Saturday, September 01, 2012

Confiscate or Inflate - DISCUSS!

Two camps have formed in the Capposphere when it comes to 401k's and IRA's.  Namely will they be confiscated or inflated away?

I have not thought through the two options nor assessed the political landscape enough to determine which is more likely.

That's why I have readers who are all blessed with SAEG (TM)!

Discuss and resolve!


Anonymous said...

I'm not a SAEG, but my theory is they'll figure out a way to partially nationalize AND "privatize" retirement ala the Chilean model.
They'll say everybody has to contribute, say 10% of income, and then they can only put their money in specific "government approved" mutual funds so that investors are saved from "risk". Also, all SS, 401k, IRAs will have to be rolled-over into the new program or face crippling taxation.
So, WallSt gets its slice, the stock market is "saved", and the government can make sure everybody has a "fair" retirement!
Then of course once the money is in the hands of the new system, they can simply underperform so as to be less "risky". So, in a way, they can inflate their way out of the SS mess while blaming it on the "free market".
The best part is, either political faction could get behind such a move if there are certain "protections" put in place for the little guy. Somewhat like how certain investors are kept out of the really good investments, because they're not "accredited". They'll say, "hey, we're just protecting you from Madoff Jr" when in fact they're trying to keep the proles from joining their ranks.
Also, "we know you can't handle your own money, so we'll let our super professional money managers (who in no way shape or form have regulatory capture and are totally overseen by the government har har) make sure that you get a 'fair' return. How's 3% over inflation do you for?"

Anonymous said...

I forgot to clarify how they'd inflate:
It's simple really... for a mutual fund to be super dooper special and government approved, they'd have to hold a certain percentage of their portfolio in worthless government paper, aka Treasuries. Then the Fed works its magic.
Easy peasy lemon squeezie.
So, you've got all the "retirement" funds locked in and controlled by Uncle Sam since you can only "invest" with his special funds (that's the confiscation, since you won't really be able to sell) and since those "investments" will partially be in worthless inflating debt toilet paper, there's your inflation.
Oh... and a further trick I just imagined: when you die, guess who gets the leftovers? It's a nice little stealth estate tax, but since it's a "retirement plan", your heirs don't really "deserve" the money, right?!

Eric said...

Inflated and then taxed away, the government won't want to deal with the riots that outright confiscation would cause.

FSK said...

With inflation, people don't realize that their savings are gradually stolen.

With confiscation, people know that savings are pointless, and they won't save anymore.

Inflation is more desirable than confiscation. Confiscation is a one-time grab. Inflation lets you fleece people over time.

Also, real returns on the stock market don't keep pace with true inflation (gold).

Apterous said...

I will say inflated away. I would like to believe the population would march on Washington if they seized the 401k's.

Hal said...

My wife and I were discussing yesterday the conditions under which we feared an armed rebellion might happen in the United States.I went first and posited that if the government tried to confiscate all guns, that would do it. My wife's idea? Confiscation of private retirement accounts!

Ras Al Ghul said...

Confiscated for social justice reasons (to keep paying out hand outs)

Thane Eichenauer said...

Inflate. When you have a system that works why should they change it.

heresolong said...

Yes. Inflate as that has no political risk and confiscate as soon as polls show that a large majority have been convinced that it is wrong to have all that money sitting around "doing nothing". Seeing that attitude already when it comes to the cash reserves that companies like Apple are keeping.

Unknown said...

I vote for inflation, since it can be done gradually and is harder to place blame directly. If Uncle Sugar confiscates your 401k, you know exactly who did it to when. Not so with inflation.

Keynes is by no means my cup of economist tea, but he understood perfectly the effects of inflation:

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens…. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Anonymous said...

Piece of cake -- it's gotta be inflation. Confiscation would require laws to be passed and politicians to go on record. Inflation will silently steal everyone's savings and no one will be able to be fingered as the thief.

Chris said...

Well, it all depends.

Some pundits argue that the kiwi dollar (4 M population, official cash rate 2.5%) is staying still while the greenback declines... historically the kiwi dollar has been about 70c US but it is heading to parity or 1:10 to 1:20 US. This has already happened to the Aussie and Kiwi dollar.

So at present you are losing real value while keeping nominal value. Since most people are not buying (instead they are paying off debt) you have a deflationary enviroment for non essential goods but inflation for essential things. Like food.

The best scenario is a loss of value by inflation and a reappraisal / correction of share and mutual fund prices.

However, if empty chair gets in, expect confiscatory talk and then an INSTANT loss of value.

Anonymous said...


Confiscation will likely cause an overthrow of our government, and it won't be bloodless.

A variant - confiscation by taxing wealth as is being considered by the UK.

Anonymous said...

obama gonna take it

Steve Adams said...

I bet they Inflate:
Too many fingerprints for the tar and feathering if they just take the money.
Sure they could go after only the rich, but most folks with a 401k will not trust that they won't be next.

Joan of Argghh! said...

Inflated before confiscated. Most maroons have no idea that printing money is tantamount to theft.

