Definition of kleptocracy
Posted by aogTuesday, 23 February 2010 at 22:22 TrackBack Ping URL

PowerLine has a post about the recurring subject of 401(k) accounts being converted to government annuities. I thought this was very fringe but apparently there are government agencies requesting comments on the subject. I have to agree that a claim that it will be just “voluntary” is not be trusted — any one with clue realizes that the expected conversions will vastly outnumber the actual ones and at that point would could trust Congress to not steal once the precedent has been set?

On the other hand, it would seem that any such move would set off a near revolution of protest from the American Street. That such a thing is even being discussed demonstrates, to me, a near pathological disconnect by our ruling class. It’s even worse now that literal pitchforks and torches have been made legitimate for political protests by the MAL.

Comments — Formatting by Textile
erp Wednesday, 24 February 2010 at 10:17

It’s all out warfare on the ants by the grasshoppers. What the GHs don’t realize is that once the ants stop working, there’ll be no more largesse for them to spend while the ants will probably still be able to more or less function underground ready to rise up again once all the GHs are history.

Bret Wednesday, 24 February 2010 at 11:48

My wife has this penchant for saving.

I tell her she’s crazy. The government (or erp’s grasshoppers) are just going to confiscate it all one way or the other. I say spend it and have a good time while you can.

erp Wednesday, 24 February 2010 at 12:48

Bret, If Mrs. Bret figures out what to do with her savings, pls. ask her to let me know. TIAA has been a life saver, but that was past savings, what to do now is throwing me. My husband doesn’t believe that the government will confiscate our savings, but I do, so it’s a constant argument over what to do with funds, so far he’s humoring me and we have a lot of money in cash which is anathema to him as a retired financial administrator and CPA.

You guys can have a spending spree because you have earning years ahead of you, we don’t, so what we have to a large extent is what we’ve got with some minor real estate investment. The last thing we want is to be beholden to our kids or grandkids and truth be told, neither of us is up for a spending spree.

pj Wednesday, 24 February 2010 at 12:50

erp - I’d like to believe that, but I suspect we all go down together. Bret’s approach is no solution.

Hey Skipper Wednesday, 24 February 2010 at 15:56

I don’t see nationalized savings.

Means testing Social Security, though, appears a foregone conclusion: mathematics is tyrannical.

Annoying Old Guy Wednesday, 24 February 2010 at 16:38

I think that raising the retirement age would be better if one wanted to maintain the existence of Social Security. Once it becomes means tested, then it becomes perceived as welfare and not a retirement vehicle, and that will be (in the long run) the end of it. FDR’s cleverness was in making in universal.

erp Wednesday, 24 February 2010 at 18:01

The law of unintended consequences kicks in when raising the retirement age too high — see academe where geezers can stay on long after they’ve mummified.

If older people stay on the job into their dotage, younger more dynamic workers don’t get a chance to take over while they’re still young enough to want to take chances.

Bret Wednesday, 24 February 2010 at 19:44

erp wrote: “If Mrs. Bret figures out what to do with her savings, pls. ask her to let me know…

Diversify. Unfortunately, if the U.S. economy really goes down, so will just about everything else.

The exceptions are gold, guns, and bullets. I’m toying with putting a significant amount into gold and then hiding the gold (Don’t put it in safe deposit box! The government will ultimately get that too!). Note that gold is an insurance policy and like all insurance policies, you usually lose money on it. The point is that if things get really dire, a bit of gold may get you through. Your real-estate will probably be good too, though real-estate taxes may go up substantially (at least here in California).

erp wrote: “You guys can have a spending spree because you have earning years ahead of you…

Maybe. If people are out with pitchforks, it may be hard to earn money.

erp wrote: “The law of unintended consequences kicks in when raising the retirement age too high…

Too high, sure. But I’ve been told that 70 is the new 50, so certainly bumping the retirement age a bit would work.

