Obama Turns America's Retirement Dreams into Nightmares

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If you think the U.S. government will not – or cannot – seize your money the way the government in Cyprus is doing, check out page 18 of the President's Proposed Fiscal Year 2014 Budget of the U.S. Government.

That's exactly what he intends to do.

Not years from now. Not decades from now.

Today.

This is organized crime on an incomprehensible scale and, if it passes, it will be legal, too.

Robbing Your Nest Egg

Anxious to raise more than $9 billion dollars over the next 10 years, President Obama has proposed a $3.4 million limit on individual retirement accounts (IRAs), 401ks and other tax-advantaged accounts as part of his 2014 budget.

In theory, this is going to generate a lot of cash by capping the amount of money that could be contributed tax free to tax-advantaged accounts like 401ks and IRAs.

In reality, it's going to backfire spectacularly by creating a huge disincentive to save, while also penalizing those who desperately need to build wealth as a defense against their spendthrift government.

Proponents of this plan say the proposal only affects an estimated 100,000 households – give or take – and a mere 0.3% of the 20 million IRAs in this country, and an infinitesimal 0.0041% of 401k plans according to Employee Benefit Research Institute data.

I think they're dead wrong. When it backfires, it will steamroll the entrepreneurial backbone of this country – small businesses and their employees – much the same way the Patient Protection and Affordable Care Act (PPACA), better known as "Obamacare," has.

Here's why:

  • The Government is the poster child for the Law of Unintended Consequences. Since when has any government plan ever functioned as intended? This initiative is going to creep backwards into Middle America faster than you can spell barbecue. It's almost axiomatic that once a tax or fee is targeted on a small population of individuals, it slowly and inexorably expands. It never shrinks or disappears. Ever.
  • Money is mobile. It will leave the country just as it leaves any punitive jurisdiction and go where it's treated best. Ask Germany why its millionaires are shifting money to Singapore. Why has there been capital flight out of France in the face of higher taxes? Why is Italian money headed for Luxembourg? Closer to home, why is California hemorrhaging? Why do newly minted IPO millionaires become Nevada citizens? You get the point…history is filled with examples of how money moves when it is targeted.
  • Mission Creep. When it leaves, the government will face a revenue shortfall so the plan will be expanded and the cap balance will be lowered to sweep in still more Americans at far lower balances.

This is a joke…$9 billion over 10 years?! The government is going to stick it to people to raise $900 million a year – an amount of money that's completely inconsequential in the scheme of things.

It doesn't matter which side of the aisle you sit on, nor does it matter how much money you have or haven't saved. This is a direct attack on our financial liberties and our assets.

It's immoral and it's no different than what happened in Cyprus recently when that nation levied taxes on depositors in an effort to shore up decades of bad government decision making and profligate spending.

Another Financial Shell Game with Political Payoffs

I've often joked that the reason we have such terrible economic problems at the moment is because nobody in Washington actually understands how real money works, let alone what it's actually worth.

Now I'm not joking.

But that's not even the worst part of it – guess who's got their fingers right in the middle of the proverbial pie? Yup… Wall Street and big business. If this cockamamie idea actually passes, the cap will "encourage" the wealthy to put more money into insurance products, including annuities and life insurance – both of which generate tens of billions in management fees a year… on your money.

This is like being "voluntold" to do something.

We're going to have another JPMorgan food stamp situation on our hands, only this one will be a lot bigger over time.

I bring this up not to dump on JPMorgan, but to make a point about the incestuous relationship between big business and government programs.

Most people are outraged to learn that the financial behemoth (which received a $94.7 billion taxpayer funded bailout in 2008) receives a fee of between $0.31 and $2.30 for each food stamp recipient in 23 states. They're positively gob-fobbed when they understand that since 2004 the company has collected more than $560 million in fees for processing government benefits.

It's not by coincidence that JPMorgan's political donations to members of the House and Senate Agricultural Committees have gone from only $82,000 in 2002 to more than $325,000 in 2010. Kinda takes corporate "welfare" to an entirely new level.

This time around the players aren't the big banks but their financial services "cousins" like MetLife Inc., Prudential Financial Inc., Allianz and Lincoln National Corp, all of whom are heavy hitters in the insurance and annuities markets.

Not surprisingly, many of those same companies are also involved in providing retirement plans which, of course, also require tremendous oversight and generate huge fees…soon to be ginormous fees, if Obama's scheme passes.

I realize that all of this is hard to imagine and even harder to get behind, particularly if you are not one of the 100,000 being targeted at the moment.

So let me tell you why you should care no matter how much wealth you have today or want to have in the future.

Here's the real game and what I believe is ultimately the end game.

Robbing Peter to Pay…Peter

Government spending is so bad and so out of control that "we" already owe ourselves more than $222 trillion dollars. That's the true "fiscal gap" between America's assets and its liabilities, according to Boston University Professor of Economics Lawrence Kotlikoff, who reviewed CBO numbers to arrive at such a stunning figure.

You'd think the government would simply stop spending; that's what any responsible individual or company does when the amount of money they owe exceeds what they make.

