Poland recently announced that it was nationalizing the country’s private retirement accounts, their equivallent of 401(k)s. While residents will continue to have access to the funds just as they normally would, the move places private assets on the country’s public balance sheet. While this maneuver was in the works for sometime, of course, the devil is in the details.
The Polish pension funds’ organisation said the changes may be unconstitutional because the government is taking private assets away from them without offering any compensation…
Finance Minister Jacek Rostowski said the changes will reduce public debt by about eight percent of gross domestic product (GDP).
The real reason Poland has worked to seize private assets is to make their debt to GDP ratio lower, causing their bond yields to fall and allowing them to borrow more money. Reuters reports that this “would allow the lowering of two thresholds that deter the government from allowing debt to raise over 50 percent.”
Zero Hedge offers this summary:
1. Government has too much debt to issue more debt
2. Government nationalizes private pension funds making their debt holdings an “asset” and commingles with other public assets
3. New confiscated assets net out sovereign debt liability, lowering the debt/GDP ratio
4. Debt/GDP drops below threshold, government can issue more sovereign debt
It seems to have worked as well. Check out the country’s bond yields. You can see, that as of the announcement, Polish 10-year interest rates have fallen and stabilized.
It’s really quite stunning in its audacity. The complaints are numerous. One commenter notes the reform is ”a decimation of the …[private pension fund] system to open up fiscal space for an easier life now for the government. The government has an odd definition of private property given it claims this is not nationalisation.”
Of course, that is exactly what it is, and given that the US has made similar sounds about seizing Americans’ 401(k) accounts, this is pretty disturbing news. They have suggested that seizing 401(k)s and placing them under the direct supervision of the government. Those funds, currently worth nearly $20 trillion, would then be invested in US treasury bonds.
Bloomberg had a news story on the plan in 2010. They write:
“The U.S. Consumer Financial Protection Bureau is weighing whether it should take on a role in helping Americans manage the $19.4 trillion they have put into retirement savings, a move that would be the agency’s first foray into consumer investments.
The bureau’s core concern is that many Americans, notably those from the retiring Baby Boom generation, may fall prey to financial scams…”
Others have noted that since government debt is seen as a “safe investment,” they will attempt to sell the confiscation as an attempt to save retirement accounts from the ups and downs of the market.
The American Thinker wrote earlier this year:
“Make no mistake here: Obama is after your retirement money. The ‘annuities’ will ‘invest’ not in the familiar packages of bond and stock mutual funds but in the Treasury debt.”
When the 10-year (which is rising steadily, now at almost 3 percent) reaches unsustainable levels, you can expect this confiscation to be enacted in a desperate attempt to get the debt system under control. Alternatively, other methods of confiscation are at work as well including good old taxation.
“[I]n mid-September 2010 the Departments of Labor and Treasury held hearings on the next step toward achieving Ghilarducci’s goals. The stated purpose was to require all private plans to offer retirees an option to elect an annuity. The ‘behind-the-scenes’ purpose for this step was to get people used to the idea that the retirement assets they had accumulated would no longer be part of their estate when they died.
So the Government would get the money, not the estate or family of the people who saved the money during a lifetime of work. That’s a one hundred percent death tax on savings. Worse, the most responsible and poorest families will be penalized.”
While the money will only be completely drained in the event of an absolute catastrophe, it might be conservative and wise to limit your 401(k) contributions.
