Let's Face Some Realities - Our 401k's are Gone, One Way or Another

Concerned American, over at Western Rifle Shooters Association links to Francis Porretto's Eternity Road on a recurring theme: the economy is going to crash.  If you're a regular here, you've seen me on the same topic perhaps a hundred times. 

There's a lot of good in the Eternity Road piece so RTWT and follow links as time allows. 

Here's a fun fact for you.  The federal deficit for February was $222.5 billion dollars.  That is way more than the deficit for the entire year of 2007 of $161 billion!  A deficit growth of 138% in just four years; where can you and I make that kind of money?!?  As an aside, the next time some idiot liberal tells you Obama is dealing with Bush's deficits, tell that fact. 

As I've said before, the big problem we have - even bigger than the debt itself - is where can we borrow that much money?  Even if we sell bonds, what economy on Earth can buy that much debt?  The Chinese are getting out of our bonds and buying up every commodity they can find.  The EU has its own debt trouble with Greece, Portugal, Ireland, Spain, and on and on.  The Japanese tsunami disaster is very likely going to shut down their purchase of US bonds. 

In plain English, there are no buyers left on Earth who will buy those bonds. In fact, for the last several months, most of the bonds we've sold have been to ourselves.  The Federal Reserve is buying 70 to 80% of our debt.

Barring a deal with the Vulcans, who are too smart, or the Klingons - and you don't want to deal with Klingon loan sharks - we are left with ugly, ugly options.  Gonzalo Lira puts it this way:

If foreign sources of funding will not cover the Federal government’s deficit after June 2011, and Washington will definitely not cut spending in any sort of realistic sense, then there really are only two—and only two—possibilities:

• The indefinite continuation of QE by the Federal Reserve.

• Or the requisitioning of private retirement accounts and pension funds.

I rush to add that this is a short term fix with no backup.  After they raid all the money in retirement accounts, which has been accruing for 30 years (in some cases), there's no place to sell bonds to after that.  Remember it doesn't have to make sense - this is like a crack ho looking for more crack.  Lira continues:

This could be accomplished very easily, from a practical standpoint—just inform banks, and have them turn over to the Federal government all your mutual funds and stocks you agonized over, and get long-term Treasury bonds of nominal equal value in exchange.

401(k)’s and IRA’s would be the first ones the Federal government would go after—for the obvious reason that union pension funds have the union’s political muscle. But individuals? They have no political machine. So they’re screwed.

There is an alternative, though.  QE3 - the whole point of Lira's article.  More money printing, then QE4, 5,.... who knows, there could be a QE10 if there's any country left by then.

The problem is these "Quantitative Easing" things are inflationary, as you know if you buy gas or food or pretty much anything.  Inflation has the effect of reducing the value of your savings. 

So whether they seize your 401k or inflate it to meaningless, it's as good as gone.  To put it another way, it's as safe as social security.

(Michael Ramirez, IBD, 12/7/10)