Sense on Cents

Might Uncle Sam try to take control of our retirement assets?

“What’s that, LD? Lose control of our retirement assets?”  That is, could the “grand ol’ man” unilaterally swap our retirement assets for government sponsored IOUs?

This past January, a regular reader of Sense on Cents provided us a Blueprint for Government Takeover of IRAs. In February, I interviewed Ron Holland regarding his report, “Plan Now to Escape Obama’s Retirement Trap.”

Many readers of the aforementioned commentary and listeners to the aforementioned interview were blown away by the mere thought that our government may possibly look to nationalize our individual retirement assets and accounts. Argentina implemented such a drastic policy but certainly not the United States, right? Do not be so sure.

Would any other nations dare go to these lengths? Well, thanks to our supporter Comrade Joe for bringing a new development to light in this corner of our economic landscape. How so?

Argentina now has company. While many eyes have been focused on the Euro-zone and Ireland over the last few days, an equally important story was unfolding even further eastward. Let’s navigate as Bloomberg Businessweek recently reported that Hungary Follows Argentina in Pension Fund Ultimatum:

Nov. 25 (Bloomberg) — Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension.

Economy Minister Gyorgy Matolcsy announced the policy yesterday, escalating a government drive to bring 3 trillion forint ($14.6 billion) of privately managed pension assets under state control to reduce the budget deficit and public debt. Workers who opt against returning to the state system stand to lose 70 percent of their pension claim.

“This is effectively a nationalization of private pension funds,” David Nemeth, an economist at ING Groep NV in Budapest, said in a phone interview. “It’s the nightmare scenario.”

Hungary is rolling back pension changes implemented more than a decade ago as countries from Poland to Lithuania find themselves squeezed by policies designed to limit long-term liabilities by shifting workers into private funds. Now the cost is swelling debt and deficit levels at a time when the European Union is demanding greater fiscal discipline.

Hungary, the most indebted eastern member of the EU, is following the example of Argentina, which in 2001 confiscated about $3.2 billion of pension savings before the country stopped servicing its debt. The government in Buenos Aires nationalized the $24 billion industry two years ago to compensate for falling tax revenue after a 2005 debt restructuring.

Budget deficits, public debt, long term liabilities. Sound familiar? Remind you of any specific states or nations?

Hungary failed to sell the planned amount of debt at an auction today as the forint weakened and bond yields climbed to higher than in June, when the country roiled world markets by raising the specter of default. Yields may rise “quite significantly” as the exit of private pension funds will lead to dropping demand for local debt, Attila Eszes, a bond trader at KBC Groep NV in Budapest, said in a phone interview.

“There is a huge hole in the state pension system fund,” Matolcsy told reporters in Parliament. “The government fund’s revenue from pension contributions is 900 billion forint less than its expenditure. This is unsustainable.”

Sound like anybody you know around here? What happens when selected states in our nation are not able to roll their debts? Can’t happen? Oh yeah!

The funds’ assets will be automatically shifted to the state system on Jan. 31, unless members specifically opt out. Those who decide to remain in the private funds will lose their government pension after future contributions even as the state will continue to claim 70 percent of pension contributions paid after the individual, Matolcsy said.

“This is open blackmail,” Julianna Baba, president of the Stabilitas Penztarszovetseg, which groups private pension funds, said in a phone interview today. “It’s a rigged deal.”

Hungary must be a one off situation, right? Other nations would not dare think about going to these lengths . . . would they?

Other eastern EU members are also seeking to cut deficits with the help of pension funds.

Polish Prime Minister Donald Tusk said yesterday that the country may issue long-term pension bonds to compensate private funds for funneling some employee contributions to the budget.

Desperate times lead to desperate measures. For those who think that this nationalization of retirement assets could never happen here in the United States, I ask if you ever thought you would see some of the developments that have occurred over the last few years. What’s that? Yep, neither did I.

What to do?

I would recommend that you go back and read the blueprint I referenced at the beginning of this commentary. If you have an extra hour, you may very well want to listen to the interview with Ron Holland as well.

Semper Paratus.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

This entry was posted on Monday, November 29th, 2010 at 7:34 PM and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.