Annoying Old Guy Wednesday, 24 February 2010 at 19:54

Remember, the original retirement age was set just past the average life expectancy. Today that would be about 75 or so. But what I have read indicates that bumping it up to 70 would make it solvent again for half a century or more. Note that raising the age is a trifecta

  1. People pay in longer
  2. People start collecting later
  3. More people die before collecting or before getting all of their money.

All of these contribute which is why you don’t need much of an increase in retirement age.

erp Wednesday, 24 February 2010 at 22:20

I’ve been 50 and I’ve been 70 and there’s a big difference as you’ll find out when you get there. No matter how good care you take of yourselves, no matter how you watch your diet and exercise, the parts start to wear out. The bodily malfunctions I can tolerate, it’s the mind slippage that scares me.

Bret, I think we missed the gold market, but real estate is always a good investment. Around here there are excellent buys in defunct upscale golf communities. Lots that sold for $200,000+ are selling for about $30,000 or even just the tax deed. Of course, there are caveats — who knows how all the legalities will shake out.

You’ll all weather storm if it comes and so will we. What makes me so mad is this is a completely mad-made economic disaster and we let it happen.

Hey Skipper Thursday, 25 February 2010 at 09:58

More people die before collecting or before getting all of their money.

Perhaps we need to re-think all those anti-smoking campaigns.

Annoying Old Guy Thursday, 25 February 2010 at 13:30

There’s a very good case to be made that smokers are a net revenue source for the government. They may have some extra health costs, but they pay all those taxes and die young without getting social security. I think it says something basic when the government gets in to a position where it benefits from the self destruction of its citizens. People caricature free markets types as leading to this, but never notice that the socialism in the current system is already there.

Hey Skipper Thursday, 25 February 2010 at 21:04

They may have some extra health costs …

I’d be willing to bet dinner at a good restaurant that the life cycle cost of a smokers to the health care system is indistinguishable from non-smokers.

The counter-factual to your assertion is that government is not, so far, anyway, suddenly finding that smoking is double-plus good.

AVeryRoughRoadAhead Friday, 26 February 2010 at 03:28

PowerLine has a post about the recurring subject of 401(k) accounts being converted to government annuities.

…it would seem that any such move would set off a near revolution of protest from the American Street.

Not if The Powers That Be allow the equity markets to crash, first. Then it’ll be a rescue, not a money-grab.

The Dow closed at ~10,300 today. It’d be at 5,000 if the Fed hadn’t been propping it up since last March, which they’ve been doing so that there’s one bright light that the Obama admin can point to in the economy. But sometime this year the Treasury Dept. is going to need some money scared out of equities and into gov’t bonds, ‘cause the Chinese sure ain’t gonna buy another US$2 trillion worth of American debt, so kiss that gov’t bid goodbye. By flushing money out and confiscating retirement savings, we get a two-fer.

But I’m biased towards that conclusion, since I’ve been warning people from as far back as ‘05 that the gov’t wasn’t going to keep their hands off of tax-advantaged retirement accounts.

On the other other hand, getting a gov’t-backed annuity instead of having the value of your 401(k) cut by 65% from its nominal peak in 2008 (which is what probably would have happened absent the gov’t interference) might not be such a bad deal.

AVeryRoughRoadAhead Friday, 26 February 2010 at 04:12

If Mrs. Bret figures out what to do with her savings, pls. ask her to let me know.

Here you go - 36 years, 35 years of gains, one year down 1%: The Ultimate System for a Volatile Market.

It’s so simple that if you can balance a checkbook, you can implement the system, and it doesn’t take much attention either; maybe 20 hours a year. (They claim only two hours/year, but I’m dubious.)

Here’s how [the] system works… There are only five holdings. And there are two modes: in and out.

The five asset classes are: U.S. stocks, foreign stocks, bonds, commodities, and real estate stocks. Your only decision each month is whether you own a fund that tracks that investment, or not.

