Tags: 401k | Poland | bonds | Europe

Beware the 401(k) Grab — Notes From Poland

By    |   Wednesday, 01 October 2014 08:22 AM

I am in Poland this week trying to assess the real situation across Europe. I will start out by saying it does not look pretty. The gloomy pall of despair is now palpable in the demeanor of the people of Europe.

Few events so far this week bring to the forefront of what I want to talk to you today. First, late Monday we heard the news that the U.S. courts are holding the Argentina government in contempt and wanting to force them into default. While this is not new for Argentina, it would definitely impose tremendous hardships on the locals there who will get robbed even more by their government. The average citizen in Argentina is facing hyperinflation, shortage of essential commodities and overall increasing burden of the excessive borrowing the government has done for years.

Midday Tuesday, the euro fell below 1.26 against the U.S. dollar. This is the ripple effect of the European Central Bank (ECB) beginning to get ready for quantitative easing later this year or early next year. With half the countries in Europe either in recession or about to enter recession, Europe is a complete mess now. Deflation is taking hold everywhere and the ECB will be in uncharted territory if that happens.

For all those who shorted the euro when I suggested it, enjoy your monstrous profits! There is more to come on that in the next few months.

Poland, which is usually a shining beacon of hope, is also beginning to wilt under the threat of deflation, and the average person is worried about the broad effect across Europe. They are terrified about the prospects of a possible Russian invasion of Ukraine and what it would mean to them. The Polish people suffered greatly during World War II and the wounds are still fresh in their minds.

After the daylight robbery they experienced almost exactly one year ago, they wonder what is next.

Last September while the world was fixated on the Cypress meltdown, Poland enacted the most draconian and audacious nationalization scheme it has ever done. Under the guise of "reform," the Polish government nationalized 50 percent of the private pension funds in the country. The country was already under a hybrid system where private citizens had to buy a percentage of their 401(k) in government bonds. But at least the citizens were holding such bonds in their accounts.

Last year when the government nationalized the bonds, they actually took the bonds held in private accounts and absorbed them into the "national pension fund" where they cancelled the bonds against the total bonds outstanding.

The people lost their savings while in theory they still hold the bonds managed by the government. The government was able to show that they had reduced their deficits, as they cancelled bonds outstanding. They dropped their deficits from more than 55 percent of GDP to below 48 percent. There is a law in Poland that forbids the government from running deficits above 50 percent of GDP. So the government survived and the average citizen was left holding the bag.

The biggest reason for this robbery? Too much borrowing and too much debt.

Sound familiar?

Back stateside, the IRS has already started blocking any attempts at diversification of your IRA or 401(k) funds. At a price tag of well over $2.8 trillion, the pot of money is too sweet for the government to keep its paws off that. Step 1 will be to force us to buy U.S. bonds, and then step 2 will be confiscating the 401(k) parts held in bonds. The playbook is already written and enacted in Poland and a couple of other European nations.

So why not in the U.S.?

I would urge you to get advice on how to diversify your 401(k) into hard assets (ways and means exist even today) and protect your retirement before it gets too late as it did for the Polish.

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I am in Poland this week trying to assess the real situation across Europe. I will start out by saying it does not look pretty. The gloomy pall of despair is now palpable in the demeanor of the people of Europe.
401k, Poland, bonds, Europe
Wednesday, 01 October 2014 08:22 AM
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