Why Your 401K and IRA Savings Could Soon Be a Prime Government Target

By Brett Owens

Retirement kiss
of death:”I’m from the guvmint”
And I’m here to help!”

Last week our local “Casey Research Phyle” got together at a local restaurant to banter about the usual talk you’d expect to overhear at such a place – like government confiscation of retirement plans, expatriation, wiring money to Central America, and our favorite shorting techniques – you know, the usual.

In these turbulent economic and social times, having a group of like-minded people to banter with is invaluable. In fact, trends forecaster Gerald Celente recommended exactly this on an interview he did Friday with Jim Puplava (link here – Celente comes on towards the end of the first hour – the guy is hysterical, and sharp too, one of my favorite guys to listen to). Our group kicked off the night chatting about the potential confiscation or lockup of retirement funds – namely 401K’s and IRA’s – by the US government. Our fear is that with US federal debt truly spiraling out of control, there will come a point where the government will likely appoint itself “custodian” of all retirement accounts. Stocks are too risky, let us invest your money “safely” in government sponsored annuities (ie. government paper that no one else will buy!)
For those of you scoring at home, the federal government clocked a record $220 billion deficit in the month of February – a new Griswold land speed record! If we’re past the tipping point of runaway deficits, then it appears the question of government “guided” 401K and IRA plans is not a matter of “if”, but “when.”
Our phyle has chatted before about using IRA’s to purchase assets that can’t easily be confiscated – such as overseas real estate – but the tenor at this meeting was more cautious than ever. Several members are seriously considering emptying their retirement accounts over the next few tax years, and taking whatever penalties and taxes will be assessed. But then where do you put the money? “Not in your local CitiBank account!” someone joked. The consensus was that you’d probably be wise to get the money overseas, and possibly into physical bullion in the process. In terms of the timing, the scary thing is that it could potentially happen real fast – striking with lightning speed as the last downturn did. We put the odds on it happening after 2012, as we didn’t believe it’d be politically feasible at the moment, especially with an election slaughter upcoming this year. But if the next leg of the financial crisis strikes, all bets could certainly be off.
Robert Prechter has been sounding the warning bells on this possibility for some time now. I recall reading in one of his recent newsletters where he again warned readers to be wary of these government “deals”, because the temptation to engage in shenanigans would be too much for the feds to resist if a crash scenario played out.

The potential threat to retirement plans appears to be creeping into the mainstream as well. Here’s an editorial penned last month – by none other than Newt Gingrich – for Investors Business Daily entitled Class Warfare’s Next Target: 401(k) Savings. So the fear has already spread beyond fringe publications like this blog!

What’s the historical precedent here? Argentina raided its citizens’ retirement savings just 9 years ago:

Argentina to Raid Retirement Savings as Reserves Plunge
December 07, 2001|From Bloomberg News
BUENOS AIRES — Argentina, which is defaulting on its debts, said it will seize $2.3 billion of retirement savings by forcing private pension funds to transfer the money to a state bank in exchange for Treasury bills. The government targeted savings every worker is required to set aside from their paychecks since the creation of a private pension system in 1994, after the International Monetary Fund withheld a loan. Economy Minister Domingo Cavallo said the government, which has more than $2 billion of debt due this month, will use the money to pay state pensions and wages. “For all intents and purposes they are confiscating funds,” said Scott Grannis, who helps manage $1.5 billion of emerging-market debt at Western Asset Management in Pasadena and has sold his Argentine bonds. “They are destroying confidence.”

Think this can’t happen here in the US? I wouldn’t want to bet on it!

While this probably won’t happen tomorrow, next week, or even next month, it certainly could come into play faster than everyone expect if another “crisis” occurs – because if we’ve learned anything, it’s that for the federal government, a “crisis is a terrible thing to waste!”

Disclosure: Author is short the S&P 500 via the futures markets and ETFs