Thursday, June 25, 2009

Mandatory IRA With Treasury-Issued R-Bonds?

Remember earlier this year when the stock market was still very volatile and the horrendous memory of September-November 2008 market crash was still fresh, there was a chatter about confiscating the IRA accounts and about creating a national IRA system where you are only allowed to invest in Treasury securities (at that time, 30-year bond was yielding 3%, currently 4.3%) ?

Well, that talk apparently isn't dead. I found this link in blog section.

Administration explores 'R bond' as option for retirement accounts (6/7/09, [emphasis is mine]

"Officials in the Obama administration are moving quickly to develop the investment infrastructure behind the president’s proposal for mandatory automatic enrollment in individual retirement accounts, which could be supported by the creation of Treasury-issued retirement bonds.

"J. Mark Iwry, deputy assistant secretary for retirement and health policy at the Department of the Treasury, said that administration officials are exploring some “conservative” options for investing the assets of 78 million Americans that he estimates could be automatically enrolled in this “universalworkplace retirement system."

"He said that officials have discussed the possibility of making a low-risk life-cycle or target date fund the default investment option for these auto-IRAs, which would be mandatory for employers if they don’t offer a retirement plan to their workers.

"... there is also a chance that they could rely on a new form of bond — an “R bond” — as the basic building block for the auto-IRA, Mr. Iwry said in addressing reporters at the Treasury Department in Washington last week.

"Administration officials are discussing the exact details of these R bonds, such as their interest rates, maturities and minimums, he noted. These bonds ideally would provide individuals with a source of secure, steady returns that would protect their initial investments."

"R" for "Retirement", I suppose. So, under this mandatory IRA program, workers get to have supposedly safe and non-volatile R-bonds issued by the Treasury Department until their investment grow to a certain size (whatever the size to be determined), then they will be allowed to "graduate" to the next level (whatever that will be).

What a scam. The U.S. workers get to have their IRA accounts stuffed with low-yielding Treasury debts so the government can spend more, and they have no other choice, at least initially (however long or short that's going to be). Coaxing foreign governments to continue to buy the US government debts (Treasury bills, notes, and bonds) is one thing; it's totally another to force its own citizens to buy the government debts.

78 million Americans with mandatory IRAs that have $10,000 in this R-bonds - that would be $780 billion U.S. debt taken care of right there.

"The administration, which included an auto-IRA provision in its 2010 budget, has gained some bipartisan support for the proposal, Mr. Iwry added. However, as more specific details of the program’s features come out — such as this initial investment infrastructure — opposition could well unfold. "

You must be kidding. Opposition? But Democrats have the majority in the House, and they can simply fast-track it, just like they may be planning to do with the health care reform bill.

By the way, Mr. J. Mark Iwry is from Brookings Institution who joined the Obama administration in April.


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