But Congress can't…they've socialized risk. The only way to keep the Ponzi scheme going is to keep handing out freebies. "They" just hope the bluff is called on the next guy's watch.

And that brings me back to President Obama's proposal.

The government has to sell debt to fund its operations. Right now it relies on an international network of buyers who are growing weary of the United States' fiscal policies and leery of its ability to pay back those obligations. What better way to ensure you have buyers than to create a captive monetary pool?

President Obama's plan, or at least some version of it, will pass in the next few years. Then, when it doesn't work, the government will step in to save the day by allowing exemptions and special tax-advantaged contributions under the guise of offering better financial security if – ta da- they are in the form of Treasury purchases. Chances are they'll play the "patriotic" card too while they're at it.

This would not only maintain the cap the president seeks but also ensure that even higher levels of debt are effectively monetized without resistance.

You'd think I'm describing something from George Orwell's "1984" but I'm not.

Japan has done this for years. Few people understand that one of the primary reasons that nation has not totally collapsed as a result of their financial crisis is that an estimated 95% of workers and retirees own Japanese government bonds. Therefore the combined public, private and corporate debt that's nearly 500% of GDP is almost irrelevant.

Bernanke and the president could only dream of having that kind of spending power.

Then again, perhaps they already do…

I'll be monitoring this situation closely in the weeks ahead – as you might imagine, everybody literally has something to lose.

But you know what?

Savvy investors have something to gain, too, which is why I'll be back in touch with information on where to stash your cash and what structures you can use to protect your assets. I'll also have more on specific investments that are going to benefit from this.

Somebody, as the old saying goes, is gonna make a pile of money.

It might as well be us.

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About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and Strike Force, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

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  1. Mary Jo | April 29, 2013

    Thanks for sharing this disturbing information with us, Keith. I agree that targeting wealth will only lead to shifting it elsewhere, and your description of this whole shemozzle as a 'shell game' is very accurate. America is close to drowning in debt, and all government and big business can come up with is 'let's have more of the same'.

  2. SteveM | April 29, 2013

    Wacky!!!

  3. David Mortimer | April 29, 2013

    In Australia, the Gillard Government has proposed a similar action. She proposes taxing accounts over $1million which she says will only effect about 16,000 people. If an investor can earn 5% income that equates to living on $50,000 pa. You guys will be triple that.

  4. Jim Ray | April 29, 2013

    No WONDER they're so anxious to get gun control passed!

  5. hari | April 29, 2013

    what is more scary is how come these kind of articles don't get more comments which tells me ppl don't care or don't want to read or are so done with this govt that they have given up. before re-election ppl would have bent out of shape with this crap…not ne more.

  6. H. Craig Bradley | April 29, 2013

    OUR SHEGETZ

    I find Obama's continued support among some of Americas most successful individuals and others to be perplexing, to say the least. It is well understood that the (American) Jewish population strongly supported President Obama in both elections of 2008 and 2012. Many of them are high income earners who now pay higher taxes presumbably.

    In fact, I think President Obama was paid for by the likes of Billionaires George Soros and Baron Jacob Rothschild. What's in it for them, unless they are making tons of money off our increasing national indebtedness?? If so, President Obama is their (and our) stooge. Voters like stooges rather than more knowledgeable and competent candidates. The yiddish word for a guy like Barack might just be shegetz.

  7. SISTER PAM PRANKE OP | April 29, 2013

    This man is clueless regarding financial nightmares and what they really look like.

  8. H. Craig Bradley | April 30, 2013

    PERNICIOUS ANEMIA

    Obama & his benefactors are very pernicious to your financial health.

  9. Bill | April 30, 2013

    We all agree that things can't keep going the way they are. The problem is, there has been few fixes proposed that anybody really likes. It seems only those that stand to gain or at least not lose anything like any proposal.

    Reducing Social Security increases by revising how inflation is calculated sounds good to those not receiving it, or are otherwise not relying on it. Yet, like the cap on IRAs discussed here, it is our representatives in government causing the inflation that triggers the increases anyhow.

    I am afraid that the fix will not come in time. The people in Congress fear for their jobs and as long as they do, no one will bring about the small disaster in order to prevent the BIG disaster.

  10. Melia Sese | April 30, 2013

    A bit alarmist, aren't we? This is only a proposal at this point. Do you honestly believe that Dave Camp's Ways and Means Committee will let this see the light of day? Honestly? I've seen this same nutty rhetoric over at the right-wing websites – you know, the ones that think Barry Obama is a space alien …

    Besides, a lousy $9 billion is hardly enough change anything – despite the fact that I told you all before that government spending in the fiat-currency era is not revenue-constrained.

    • Muriel Diamond | April 30, 2013

      Why are people blaming President Obama when it's those damn Republicans that are the problem. I hope at the next election the American people vote all of their greedy asses out of office because it's very obvious that they don't care at all about this country or its people. Now let me see if you'll print this!

  11. robert | April 30, 2013

    Another political rant.
    It's getting tiresome.

