NFTRH

If I Had a World of My Own...

By Gary Tanashian

Biiwii.blogspot.com

February 4, 2009

Excerpted from the January 31 edition of Notes From the Rabbit Hole

"If I had a world of my own, everything would be nonsense. Nothing would be what it is because everything would be what it isn't. And contrary-wise; what it is it wouldn't be, and what it wouldn't be, it would. You see?" -- Alice

Notes From the Rabbit Hole is so named for two main reasons. The first is that the name implies a view from a different perspective, which I consider critical to success in manic and dysfunctional markets. The second reason is due to my personal experience several years ago, when I fell down a figurative rabbit hole and met some of the ‘strange characters’ of Wonderland; strange characters who helped educate, enlighten and especially, motivate me. One person in particular put a cattle prod to my hindquarters and demanded attention. Simply demanded that I take notice and consider all possibilities with regard to the disintegrating financial system – and this was in 2003, when all seemed well to the blissfully content herd.

I had been taking note of the honest congressman from Texas, Ron Paul for a couple years prior to the galvanizing cattle prod treatment. David Walker, then top financial cop of the United States of America was also must reading for me (right there on the government’s own GAO website this honest man told the truth to anyone willing to listen). Biiwii.com (but it is what it is) was created in 2004 as a result of my general financial awakening, as long time readers know.

Okay, so why the preamble? Because it is important now, more than ever, for people to at least consider the dark possibilities with a critical nature that has been bred out of the general populace by the ongoing assumptions and illusory comfort provided by the former secular bull market in paper, compliments of Paul Volker’s strong fiscal policy and exploited to the fullest by Alan Greenspan in a career characterized by self aggrandizement at the expense of sound policy.

Today, we will look at one seemingly impossible scenario that I became aware of as being quite possible back in 2004. Five years later we find House Democrats actually contemplating the nationalization of the public’s 401k’s and the $Trillions in assets therein, as a professor of economic policy at something called the New School For Social Research suggests. The government would eliminate subsidies for those pesky independent IRA’s and 401k’s. In the words of the plan’s architect, Teresa Ghilarducci “I want to stop the federal subsidy of 401(k)s… 401(k)s can continue to exist, but they won’t have the benefit of the subsidy of the tax break” and “I want to spend our nation’s dollar for retirement security better. Everybody would now be covered.” This would be managed by the bright bulbs over at the Social Security Administration. Wow.

My cattle prod guy once demanded I liquidate my personal IRA on the spot: “Gary, just pay the taxes” and get the funds out of the government’s clutches. For the record, I did not do that and instead grew the account by 215% (after pulling it in 2002, from a financial advisor who oversaw steep losses after assuring me that the mutual fund managers who had me fully invested would never allow such risk) within the IRA while never but NEVER even considering contributing ‘real’ money to it, tax break or not.

When it came time for the addition on the house, we of course would not tap home equity, nor ‘real’ savings. So I ‘paid the taxes’ on IRA funds and paid cash for the addition. I am now in the process rebuilding the IRA and indeed, this is the ‘speculative’ account that is featured in NFTRH. ‘Real’ (non government entwined) funds are represented by the ‘capital preservation’ account. I realize that this is contrary to most peoples’ perception of their sacred IRA funds, but I am not most people.

What I want to look at today in particular is not the idea of being in bed with the government so much as how this union could end up manifesting itself. Here is just one scenario; $Trillions in US liabilities are held by foreign entities. Said foreign entities – China in particular – have their own dire issues domestically. Said foreign entities are stuffed to the gills with US Treasuries (reserves). Said foreign entities would like to keep the consumer/producer macro Ponzi scheme with US consumers going as long as possible but when push comes to shove (or social unrest) said foreign entities are going to attempt to spend their way out of their problems. Besides, they are obviously well aware that the US consumer is on life support.

That is where all those foreign reserves come into play and that is where a US national interest could come into play, as in ‘the Social Security Administration is compelled to invest all sponsored 401k and IRA funds in US Treasuries, specifically long term Treasuries, in the national interest.’ When might such a far fetched idea become not so far fetched? Have a look at the chart of the yield on the 30 year bond:

The red line might represent an area, above 4% during an economic collapse, where such crazy ideas as compelled ownership of US debt might gain traction. The above noted plan would lay the bread crumbs for the herd to follow right into this scenario. It would be government sponsored and incentivized after all.

This would-be scenario represents economic and financial incest of the highest order; the last ditch bailout attempt of a country that became the unproductive global consumer of last resort. Thanks, but no thanks. I will just stick with my non-subsidized IRA or simply cash it out, pay the taxes and remain in control of my own destiny as best as possible.

All I ever did was try to lend productivity to the economy, pay my taxes and undertake the hard work involved in understanding how things truly work. Others have done the same thing and while we, and our children will pay the bill in myriad and complex ways, I for one am not going to willingly pay the bill for people who did the opposite. At least not in partnership with the Social Security Administration, which, as it is, stands ready to default on or severely devalue a trust into which we have paid our entire working lives.

But this is what makes a market. We all have a world of our own defined by our individual rights to make our own decisions. Follow the stale bread crumbs at your own risk.

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