Whose Reserves?

"Argentine President Cristina Kirchner on Monday sidestepped stiff Congressional resistance to spending foreign reserves for debt payments, issuing a pair of decrees shifting about $6.6 billion from the central bank to the Treasury. ... The first decree allocates $2.2 billion in foreign reserves to pay international organizations, while a second orders the central bank to hand over $4.2 billion for other public-debt payments. The moves will help Argentina make the estimated $13 billion due in debt payments this year", Shame Romig at the WSJ, 2 March 2010, link:

http://online.wsj.com/article/SB10001424052748704358004575096010595724960.html.

There is no law anywhere when it comes to governments. Governments are the worst of all debtors to collect from. To do so, you need your own army.

Saving Chile

"Milton Friedman has been dead for more than three years. But his spirit was surely hovering protetively over Chile in the early morning hours of Saturday. Thanks largely to him, the country has endured a tragedy that elsewhere would have been an apocalypse. ... By contrast, Saturday's earthquake in Chile measured 8.8. That's nearly 500 times more powerful than Haiti's, or about one million Hiroshima's. ... It's not by chance that Chileans were living in houses of brick--and Haitians in houses of straw--when the wolf arrived to try to blow them down. ... Inflation topped out at an annual rate of 1000%, foreign-currency reserves were totally depleted, and per capita GDP was roughly that of Peru and well below Argentina's. ... Even before the 1973 coup, several of Chile's 'Chicago Boys' had drafted a set of policy proposals which amounted to an off-the-shelf recipe for economic liberalization: sharp reductions to government spending and the money supply; privatization of state-owned companies; the elimination of obstacles to free enterprise and foreign investment and so on. ... In fact, Pinochet had been mostly indiffierent to the Chicago Boys' advice until the continuing economic crisis forced him to look for some policy alternatives. ... Result: Chileans have become South America's richest people. They have the continenet's lowest level of corruption, the lowest infant mortality rate, and the lowest number of people living below the poverty line", Bret Stephens at the WSJ, 2 March 2010, link:

http://online.wsj.com/article/SB10001424052748703411304575093572032665414.html.

Amazing. Incentives count! I remember when we got calls from the "Chicago Boys" who wanted to confirm their advice to Chile. I was then on Chicago's campus.

Argentina Shows America How-2

"Argentina is enduring its biggest inflation surge to start the year in two decades, posing a challenge for the government's newly named central bank president who is viewed skeptically by financial markets. ... Economists blame the price spiral on chronic overspending by the government of President Cristina Kirchner, as well as interventionist policies such as price and export controls on beef, which they say have discouraged investment and reduced the supply of cattle. ... In her comments about inflation prior to taking office, Ms. Marco del Pont often placed emphasis not on monetary policy, but on monopolistic business practices, which she said gave a few Argentine companies excessive pricing power. ... Economists are concerned that gaining access to the reserves would encourage Mrs. Kirchner to maintain aggressive public spending, which has been growing at a rate of around 30% the past year, and has helped to propel inflation. Ms. Marco del Pont's positions suggest 'she views the priority of the central bank isn't defending the value of the peso, but helping to finance the government,' says Aldo Abram, an economist at the Higher School of Economics and Business Administration in Buenos Aires. ... For her part, Mrs. Kirchner blames rising meat prices on Argentine ranchers, who she says aren't bringing enough cattle to market. ... Agrarian economists say government meddling has been so disruptive that many ranchers have liquidated herds and turned to farming. A drought last year also hurt ranchers. ... Private economists also say the government has been trying to sweep inflation under the rug by manipulating official inflation statistics, keeping them at one-half to one-third the true level", my emphasis, Matthew Moffett at the WSJ, 20 February 2010, link:

http://online.wsj.com/article/SB10001424052748704511304575075960541144400.html.

President Obama, are you listening? Price controls? What say you ghost of Richard Nixon? I'll never forget George Stigler's Industrial Organization class at Chicago. "Stiggie" told of an encounter with Harvard's Alvin Hansen. They discussed monopolistic business practices as a source of "inflation". Stiggie said the thought was nonsense. Hansen disagreed. Stiggie said assume "monopolists" exist on day one. What lets them raise prices on day two? Why didn't they already extract all their monopoly profits on day one? What changed from day one to day two to let the "monopolists" raise prices? Hansen had no response. Go Stiggie.

