How Retirement Accounts Could Boost Treasuries

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 |  Includes: TBT, TIP, TLT
by: Trace Mayer

The Federal Government is running massive budget deficits which is creating a massive supply of Treasuries. But there is no demand and so the Federal Reserve is monetizing the debt. But these colored coupons merely amount to certificates of confiscation. Where will Congress find the capital to buy Treasuries? Most likely, your retirement account and screwing up your retirement calculator.

MASSIVE BUDGET DEFICITS

The Obama administration is on track to need approximately $2T of new debt sales or about 300% of 2008 debt to fund their aggressive spending. But an disproportionately large amount of purchases come from the ‘Household Sector’. Eric Sprott of Sprott Asset Management (.pdf) enlightens us:

We must admit that we were surprised to discover that “Households” had bought so many Treasuries in 2009. They bought 35 times more government debt than they did in 2008. … Amazingly, we discovered that the Household Sector is actually just a catch-all category. It represents the buyers left over who can’t be slotted into the other group headings. …

Our concern now is that this is all starting to resemble one giant Ponzi scheme. We all know that the Fed has been active in the market for T-bills. Under the auspices of Quantitative Easing, they bought almost 50% of new Treasury issues in Q2 and almost 30% in Q3. It serves to remember that the whole point of selling new US Treasury bonds is to attract outside capital to finance deficits or to pay off existing debts that are maturing. We are now in a situation, however, where the Fed is printing dollars to buy Treasuries as a means of faking the Treasury’s ability to attract outside capital. …

As we have seen so illustriously over the past year, all Ponzi schemes eventually fail under their own weight. The US debt scheme is no different.

Ponzi schemes fail when capital seeks safer and more liquid assets by burrowing down the liquidity pyramid. This is similar to the process that happens in a credit contraction. As I wrote earlier, the Federal Reserve will fail with quantitative easing.

Click to enlarge

CERTIFICATES OF CONFISCATION

Treasury instruments have been, are and most likely always will be certificates of confiscation. The saving retirement calculators are almost guaranteed to fail because of this uncertainty. Here is a visual explanation so you can understand the math.

So likewise Treasury Inflation Protected Securities (TIPS) are just an invitation to be stolen from. This makes your simple retirement calculator even less useful.

RETIREMENT ACCOUNTS

Congress looted the Social Security Ponzi scam many years ago. The social security retirement calculator is completely broken and predictably riddled with fraud.

Where is the next largest pool of capital for these vampire squids? Yes, your 401k (now a 104k), SEP-IRA, Roth IRA, etc. How will these tax eating parasites slurp that value?

The Telegraph reported,

The Argentine state is taking control of the country’s privately-managed pension funds in a drastic move to raise cash. … So, over $29bn of Argentine civic savings are to be used as a funding kitty for the populist antics of President Cristina Kirchner.

On 8 January 2010 Kirchner has attempted to fire the chairman of the central bank because he has refused to use about $6.6B of the funds to pay international debt that falls due in 2010 but a federal judge has ruled Mr. Redrado should be reinstated at the independent central bank. What a mess! The President wants to fire the banker because he will not hand over everyone’s pension money to overseas bankers.

Businessweek has reported,

Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing a steady payment for life, according to an institute-funded report today. … The institute’s member companies manage $11.6 trillion of assets in mutual funds, including employer-sponsored 401(k) accounts.

While the state sponsored retirement accounts may appear alluring, particularly when your employer matches your contribution, you may get more than you bargained for. Like this English man if you contribute to your state sponsored retirement accounts then you may unwittingly find yourself in an uncomfortable situation and have no one to blame but yourself. The tax eating looters and moochers will attempt to force you to become infected with their lecherous colored coupons.

CONCLUSION

The nation does not need Washington DC and individuals do not need Washington DC usurping their retirement accounts and forcing the purchase of Treasuries. Doing so is simply attempting to sustain the unsustainable. But that is most likely what will happen.

Now is the time to begin reducing your exposure to this political risk and safely sheath your capital in safer assets outside of these retirement accounts. For a reliable and free retirement calculator use the Numeraire Spreadsheet and realize that for hundreds of years a one ounce silver coin will buy you approximately one steak dinner. For the ultimate no confidence vote just buy gold, silver or platinum and learn some good hawala techniques like the Argentines.

DISCLOSURES: Long physical gold, silver and platinum with no position the problematic SLV or GLD ETFs.