. According to several sources, the MyRA will essentially be a Roth IRA, with one huge difference: it can only invest in government savings bonds.
Given that a normal Roth can already invest in government bonds, I fail to see how a MyRA offers any advantage whatsoever. All it does is restrict participants’ investment choices to the one asset class that most benefits the bankrupt US: US debt.
And that seems to be the point. US retirement accounts hold well over $5 trillion in assets. The US government owes a mind-boggling $17+ trillion in debt. You can almost hear Uncle Sam salivate. The MyRA looks like the first baby step toward acclimating people to the idea that retirement savings are too important to entrust 100% to the market. Government bonds, you see, are much safer.
If the government can pass a mandate that IRAs must allocate just 10% of their assets to Treasuries, a cool $500 billion would flow straight into Washington’s coffers. Not enough to solve its debt problems—there isn’t enough money in the world to do that. But enough to stave off bankruptcy or a crisis of confidence in the dollar for a few more years.
What to do? Liquidating your IRA isn’t an option, since you’d incur hefty penalties and lose all of the substantial tax benefits they offer. For now, keep an eye on how the MyRA saga unfolds. Watch especially for any strong-arming by the government, such as forcing employers to offer MyRAs. Or, as I mentioned above, automatically enrolling some subset of the population into the MyRA program. Such actions would provide clues as to how much the government thinks it can get away with.
You also might want to learn a bit about past confiscations of retirement savings. They’re more common than you’d think. Just since 2008, the governments of Argentina, Poland, Portugal, Ireland, Hungary, and Bolivia have all pillaged citizens’ private retirement assets in some fashion.
Of course, your #1 recourse against any grabby government is to hold a substantial portion of your savings in physical precious metals. Though the past two years have been a rough ride, history unequivocally shows that gold is unrivaled in its ability to hold value over the long term. And what’s more, evidence is mounting that gold’s decline is coming to an end—for both the metal and the miners.