Argentina's Continuing Crisis

"For the better part of a decade, overseas investors have viewed Argentina as a pariah: After a currency collapse in 2001, the country suspended payments on some $95 billion in foreign debt--the largest sovereign default in history. Then in 2005, the government offered creditors, ranging from Italian pensioners and American teachers' unions to Wall Street hedge funds, just 30 cents on the dollar if they agree to swap their old bonds for new notes. about three-quarters of the debt holders grudgingly accepted the deal. ... The goal is to resore [Kirchner's] government's access to financing and tap into the global demand for debt that pays higher yields than US and European treasury bonds. ... Kirchner has lavished billions of dollars on subsidies for food, fuel, and electricity, sending state expenditures up by some 30% annually since she took office two years ago. The problem is, tax revenues have been rising just 12% annually, so a comfortable fiscal surplus has become a deficit equivalent to 2.5% of [GDP] over the past two years. To make up the shortfall, Kirchner tried in 2008 to raise export taxes sharply on soybeans and other grains", Geri Smith at Businessweek, 25 January 2010, link:

http://www.businessweek.com/magazine/content/10_04/b4164024478278.htm.

Obama, are you watching?

Boskin Encourages Obama!

"Politicians and scientists who don't like what their data show lately have simply taken to changing the numbers. They believe that their end--socialism, global climate regulation, health-care legislation, repudiating debt commitments, la glorie francaise--justifies throwing out even minimum standards of accuracy. It appears that no numbers are immune: not GDP, not inflation, not budget, not job or cost estimates, and certainly not temperatures. A CEO or CFO issuing such massaged numbers would land in jail. ... A commission appointed by French President Nicholas Sarkozy suggests heavily weighing 'stability' indicators such as 'security' and 'equality' when calculating GDP. And voila!--France outperforms the US, despite the fact that its per capita income is 30% lower. ... With Venezeuela in recession by conventional GDP measures, President Hugo Chavez declared the GDP to be a capitalist plot. He wants a new, socialist-friendly way to measure the economy. ... There is historical precedent to a 'socialist GDP'. When President George HW Bush sent me to help Mikhail Gorbachev with economic reform, I found out that the Soviet statistics office kept two sets of books: those they published, and those they actually believed (plus another for Stalin when he was alive). In Argentina, President Nestor Kirchner didn't like the political and budget hits from high inflation. After a politicized personnel purge in 2002, he changed the inflation measures. Conveniently, the new numbers showed lower inflation and therefore lower interest payments on the government's inflation-linked bonds. Investors and public confidence in the objectivity of the inflation statistics evaporated. His wife and successor Cristina Kirchner is now trying to grab the central bank's reserves to pay for the country's debt. ... The president and his advisers--their credibility already reeling from exaggeration (the stimulus bill will limit unemployment to 8%) and reneged campaign promises (we'll go through the budget 'line-by-line') consistently imply that their new proposed regulation is a free lunch", my emphasis, Michael Boskin (MB) at the WSJ, 14 January 2010, link:

http://online.wsj.com/article/SB10001424052748704586504574654261655183416.html.

What's MB doing here? Is MB giving Obama a roadmap to defraud Uncle Sam's creditors, as if Obamites like the Orzags need one. Would Vampire Squid's CEO or CFO "land in jail" for massaging numbers? Wow, the USSR kept multiple sets of books. Don't you know the US spends 45% of the world's total military spending? I don't know it. Imagine, government officials "revised" inflation statistics to cut Argentina's interest rates paid on TIPS. Still want Obama's? We remember MB, head of the "Boskin Commission" and new "Boskin Commission", my 5 October 2007 and 11 October 2009 posts: http://skepticaltexascpa.blogspot.com/2007/10/tip-on-tips.html and http://skepticaltexascpa.blogspot.com/2009/10/boskins-baaack.html.

Argentina's Lock Box

"Argentine President Cristina Kirchner's [CK] political troubles turned into an open standoff Wednesday, when the country's central banker rejected her request to resign following his refusal to transfer billions in foreign-currency reserves to pay the country's debt. ... Mrs. Kirchner, along with her husband and predecessor Nestor Kirchner, have tried to assert more control over the economy--nationalizing pension funds and an airline--even as their popularity has declined among Argentines. The latest conflict puts the couple on a collision course with both the central bank and a newly invigorated congressional opposition. ... Mrs. Kirchner announced the creation of the 'Bicentennial Fund for Stability and Reduced Indebtedness,' [BF] to be funded with central-bank reserves, on Dec. 14. ... Financial markets had welcomed the creation of the fund, coming as Argentina plans to start borrowing again after eight years of being largely frozen out of markets in the wake of a massive 2002 debt default", my emphasis, Matt Moffett & Matthew Cowley (M&C) at the WSJ, 7 January 2010, link:

http://online.wsj.com/article/SB126282620632718915.html.