I'm not saying it won't be confiscated as well, just lining up the "progressive" mindset. Do the easy thing first: inflate.

Stryker said...

I vote for confiscation, either through 'borrowing' or various bankruptcy filings. It is already happening. Of course this is happening against a background of inflation.

Aeoli Pera said...

Confiscated with barely a pretense, but enough so that the manginas won't do anything. Half the money belongs to women anyway, but they won't take up arms.

"Oh yes, it's still your money. We're only temporarily denying access to it to avoid a potential economic collapse due to blah blah blah..."

Then temporary becomes forever. They should hire me to do it!

Pulp Herb said...

I'm more a fan of inflate.

Any attempt to confiscate ala Chile will run into one simple fact, it is either a tax, specifically a wealth tax, or a taking.

The constitution does not allow a wealth tax and a taking must be fairly compensated. Given we're talking financial instruments who price is easily determined it would be much harder to do the typical fraud they do with real estate.

You might point out the constitution doesn't matter anymore and thus my argument is irrelevant. In the overall landscape I agree, but sometimes the devil is in the details.

Enough people and organizations with enough money will oppose this to make it a fight like Obamacare. As the gov't wins up the food chain people will be inclined to cash out, even at the 20% tax penalty, and move it out of country (an option I'm already investigating...I'm sure I'm not alone).

I would hope the gov't people are smart enough to figure that out and decide having the fed just keep buying gov't bonds (ie, printing money) is easier.

Also, seizing said assets is a one time deal that will also impact productivity in general while inflating them away won't immediately discourage future savings.

Frank said...

Why can't they do both, fuck it just out a cap that they'll let you keep anything under 1/2 million anything over they take.

Anonymous said...

I say confiscate.

You inflaters that posit fear of rebellion as the garlic that will hold off the undead - aren't you assuming that our civil servants (who are no longer civil and no longer servants) even care?

Inflation takes too long, our overlords will provide social justice as they please.

See y'all at the Karl Marx Treatment Center real soon now - I'll be in cell #7564691.

Bill K.

Pat Sullivan said...

Well both acts are really the same thing. However, confiscation would be politically popular. Most people have very little savings. The minority with retirement savings, would be targeted as rich white males. Plus, remember unions hate private retirement accounts. They prefer a union run pension system. Unions would lobby the government to confiscate private retirement accounts.
In the 1930s FDR confiscated gold coins and bullion. People had to open their safety deposit box in front of the bank manager. Any gold was turned over to the bank. The revenues generated in one year, paid for half of all federal expenses. The move was popular with many Depression era voters.
Now a days, most people do not own gold coins. But they do have retirement accounts. Don`t be surprised to witness a government confiscation of your IRA or 401K.

Borepatch said...

I'm not an economist, but doesn't the return demanded on Government bonds reflect expectations of future inflation just like stock price reflects expectations of future company earnings?

IOW, the inflate strategy is futile in the long run, since it will only raise the government's cost of borrowing as inflationary expectations get baked into the market price for new government debt.

Dan said...

If they can find a way to "nationalize" them without triggering CWII then they will grab them. And since they have already spent all that money the debt issue won't change and they will then move on to inflating the the answer is BOTH.

Rachel & Robert said...

This is not South America. IRAs & 401ks (unlike SS dollars) are held by private custodians (banks) in your name, not by the government. So the risk of retirement account seizure is the same as the risk of bank account seizure (which I wouldn't say is impossible, but most agree is not likely). The assets in which you invest in a retirement account are not determines by the government, they are determined by your broker, which you can change at any time. In addition, if you are utilizing the ROTH versions of retirement accounts, you can withdraw your contributions at any time with no penalty.

The most logical way to determine how the government will handle retirement accounts is to look at how it manages the one currently under its direct control, the TSP. It mirrors the 401k in tax treatment, is offered in traditional & ROTH forms, and allows participants to invest in index funds that cover the major US indexes, as well as international funds, and while it does allow you to invest in "government paper" it also includes a bond fund for the private market.

Larry Sheldon said...

My gues is, but what ever named process, they will be confiscated AND inflated.

IanB said...

Deficit spending is simply a scheme for the hidden confiscation of wealth.
Alexis de Tocqueville

Inflation it is.

Anonymous said...

Sorry, captain. Another one of those "None of the above" answers.

Neither. Take advantage of human nature. Remove the withdrawal penalty and age requirement. Most people will happily spend what little they've saved and thank you for it.

(Not me, of course. I'll be using it to move to better investments, but in this I'm the 1%. :)

Anonymous said...

Sorry, captain. Another one of those "None of the above" answers.

Neither. Take advantage of human nature. Remove the withdrawal penalty and age requirement. Most people will happily spend what little they've saved and thank you for it.

(Not me, of course. I'll be using it to move to better investments, but in this I'm the 1%. :)

James Wolfe said...

Saving for retirement is pointless, as is burying yourself in student loans for jobs that will never pay it off. Great article:

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