Build a Retirement Nest Egg and They (The Government) Will Come

There is no doubt that governments around the world where private retirement funds have been encouraged are now eyeing these funds with envy as they look for money they can use to bail themselves out of this fiscal mess.

China is making it plane that it doesn’t want to play the game anymore and is looking to trade in anything but US dollars.

If China doesn’t keep loaning the world money and governments become reluctant to print more money for fear of inflation, then they have to find where the money is stashed in the country and use it.

There are billions of dollars supposedly sitting on the side lines in millions of retirement accounts in managed funds. I heard yesterday they was enough to buy all the stocks on the US stock market (at today’s prices that might not be that much 🙂 )

But if it is true the money is sitting there what’s to stop our fearless leaders grabbing it for the “good of the country” with a promise to pay it back?

Judging by what has happened in the last four months in America there is nothing to stop the government taking this money to invest in infrastructure, a national health care system, a people’s car, GE wind farms, bailouts for California and several other bankrupt states.

I’m sure they will tell you your money is guaranteed by the US government. But that’s no good to you if you need it in a couple of years and your government has spent it on a nice wind turbine you can see on a hill outside your house.

I’m just flabbergasted, yes flabbergasted that the rating agencies are saying nothing about the government debts being run up around the world.

Once upon a time governments with triple ‘AAA’ ratings strived to keep them that way. Now it seems a badge of honour to spend like crazy because there seems to be no chance of a downgrade of the ratings.

I wonder if someone has spoken to the rating agencies and told them not to even think of re-rating governments around the world during this financial crisis on pain of being investigated for the lousy job they did on the CDOs and MBS’?

Tax receipts for most countries have dropped by 30, 40, 50% and so they will be running even larger deficits than they are prepared to admit. In a private company this would be called insolvency. But governments it’s called being fiscally responsible in a recession.

But back to your retirement fund. I expect you will be given a carrot. It’ll go something like this. We realise your retirement fund has taken a beating so here is what we are going to do for you.

We are going to take what’s left of your retirement money off those nasty fund managers and we are going to look after it for you.

We are going to invest it for you in national projects important for your country. We will pay you a pension that is 3% more than inflation for life.

That’s got to be a better deal than you got from the fund managers who just wanted you to put all your retirement money at risk in the market to pay themselves immediately there is a profit and let you wear huge losses when there are not and often just as you retire.

Just one caveat though. It’s a real gotcha. The government calculates the inflation rate. Not only that they manipulate it and remove “volatile items” from it when it suits them.

So not only are they likely to take what money you have left in retirement funds as the defined contributions model is thrown out as unworkable. Over time they will devalue the money they took from you to avoid paying you what they own you.

My advice is turn any money you have into bricks and mortar assets and sit on it. House prices won’t go down for ever in the same way they didn’t go up for ever. I can’t believe they will make you all sell your property to get that money back. You can live in it or rent it out and it is a simple asset to understand.

Isn’t that what they told you, invest in things you understand. So why would you let your government take your money and invest it in infrastructure using financial modelling and magic to tell you how much you will get back in the long term. You’ll never understand how that bridge ends up costing 3 times what it should and still isn’t furnished. Don’t believe them.

A rush to covert cash to illiquid assets might result in the housing boom they are trying to recreate as boomers fearful of having their money taken from them, convert it into hard assets.

Go house hunting this weekend if you even get a whiff of a rumour the government is going to acquire your retirement money.

If you don’t think they can do it you have been asleep for the last four months.

If you think the fund managers will object, think again. The large ones will get into bed with government and will be given the keys to the kingdom to manage our money yet again and with government guarantees. It’s another win-win-lose situation.

Government wins because it has all your money, the funds win because they can charge for managing it on your behalf and as usual you lose because you have no control over your own money.

Hmmm! I must buy me a fund manager as soon as I can.

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