"Argentine President [CK] said she was firing the country's central-bank chief Thursday, escalating a battle over foreign-currency reserves into a nascent constitutional crisis. ... Some Argentine legal specialists also said the president doesn't have the authority to unilaterally dismiss the top banker, saying the dismissal decree is unconstitutional. ... The announcement came after markets closed Thursday. It was unclear how the opposition-dominated Congress would respond, but some if its leaders called for Mr. Redrado not to comply with the decree. ... Argentina's decree, signed by all cabinet members and issued late Thursday afternoon, followed two days of mounting government pressure on Mr. Redrado to transfer $6.57 billion in reserves to a fund Mrs. Kirchner unveiled in December to conver some of Argentina's debt payments. ... The opposition maintains Mrs. Kirchner and her husband and predecessor, Nestor Kirchner, are trying to steamroll the central bank, as they already have the media, the national statistics bureau, agribusiness and other institutions to seize foreign-currency reserves so they can boost patronage spending and sustain their power", my emphasis, Matt Moffett at the WSJ, 8 January 2010, link: http://online.wsj.com/article/SB126289800502920289.html.

"A federal judge blocked President [CK] from using foreign-currency reserves to pay Argentina's national debt and revoked the dismissal of the central-bank chief who opposed that policy. ... On Friday morning, federal judge Maria Hose Sarmiento granted an injunction request by two opposing parties barring the central bank from transferring money into the so-called [BF], which Mrs. Kirchner had hoped to create with $6.57 billion from the reserves. A few hours later, Judge Sarmiento ordered the reinstatement of the bank president, Martin Redrado, whom Mrs. Kirchner dismissed on Thursday for refusing the make the transfer. ... Earlier in the day he defended his action in defying Mrs. Kirchner. 'The reserves belong to all Argentines and if they are to be used for some purposed besides backing the currency, ther matter should go before Congress,' he said. ... Underlying the dispute is the Kirchner administration's need for funds to sustain the Peronist patronage machine. Last year, public spending grew at three times the rate of revenue. ... Now the whole idea of the [BF] may have boomeranged, revealing the fragility of Argentina institutions. ... Roberto Sifon Arevalo, a director in the Latin America Sovereign Ratings Group at Standard & Poor's said compromising central-bank authority is disturbing to investors. 'There is a conceptual reason why people focus on the independence of the central bank,' he said", my emphasis, M&C at the WSJ, 9 January 2010, link: http://online.wsj.com/article/SB126296529801421655.html.

"Few Argentine politicians are prepared to pay the political cost of spending cuts or tax rises to pay off bondholders. As it is [CK] may have turned the Central Bank chief into a martyr for the cause of integrity in public policy", Economist, 9 January 2010, link: http://www.economist.com/world/americas/PrinterFriendly.cfm?story_id=15213761.

My idea: let's swap Redrado for Zimbabwe Ben (ZB) and Robert Schiller! What idiocy, to welcome creating a paper fund instead of reductions in Argentine spending. This fund would have as much substance as the Social Security "lockbox". CK wanted this fund to further her confidence game.

Bienvenidos a Argentina. Was this article really about Argentina, or the Obama administration?

How closely are ZB and Peter Orzag following this?

I await ZB's following Redrado's lead.

Argentina Shows America How

"Argentina's government said it will set aside a portion of the central bank's foreign-currency reserves into a fund dedicated to debt service, in an effort to allay investor concerns about the country once again defaulting. ... But some economists said the creation of the fund raises longer-term questions about the Argentine government's commitments to control spending, which has been growing at a worrisome rate. ... Gabriel Torres, an economist at Moody's Investors Service ... said the debt bill is less onerous than it seems because much of the debt is held by Argentine government pension funds, banks, and other institutions that would surely roll it over. Nevertheless, Argentina's track record makes it risky. In 2001, Argentina declared the largest sovereign-debt default in history on about $100 billion in debt. ... 'Foreign-exchange reserves are to buffer you against all kinds of external shocks,' said Simon Johnson, a professor at the Massachusetts Institute of Technology and former IMF chief economist. Mr. Johnson said using some of the reserves to pay down debt could help shore up confidence in the Argentine market as some investors get unsettled about countries with big fiscal imbalances. ... Longer term, however, economists raised concerns over whether the Kirchner government was using the central-bank resources to avoid dealing with a growing fiscal problem", my emphasis, Matt Moffett and Matthew Cowley at the WSJ, 15 December 2009, link: http://online.wsj.com/article/SB126084511452791541.html.