You want to be in when the asset is going up. And you want to be out when the asset is going down. This idea could hardly be dumber… But it actually works.

If you had invested $10,000 in [this] simple system in 2000, you would have gotten back nearly $26,000. Meanwhile, $10,000 invested in the stock market would have shrunk to less than $9,100.

My picks for the five holdings are:

  • SPDR S&P 500 ETF (SPY)
  • iShares Barclays Aggregate Bond (AGG)
  • Vanguard REIT Index ETF (VNQ)
  • PowerShares DB Commodity Index Tracking (DBC)
  • Vanguard Emerging Markets Stock ETF (VWO)

But there are other funds that could fit the bill.

Annoying Old Guy Friday, 26 February 2010 at 09:31

getting a gov’t-backed annuity instead of having the value of your 401(k) cut by 65% from its nominal peak in 2008 (which is what probably would have happened absent the gov’t interference) might not be such a bad deal.

Rather depends on your age, doesn’t it? After all, the annuity will be based on the the value of the 401(k) at the time of conversion, not the peak. There is no way the majority will get a return on that base that’s better than staying in the market. That’s not even counting the fact this would simply kick the problem down a decade or so, since it would involve no reform of spending, at which point how reliable is that annuity from a government that’s broke and has stolen everything it can?

erp Friday, 26 February 2010 at 11:33

Rough thanks for the investment tips, but my question for Mrs. Bret was more in the nature of whether she recommends the mattress or the bird feed bin in the back yard for bundles of benjies — at least until the Chicago thugs and their partners in crime are out of power.

AVeryRoughRoadAhead Friday, 26 February 2010 at 15:15

Forgot to mention above that it may not be obvious from the short description of the system at the linked page, but one aspect is that one should also re-balance among the various sectors when doing the monthly analysis. If any sector has grown so much that it comprises 25% or more of the total amount, then sell enough of that fund to bring it back down to 20% of the total, and apportion the money among the other sectors so that all are roughly equal again.

Between that, the previous comment and the information at the linked site, that’s truly everything one needs to know to implement this wonderful system. KISS triumphs again! (The acronym, not the band.)

I urge anyone who’s investing money to evaluate the system and see if it’s a better concept than whatever is currently being followed.

…whether she recommends the mattress or the bird feed bin in the back yard for bundles of benjies…

The bird feed bin. Lower fire risk, and both burglers and tax officials know to look in/under people’s mattresses. The trick to increased security is to do something other than what most people do.

Rather depends on your age, doesn’t it?

Yeah, true that.

That’s not even counting the fact this would simply kick the problem down a decade or so, since it would involve no reform of spending…

The “reform in spending” that we’re most likely to get won’t be frugality in D.C., it’ll be higher interest rates and reaching the hard limit on the national credit card. That isn’t going to be good for the markets over the medium-term. Remember that during the first Great Depression, the Dow meandered its way down over 90% from apex to nadir. There’s absolutely no reason that it couldn’t happen again.

And yeah, if one were a nimble trader, then one could make a fortune from the market gyrations, but 401(k)s aren’t set up to facilitate that, and most people aren’t nimble traders in any case. Mostly they buy-and-hold, which means that they’re going to be stuck holding 90% losses. And even Jesse Livermore went bust in the end.

So I agree, an annuity backed by a fiscally-troubled gov’t isn’t worth much, but history suggests that it’s possible, even probable, that sticking with a 401(k) isn’t going to be very useful either. My favored path is to sell that 401(k) NOW, withdraw the money and take the tax hit. But many people’s 401(k) plans don’t allow that course of action.

AVeryRoughRoadAhead Friday, 26 February 2010 at 15:43

Should add that the above-referenced investment system forces one to be a nimble trader, and so is ideally suited for building a fortune during the upcoming turbulent times, but in order for it to work there has to be somebody on the other side of the transaction - everyone can’t be making the same buy/sell decisions at once - and so it’s not salvation for the masses. But it can be for individuals.

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