Wait a Minute …

Stocks fell hard on Monday, bounced on Tuesday, and came to rest on Wednesday. Which way does this market want to go? We don't know. But so far there was not much follow through in either direction. So, we wait … glance up at our "Crash Alert" flag from time to time … and watch … from the sidelines, of course. 

Meanwhile, have you opened your MyRA account yet? As you remember from carefully following President Obama's State of the Union address, there's a new way to save for your retirement. The Los Angeles Times explains:

 

“The president signed a directive Wednesday ordering the Treasury Department to create MyRA (my retirement account). A pilot program is expected to be rolled out this year. 
The MyRA effort is designed as a "starter" program in which employees can accumulate up to $15,000 before transferring savings to tax-free Roth individual retirement accounts. 

Money would be invested in a government bond fund that's been offered to federal employees for years. Principal would be protected so that workers would never lose money. But they probably wouldn't earn significant returns. In 2012, the fund had a 1.47% return. The 10-year average annual return was 3.61%.”

 

Wait just one cotton pickin' minute. This program has a familiar … and sinister … sound to it. 

 

From Tokyo to Vegas

Ten years ago, we guessed that the US economy was following Japan into that long, dark passage. We wrote about it so often readers got sick of hearing about it. Then we looked like an idiot when, instead of stalling after the crash of 2000, the US seemed to take off.

Instead of a Tokyo-style bust, we got a Las Vegas-style bubble – complete with million-dollar house trailers and enough mortgage-backed securities to blow up every major player on Wall Street. It didn't seem at all like Japan. 

Now, we discover that all that sound and fury of the last decade meant nothing. Household incomes fell. No new jobs (net) were added. Almost zero real economic growth happened. For all the Sturm und Drang, it was a lost decade in economic terms. 

Just like Japan … 

Now, too, we seem to be locked into a low-growth pattern, with little consumer price inflation and an aging population that cares only about preserving the benefits it has misappropriated for itself. 

And like Japan, the US economy holds off the day of reckoning by borrowing money at ultra-low interest rates. Rates are low partly because the Fed has been increasing demand for bonds through QE (therefore lifting prices and suppressing yields) … and partly because no one really wants to borrow and spend in such a funky economy. 

Japan's government debt burden is now the highest in the world – at 230% of GDP. How will it ever pay it off? When last we looked, the Japanese feds spent twice as much as they collected in tax receipts. 

"Don't worry about it," answer the pundits. "Japan owes the money to itself."

That is more or less true. Japan's government bonds were bought by its own old people (or their pension funds). They put their savings in the safest possible place – government bonds – to be used to finance their retirements. How will the Japanese government make good on all these bonds? 

The answer is the same as the answer to this question: How will this debt-financed hullabaloo turn out? Simple: Japan will stiff its own grey-haired creditors – either by inflation or by default.

Argentina, by the way, is already ahead of the game. It nationalized private retirement funds – to "protect" them, of course. And now, the president aims to "protect" US retirees in the same way.

Advice to those saving for retirement: Stay away from MyRAs … 

 


 

The above article is from Diary of a Rogue Economist originally written for Bonner & Partners.

Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 


 

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6 Responses to “Stay Away from Obama’s MyRAs…”

  • SavvyGuy:

    I see many comments herein discussing the pros and cons of Mr. Bonner’s insights.

    Without taking sides, I just want to add that there are always many dimensions to any issue. The quantitative and analytic part of our minds wants to see charts and objective hard evidence, not just someone’s subjective opinion. However, sometimes that subjective opinion can be more valuable than all the objective analysis, because it might uncover something very important that can be missed by analyzing only the details.

    We should not miss seeing the forest because we are only looking for trees. Let’s welcome all types of analysis and opinion, because we never know “a priori” what might turn out to be really helpful in the long run!

  • Never forget to run when the government comes out and says they are here to help you. Likely, they are going to help themselves to your capital and labor.

  • Vess:

    I really dislike Bill’s rants. Even when he is right, he doesn’t present careful analysis with charts and so on – he is just ranting. Yes, MyRAs are a bad idea (for those decide to use them). But instead of ranting about Japan, how about a proper analysis and argumentation about why exactly they are a bad idea? Here is a nice article on the subject:

    http://danielamerman.com/articles/2014/MyrasD.html

    • No6:

      I believe Bill did explain why they are a bad idea, those investing in government bonds of bankrupt governments will get stiffed.

    • kycattle:

      That’s easily fixed – don’t read him or add your own rant. Much better to read unnecessary analysis about an idea that really only deserves derision.

      The skeptic might wonder if that government fund is in need of a prop up like so many other pensions. The notion that it is some “exclusive” program that is now open to the average Joe is one of the oldest sucker hooks in the book.

      Rant on Bill!

      +1

      • Vess:

        Sadly, there is no easy way of filtering out his articles on this site. And I didn’t “add my own rant” – I simply stated my opinion why I don’t like his articles, explained it with an argument, and provided a link to an article with useful analysis of what exactly is wrong with the MyRAs.

        Reading someone who just writes what you want to hear is useless – it teaches you nothing. Reading someone’s impassioned analysis – regardless of whether you agree with it or not – is useful, because it tells you things you might have not thought of before. You should always consider carefully the arguments in someone’s analysis. If you find them to be correct, they will either change your so-far incorrect opinion on the subject, or will provide you with additional arguments when explaining the issue to others. If you find them to be incorrect, you’ll be better prepared to argue against those who support that line of thought.

        In general, thinking is always better than listening to people who say things you want to hear.

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