Old South (OS), 10 November 2009, asks of Argentina's "plan to issue NEW sovereign debt", do the "money managers out there planning to buy in ... know, when push comes to shove, they can now dump the resultant losses on the US Treasury and taxpayer", link: http://mainstreetmattersmore.blogspot.com/2009/11/proof-positive-theres-one-born-every.html.

What distinguishes America's financial position from Argentina's: the US dollar is the world's reserve currency. For now. Set aside? Like the "social security lockbox"? This is accounting nonsense like "appropriated retained earnings". Argentina's supposed sinking fund lacks economic significance. I don't doubt Argentina's willingness to reduce spending. It won't. Moody's must be staffed with fools. Disagreeing with Torres, it doesn't matter who holds Argentina's debt. Who holds it governs who will lose when Argentina next defaults. Why should who holds Argentina's debt affect its value? Does who holds XOM affect its value? Disagreeing with Johnson, how can Argentina pay down debt net, without reducing spending? Argentina's actions are part of a continuing con game. Does the US have a big fiscal imbalance? Why are 30-year US Treasuries yielding 4.45%? Is Uncle Sam using Zimbabwe Ben to "avoid dealing with a growing fiscal problem"?

OS raises a good point. Did Argentina "clear" its proposed bond issues with His Obamaness? Will Argentina become the new Citigroup, with its hand continually in the taxpayers' pocket?

Another Default Cycle

"Argentina's government on Thursday took its first official steps to recognize past debts and pave the way to return to international capital markets since a massive default in 2001. ... The bill would suspend a law that forbids the renegotiation of defaulted debt, an issue recent administrations took as a point of national pride. ... Investors will have to accept a discount of at least 65% of face value to participate in the new transaction, Mr. [Amado] Boudou [Economy Minister] said, adding that the government would like to see at least 60% of the outstanding defaulted debt included in the reopening. ... Despite Argentina's history of default, there would likely be strong interest in new debt issued by the country, as investors have plenty of cash and an appetite for better rates paid by more marginal borrowers, said Cristina Panait, co-portfolio manager of Payden & Rygel's emerging-market bond fund", Matthew Cowley at the WSJ, 23 October 2009, link: http://online.wsj.com/article/SB125625234556602497.html.

I wouldn't touch these Argentinian bonds.

Economists Answer

"Some, like Fred Bergsten (2009) of the Institute of International Economics, exhorted the US government to take Mr. Wen's concerns seriously and listen to Beijing's suggestion to create a substitution account in the IMF, which would allow Fund members to exchange unwanted dollar balances for SDRs, as part of a gradual process to replace the dollar with a supra-national reserve currency over the long run. ... According to Mr. Krugman (2009), China had fallen into a trap of its own making due to its reluctance to adopt a more flexible exchange rate policy in the past. ... Kenneth Rogoff (2008), the former chief economist of the IMF, has recently written that 'a sudden burst of inflation would be extremely helpful in unwinding today's epic debt morass.' Put in other words, by increasing inflation, the US would 'solve' two problems at once. ... The problem with this 'solution,' aside from the reputational problems it creates for the US government, is that once the inflation genie is out of the bottle, it will be very difficult to put it back in. ... Fortunately, there is an easier and better way to protect the value of emerging market reserves while reducing the risk of a resurgence in world inflation. ... By substituting TIPS for nominal bonds, the US government would be sending a strong signal that it does not plan to 'inflate its way out of debt,' as disingenuously suggested by Mr. Rogoff but, to the contrary, will commit itself to adopting a more disciplined monetary and fiscal policy going forward", my emphasis, Domingo Cavallo and Joaquin Cottani (C&C), 12 May 2009 at http://voxeu.org/index.php?q=node/3551.

