Don’t cry for me Argentina, the US will soon join you.
Yes, “my friends”, it looks like Argentina has shown us the way out of the financial mess.
“In 1994, Argentinians could choose to save for retirement with the state or through a private account that let them make investment decisions based on their retirement needs.
Although it tried to accomplish what Chile’s private retirement accounts did, it wasn’t as well-designed. Fees were 30%. The government rigidly dictated what assets could be held in the accounts. But millions of Argentinians chose them anyway, because it gave them ownership.
But, under the ruse of “protecting” Argentines from their own decisions, everyone will soon be forced into an involuntary pay-as-you-go program, like U.S. Social Security. Not only will the private assets be managed by bureaucrats, pension-holders will be paid what the government dictates.”
But some good news here. It will lower Argentina debt:
“The assets are likely to be spent by government — not invested. It will save the government about $3.2 billion in interest payments since the government won’t pay interest on $16 billion of government bonds in pension assets that it would own.”
No. that won’t happen here. Right:
“Yet U.S. Democrats in Congress are mulling like-minded moves to scrap 401(k)s and transfer them into government-managed “guaranteed retirement accounts” with a 3% return, according to James Pethokoukis of U.S. News & World Report.
Before they charge ahead, they should look at what happened since Argentina’s announcement: Its stock market lost 23% of its value in two days, for a 57% loss since January. The losses spread to other markets in Brazil, South Africa and Spain.”
Now, let’s see if anything looks familiar in the last few paragraphs:
“Right now, markets see the pension grab as a sign of governmental insolvency following a 40% surge in spending this year in socialist redistribution schemes, and amid a political climate of blaming businesses.
“We believe that the actual motivation of the reform is to capture the flows of the private pension funds to cover the government’s financing needs in the context of a severe credit crunch,” said analyst Pablo Morra at Goldman Sachs Monday.
Because Argentina defaulted on $95 billion of sovereign debt in 2001, blaming its bondholders then unsatisfactorily settling its arrears, it’s pretty well priced itself out of global capital markets. With $16 billion in bonds maturing in 2009 and 2010, and no new revenue in sight, the government seems to want that private pool of pension cash — $4.2 billion in contributions a year — to pay its bills and carry on as usual.”
This should perk your ears up as it not only makes the US less successful, it also does US job growth and the ability to pay bills by your income and the ability of the government to pay bills.
“With no growth, another default becomes more likely after the pension move. The market is acting accordingly.
Yet Congress resists reforming the U.S. public pension system as its liabilities pile up as baby boomers start to retire.
If the next president sees private corporations as the class enemy and taxpaying as “patriotic,” and Congress continues to look at private 401(k) assets as a public piggy bank, there’s little doubt the same mess in Argentina could happen here, too. It’s worth thinking about.”
And this scares me, because Dr. Teresa Ghilarducci said this:
“Going forward, I propose Congress establish universal Guaranteed Retirement Accounts and the federal government deposit $600 (inflation indexed) in those Guaranteed Retirement Accounts every year for every worker. Every worker (not in an equivalent defined benefit plan) would save 5% of their pay into their Guaranteed Retirement Account to which the government pays a 3% inflation-indexed guaranteed return. Workers would earn pension credits based on these accumulations.”
So, the government is looking to take over your retirement payments(most likely to help them pay bills) and give you 3%. The stock exchange has historically returned 7%. So, youre going to give up 4% yearly to feel safe.
Now, let’s put those numbers to work. Something easy that even someone on the low end of the economic ladder could do, $10,000.
$10,000 in 10 years at 3% is $13,494, at 7%, $20,097.
$10,000 in 20 years at 3% is $18,208, at 7%, $40,387.
So, you’re going to feel completely safe; and give up half the money you could use in later life ?
If this starts coming, I would advise you to sell off all you 401k and put it in 10 to 12 bluechip stocks in the different US sectors; you will pay more taxes now; but will have a lot better later life than those that chose the life preserver.