  12. Lorne DeWitt | April 30, 2013

    Here is my alternate version of Paul Harvey's timeless classic, "If I Were the Devil." I call it –

    RIP America, Paul Harvey…

    If I were the devil … If I were the Prince of Darkness, I'd want to engulf the whole world in darkness. And I'd have a third of it’s real estate, and four-fifths of its population, but I wouldn't be happy until I had seized the ripest apple on the tree — Thee. So I'd set about however necessary to take over the United States. I'd subvert the churches first — I'd begin with a campaign to infiltrate the churches with "social conservatives" and their desire to control our lives. I would pervert, church leaders and use their religion to fund corrupted politicians. With the wisdom of a serpent, I would use their "social conservatism" to break down the barriers that provide separation between church and state. So they could push their hidden agendas that use religious dogma to cover up their destructive works aimed at usurping and destroying the U.S. Constitution and enslaving Americans. Ultimately I will eliminate, that disgusting God given right called, "choice."

    To the young, I would whisper; What the Founding Fathers meant by "Separation of church and state," was that posting the ten commandments, having religious displays, or praying in public places is wrong. I would convince them that Republicans legislating morals is OK, though. And then I'd get organized, I would have Republican President Nixon declare a "War on Drugs." within a decade I'd have prisons overflowing. Then I would have Republican President Reagan expand it and fund it, until before you knew it, you'd have drug sniffing dogs and metal detectors at every door. Then trillions of dollars later a huge network of prisons would be built, along with expanded law enforcement and a growing judicial system, till it transformed the US into an American police state.

    I would convince Americans that they needed to trade their liberty for security from terrorist attacks by having both Republican controlled houses pass; the Homeland Security Act, Border Security Act, and both Patriot Acts. I would then have Republican President George W. Bush sign them into law. With Soviet styled heavy handed tactics, Homeland Security, would then be free to purchase 3 armored divisions (2,717 tanks), an infinite number of drones and 1.6 billion rounds of hollow point ammunition. Enough to kill every American man, woman and child, five times over! Then it would only be a matter of time before Americans would have their guns taken away and the US could finally be transformed into the fascist dictatorship I have envisioned.

    If I were the devil, I would make sure that Americans sat silently by and allowed it to happen by making sure it didn't matter which party was running the country. I would see to it that third party challengers, especially fiscal conservatives, Constitutionalists and Libertarians, were drummed out of consideration by using the media to make them look like quirky and eccentric, whacko-birds. I would convince the electorate that any votes cast their way would be wasted. I'd make certain both parties were becoming identical. With any luck voters would be left choosing from the "Lesser of Two Evils." That's my kind of election! — When Democrats and Republicans facing each other suddenly realize that they're looking into a mirror, they will see that it's the pattern for the future. I will have, infact, created the perfect blueprint for "The New World Order." Good day.

  13. David | May 2, 2013

    THE BIGGEST DISASTER FOR SENIORS IS BUSH'S PUTTING MEDICARE PART-D IN PLACE
    AND NOT GIVING THE GOVERNMENT THE MANDATE TO NEGOTIATE PHARMACEUTICAL PRICES.

    This corrupt, negligent, cruel and failed policy will affect all Americans – the 99% and the 1%.
    There is no place for 'the common man' in Republican America.

  14. L. L. CAMPBELL | May 2, 2013

    I Look forward to seeing your plan as to where once can stash their Retirement funds (IRA,401K 403B accounts) to avoid this proposal to steal from the holders of such accounts.

    One should always remember that when the US government (President, Senate & House) is involved that while it is $ 3,million today it could easily be $500,000 or less tomorrow.

    LLC

  15. Morrie | May 3, 2013

    When Obama Etc. Leave Office!

    When Obama administration officials and members of Congress retire from office, there will be no place on earth where they can hide from those who wish to belatedly express their appreciation, in tangible ways, to those who tried to destroy the greatest nation ever!

    • H. Craig Bradley | May 18, 2013

      FACE THE MUSIC OR RELOCATE TO SOUTH AMERICA

      Ya, when the economy finally comes crashing down and there is a much smaller middle class left, then there will be alot of new poor people who are permanently reduced. The middle class in 10 years will probably have a generally lower standard of living compared to today. When they eventually lose all their savings and retirement funds, they will have nothing to show for years of thrift and hard work (labor).

      In stark contrast, the politicans will be fat and sassy living the high life in secluded rural retreats, like French King Louis the XIX. What do you think mobs of angry people will do about it? By then, many will have nothing left to lose and plenty of anger to spare.

      Politicans won't be secure or safe under those conditions, even with gun control. Nobody will protect them. Like Nazi war criminals in 1944, they American Politicans will eventually have to leave North America for Paraguay or face the most unpleasant music.

  16. Dave | May 5, 2013

    So, the authors on this web site complain about legal ways to avoid taxation (a la Apple) yet taxation is feeding the beast that is our socialist system. And on the other hand, complain about government schemes to not only tax but confiscate wealth (and I see no difference here). But anyway, I have to ask: Who's side are you on???

  17. Laurel "Gerry" Hackley | May 5, 2013

    Oh what tangled webs we weave when we practice to deceive!!!! Plant beans, potatoes, corn & tomatoes in your garden; raise your chickens &
    rabbits wo that you can live off your land. I hope it is a large garden & lots of your neighbors help you.

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