C&C are consultants with Harvard and Yale PhDs respectively. Cavallo once headed Argentina's central bank. A more impressive credential would have been his heading Zimbabwe's. C&C do not suggest Uncle Sam reduce spending to balance the budget. No, substitute TIPS for regular Treasury debt. How stupid do C&C think the Chinese are? Uncle Sam sets the TIPS inflation rate, see my 22 June 2008 post: http://skepticaltexascpa.blogspot.com/2008/06/gold-clause.html. Rogoff is right. Inflation, not Eli is coming. Out of the bottle? Fools! The "inflation" is already baked in the cake. Look at the monetary base explosion over the last year. Going forward? What? When will the disciplined policy begin? 2109?

Argentina's Bonds

"Argentina reportedly intends to file for [SEC] approval to re-enter the US capital markets. The SEC should instead insist that Argentine securities bear a warning like cigarette packages: 'This issuer has a record of misrepresentation, debt defaults, and debt repudiation, and therefore may be dangerous to your financial health. Do not consume this issuer's bonds unless you have a platoon of lawyers and a Navy to back them up, and you're prepared to use both.' ... In 2001, Argentina defaulted on $81 billion in soverign bonds. ... Since Argentina had earlier agreed to waive soverign immunity and accept the jurisdiction and judgments of New York courts, more than 160 lawsuits were filed. But the governments of Nestor Kirchner and of his wife and successor, Christina Fernandez, have ignored numerous court judgments. Judge Thomas Griesa has repeateldy condemned their conduct, noting in 2005 that 'I have not heard one single word from the [Argentine] Republic except ways to avoid paying those judgments.' ... If the offering documents Argentina has submitted to the SEC in the past are any indication, its forthcoming filings will be replete with misleading or meaningless representations. ... And they will almost certaainly lack candid disclosure about that country's true financial condition--its $35 billion in outstanding but repudiated debt to foreign creditors, its cozy financial dealings with the Chavez regime in Venezuela, its grossly understated inflation rate, or its recent binge of expropriating assets within its reach to meet its mounting financial obligations", Robert Shapiro and Nancy Soderberg at the WSJ, 27 February 2009.

What the problem? Replace Saudi Arabia and China for Venezuela and what distinguishes US debt from Argentina's? Will the SEC say the Treasury should prepare disclosure documents showing its sorry history of defaults through inflation? Without your own military no judgments against a sovereign can be enforced. What did Theresa Ghiladucci recently propose with respect to assets held in 401(k) plans?

Ben Franklin-2

My 6 November 2008 post, "Ben Franklin Was Right", http://skepticaltexascpa.blogspot.com/2008/11/ben-franklin-was-right.html, apparently ruffled some high-placed feathers. It attracted a record number of: "reads" for a Skeptical CPA post, 2,174 and comments, 22. IA may have joined Pat Buchanan's "peasants with pitchforks" brigade. If not, sign me up Pat. Teresa Ghilarducci's (TG) plan to end 401(k) plans as we know them is public record. Rush Limbaugh (Rush), with about 20 million weekly listeners discussed it! Mark Levin's (ML) 16-minute interview is a gem. Listen to it. It seems our learned professor spent too long in the academy and is not used to being cross examined by a clear intellectual better who is not dependent upon her for a grade! Enjoy, have some laughs at a "hackademic's" expense. ML has about 2.5 million weekly listeners.

Reuters 5 November 2008 article quotes TG as saying, George Miller "wants to make 401(k)s better. He doesn't want to kill the tax deduction. In my favor, he agrees I brought up genuinely credible criticisms of the 401(k) tax break as it exists now". The link: http://www.reuters.com/articlePrint?articleId=USTRE4A49UV20081105. Isn't this dandy? Miller doesn't want to "kill the tax deduction" now. Wait until next year as New York Mets fans used to say. Did Miller get more flak over this than he anticipated and will wait to introduce a bill to kill the 401(k) tax deduction next year? What makes TG's plan transparent is: anyone who wants to put Treasury paper, either conventional or TIPS in his 401(k) can do so now. TG's plan is: seize your 401(k) assets and give you a piece of Uncle Sam's paper which he will hyperinflate out of existence at his leisure.

