“The Feds Want Your Retirement Accounts.” This was the headline of a February 22 post on the American Thinker blog recently forwarded to me by a reader. Normally I hit delete on articles warning of some type of impending financial doom. I read this one, since Argentina confiscated its citizens’ retirement accounts shortly before I first visited there in 2009.
According to the article, in 2007 a professor of economic policy from the New School for Social Research, Theresa Ghilarducci, wrote a paper calling for the US government to eliminate private retirement accounts. She suggested confiscating the assets in those accounts and replacing them with a “Guaranteed Retirement Account” (GRA) guaranteeing a return of 3%, which is essentially another program like Social Security.
This is basically what Argentina did one year later.
I brushed aside Argentina’s action as the quirky behavior of a third world “banana republic.” Such confiscation would never happen in a developed country like the US.
Today, I am not as nonchalant about the prospect of nationalizing private retirement accounts. While I still believe it’s unlikely, I don’t completely rule it out as right-fringe conspiracy lunacy. The dramatic fall of our economic freedom from third in the world to 18th in 10 short years should give any US citizen pause. Even since 2009 we’ve seen a significant shift in public preference toward a government-controlled economy versus a market economy.
Does that mean we should stop funding our IRAs and 401(k)s and start stuffing gold coins into coffee cans? I don’t think so.
I still favor retirement accounts and personally fund mine to the maximum. I recommend that most wealth accumulators do the same. Roth IRAs, where the proceeds are distributed tax-free, are especially attractive vehicles in which to store investments. However, they are only as good as our government’s word.
Certainly, we can point to a number of circumstances where the US government did renege on its promises. One example was the Tax Simplification Act of 1986, signed into law by President Reagan, where Congress penalized real estate investors by retroactively changing the laws. A second instance, engineered by President Obama, was the unconstitutional confiscation of GM bondholders’ collateral which was handed over to the unions. Such acts do make me pause and wonder if I am being naïve.
Yet a sovereign government that issues its own currency has no need to confiscate financial assets of citizens if the currency is sound. As long as the government can find vendors to accept its currency in exchange for goods and services, there is no need to take citizens’ assets. All it needs to do is create new currency.
If a government with a sound currency would confiscate assets, the reason would almost certainly be to redistribute wealth. However, any country that starts taking the assets of its citizens will not be considered politically stable and will not have a sound currency for long. Other countries, corporations, and individuals will become reluctant to accept its currency.
This is the case in Argentina, where the currency is devaluing at 30% a year. Nobody wants Argentinian pesos. In response, the government outlawed owning foreign currency; Argentinians cannot legally own more than 100 US dollars.
The US is certainly not to that point. In the meantime, what should investors do?
Nothing. I will continue to fully fund my retirement plans and hold a globally diversified portfolio invested in a wide array of assets. I will, however, continue to cast a watchful eye toward the strength of the US dollar, the CPI, and our tax and economic policy. As my father often says, “Never say never.”