The Los Angeles Times, 9 November 2008, article by James Rainey (JR) attacked "El Rushbo" for his attack on Obama. JR in my opinion, is a left-wing Obamacon, economic ignoramus, who is incapable of making an argument, only ad hominem attacks. The relevant portion of JR's article, "In a time when the nation calls out for cool leadership and rational discussion, Limbaugh stirs the cauldron, a tendency he proved in a particularly grotesque way last week when he accused Obama's party of plotting a government takeover of 401(k) plans. 'They're going to take your 401(k), put it in the Social Security trust fund, whatever the hell that is,' Limbaugh woofed. 'Trust fund, my rear end.' A slight problem with Limbaugh's report: Obama and the Democrats have proposed no such thing. The proposal, in fact, emanated from a single economist, one of many experts testifying to a congressional committee. ... To broadcast such a report--so drained of context as to constitute a lie--would be a shameless act at any time. But Limbaugh needlessly stirred the fears of millions he holds in his thrall--making the 401(k) thievery sound like a done deal. Shameless", my emphasis. Link: http://www.latimes.com/news/politics/la-na-onthemedia9-2008nov09,0,4216330.story. JR, didn't the Democrats have TG testify to fly their trial balloon? What do you think happened with say, 1996's Boskin Commission? Coincidence, I don't think so.

I followed about a dozen blog posts which described TG's plan. The majority referred back to the Workforce article I mentioned on 6 November.

Anonymous', 7 November 2008 comment launched this post, "I'm a constituent of Congressman Jim McDermott's, and I got in touch with his office after reading this. They told me in no uncertain terms that this is a false story, that Congressman McDermott is considering no such proposal, and that the 'quotes' from Congressman McDermott in various versions of this story are fabrications. If you'd like to check with his office and verify this yourself, you can reach them at: 206-553-7170. I look forward to seeing a prominent correction". Well anonymous, you ain't gettin' it. Who do you think you are? Dostoyevsky's Grand Inquisitor? I realize my posts are legal hearsay since I am not an "ear" witness to McDermott's statements. However, he never had any publication they appeared in retract them. What will you, yes you anonymous, do about it? Who did you speak to in McDermott's office? I offer McDermott a deal. If he flies here to Houston, at his expense, I will depose him and pay for the court reporter then post a deposition transcript at this blog. Let the readers decide who's lying and when.

"All of the issues the foes on Capitol Hill are considering are very troubling, especially Rep. George Miller's even considering the government's taking over 401(k)s. Are we in Argentina?", Thomas Edwards letter to the WSJ, 13 November 2008.

"You may have heard about Argentina's plan to nationalize private retirement accounts. Some Democrats on Capitol Hill are inspired, and with their big election victory they may get the chance to test Peronist ideas in America. Meet Congressmen George Miller and Jim McDermott, who are eager to change the way Americans save for their golden years. ... Before Election Day, the Congressmen began to target the $3 trillion in 401(k) accounts held by 60% of Americans. Mr. Miller called the system 'an inadequate vehicle' that has not been terribly sucessful' in encouraging retirement savings. He wants a 'wholesale re-examination' of pensions. ... But the Chairman has also signalled greater ambitions. At a hearing last month, Mr. Miller put the 401(k) system into play. Under the current system, employers match employee contributions that aren't taxed until redeemed, an indirect subsidy worth some $80 billion today. 'We have to start to think about in Congress ... whether or not we want to continue to invest that $80 billion for a policy that's not generating what we now say it should,' Mr. Miller said. 'For a taxpayer investment of this size, we must ensure that the structure of 401(k)s adequately protects the nest eggs of participating workers.' ... Most eye-catching was an idea from Teresa Ghilarducci at New York's New School for Social Research. ... A McDermott spokesman called her proposals 'intriguing' and 'part of the discussion.' Mr. Miller hasn't so far endorsed the plan. ... Anger over the drop in 401(k) balances is one reason that voters who belong to the 'investor class' swung to Democrats in greater than usual numbers this year. Their mandate is for policies that improve those returns, not strip them of tax benefits", Editorial at the WSJ, 14 November 2008.

"Allow me to repeat my position on 401(k)s, which you mischaraterize in your Nov. 6 'Obama's Real Opposition' and Nov. 14 'Targeting Your 401(k)' editorials. I do not support abolishing 401(k)s, forcing these plans into government programs, or changing their tax status. We must preserve and strengthen 401(k)s, not end them. ... That is why I support strong fee disclosure and other measures to increase participation in 401(k) plans", George Miller letter to the WSJ, 18 November 2008.

Some more links to look at:

US News & World Report, 23 October 2008 by James Pethokoukis (JP). JP quotes Jim McDermott as saying, "the savings rate isn't going up for the investment of $80 billion [in 401(k) tax breaks], we have to start to think about whether or not we want to continue to invest that $80 billion for a policy that's not generating what we now say it should". http://www.usnews.com/blogs/capital-commerce/2008/10/23/would-obama-dems-kill-401k-plans.html.

Rush radio show transcript, 24 October 2008, http://www.rushlimbaugh.com/home/daily/site_102408/content/01125109.guest.html.

ML radio show interview, 28 October 2008, 16 minutes, http://whatthecrap.wordpress.com/2008/10/28/dr-teresa-ghilarducci-on-abolishing-401k-plans-audio/

Karen McMahan at Carolina Journal, 4 November 2008, http://www.carolinajournal.com/exclusives/dems-target-private-retirement-accounts.html.

On 13 November 2008 I went to Jim McDermott's (JM) website and did not find any mention of TG's plan. I did find that JM voted against the bailout bill. Thank you JM for that.

Yes, Edwards, we are in Argentina. Hyperinflation is coming!

In reading the WSJ's editorial I anticipated the words as I read them. Had the WSJ asked me, I could have written it as an op-ed.

This is what you say now Rep. Miller. Why did TG testify at your hearings? When will you tell us "circumstances have changed. We must nationalize your 401(k)s for the public good"? This looks like setting up Joe Schmoe for the coming nationalization.

At Skeptical CPA we are not afraid to draw conclusions from facts. IA surmises after Obama was elected someone in the "Office of the President-Elect" became aware of this proposal floating around Congress. This Obamacon, whoever he is, told Miller, McDermott and anyone else pushing it something to the effect, "Obama got about 80% of Wall Street's campaign contributions. Do you realize that even at 50 basis points a year, with $3 trillion in 401(k)s, to adopt Ghillarducci's plan would take $15 billion a year from Obama's constituents? Do you understand that?" And now the TG plan pushers are running from their own Frankenstein monster. At least that's how it looks from here.

Argentina's Impending Bankruptcy

"Argentina's leftist government presented its controversial proposal to nationalize private pension funds to the lower house of Congress, which was expected to approve it late Thursday or early Friday. President Cristina Kirchner said that seizing the private funds--which have nearly $30 billion in assets, as well as future pension contributions amounting to $4 to $5 billion annually--will protect Argentina's savers amid the global market turbulence. ... 'The government says it has its accounts in order, but it is launching a fiscal grab,' opposition Congressman Fernando Iglesias said in remarks during the debate on Thursday. ... In the meantime, the government has been employing strong-arm tactics to bolster the embattled peso and stem a surge in dollar-buying by Argentine investors unnerved by the nationalization bid. ... The government has said it is aiming to halt tax evasion, but exchange traders say the move [on currency-exchange houses] is actually aimed at intimidating those seeking dollars and those selling them", my emphasis, Matt Moffett at the WSJ, 7 November 2008.

When the US dollar reverses its present course it will be interesting to see if the Obama administration follows Argentina.

Ben Franklin Was Right

"Powerful House Democrats are eyeing proposals to overhaul the nation's $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive. House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee's Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed accounts to which all workers would be obliged to contribute. ... The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation", 16 October 2008, http://www.workforce.com/section/00/article/25/83/58.php.

Ben Franklin said, "No man's life, liberty or fortune is safe when the legislature is in session". He was right. What's going on here? This is a tax increase. Teresa Ghilarducci, a New School economics professor created this plan in May, which Congress is now considering. Why? To seize $3 trillion in 401(k) assets, that's why. Congress will then give you a TIPS bond. If someone wants to put TIPS in his 401(k), he can do it now. If this plan is adopted, inflation will rise as Congress steals your 401(k)'s real value. This is called a "forced loan" scheme. South American countries resort to them from time-to-time when they need money. Argentina is considering one now. Keynes urged Great Britain adopt a forced loan scheme to pay for World War II, see Time, 27 November 1939, http://www.time.com/time/magazine/article/0,9171,762868,00.html. There is nothing new here.

Argentina's Pensions

"Hemmed in by the global financial squeeze and commodities slump, Argentina's leftist government has seemingly found a novel way to find the money to stay afloat: cracking open the piggybank of the nation's private pension system. The government proposed to nationalize the private pensions, which would provide it with much of the cash it needs to meet debt payments and avoid a second default this decade. ... Argentine President Cristina Kirchner said the move to take over the private pension system was aimed at protecting investors from losses resulting from global market turmoil. ... While no one knows for sure what the government would do with the private system, economists said nationalization would let the government raid new pension contributions to cover short-term debts due in coming years. ... Three million Argentines ... can track their accounts and have some say over how the pension funds invest the money, making the system somewhat like the U.S. 401(k) accounts. ... The main Merval Argentine stock index tumbled 12% on Tuesday, largely on fears that the market would atrophy if the government used new pension contributions to pay debt rather than let if go into the capital markets. ... Kirchner painted the move as an attempt to help workers weather the financial crisis. ... Opposition leader Elisa Carrio vowed to contest [the move], saying, 'The government measures aren't designed to better the retirement system but rather to plunder the funds of the retirees.' ... Prior to the 2001 economic collapse, ... the government placed limits on bank withdrawals. Later, it issued a decree converting dollar-denominated deposits to pesos", my emphasis, Matt Moffett at the WSJ, 22 October 2008.

"Mrs. Kirchner justified the proposed seizure of $30 billion in pension assets by accusing the funds of having instrumented 'policies of plunder.' She said Argentina was setting an example of how to deal with the global financial crisis. ... The nationalization, if approved by Congress, will also provide Mrs. Kirchner with more cash for political patronage", my emphasis, Matt Moffett at the WSJ, 23 October 2008.

"That the state could seize retirement savings no doubt seems outrageous to Americans. ... Kirchner won't have trouble making the case for expropriation to Congress, which is controlled by her fellow Peronists. ... Since [2001 Argentina] has imposed price controls, defaulted on its debt, seized dollar bank accounts, devalued the currency, nationalized businesses and tried to set confiscatory tax rates with the aim of making society more 'fair'," Editorial at the WSJ, 23 October 2008.

"Across the developed world, solvent governments have temporarily nationalised banks whose survival was in doubt. Argentina, which often resembles the rest of the world through a distorted mirror, likes to do things differently. There the private pension system, which has suffered investment losses but is otherwise sound, now faces permanent nationalisation by a government whose own solvency has been called into question. ... The immediate effect was ... the Buenos Aires stock-exchange fell 24% in two days, and investors dumped Argentine bonds, sending their yield soaring to 28%. Many economists and opposition politicians fear that the government's intention is to raid the pension funds to fill a widening fiscal hole. 'A legalised robbery' was how La Nacion, a newspaper dubbed it in an editorial. ... 'It looks like they want to use the workers' money for non-pension spending,' says Gregorio Badeni, a professor at the University of Buenois Aires. ... By proposing the nationalisation, Ms. Fernandez has further undermined faith in her government's solvency and in property rights", my emphasis, Economist, 23 October 2008.

"Argentina's leftist government pressed forward with its controversial plan to nationalize private pension funds, laying out investment guidelines for the funds it wants to seize and lobbying Congress to approve the proposal. Taking over the $30 billion in pension fund assets will ease the cash crunch faced by President Christina Kirchner's government., but it has jolted investor confidence and triggered a dollar outflow. ... Kirchner said her move to seize the private funds is designed to protect contributors from alleged mismanagement amid the global market crisis. But economists say it is aimed at replenishing government offers ahead of midterm elections and sizable debt payments coming due", my emphasis, Michael Casey and Matt Moffett at the WSJ, 28 October 2008.

"Congress has yet to approve Argentine President Cristina Kirchner's move to seize $28 billion of retirement savings to fund her cash-strapped government, but already the plan has produced a thicket of problems. One troubling reaction: Argentines are cashing their peso bank accounts and lining up to buy dollars at crowded exchange houses. The peso fell 7% last month, prompting the central bank to spend at least $1 billion to defend it. It's an ominous situation in Argentina, where the government and the currency collapsed in 2001 amid a frenzy of withdrawals", John Lyons and Michael Casey at the WSJ, 1 November 2008.

This is big news. Countries stealing pensions is old news. Despite what Walter Wriston, once Citigroup chairman said, countries go bust. I wonder if any Obama financial advisor has a similar plan for US 401(k) accounts? Nothing any government official of any country says should be taken at face value. Look at the US "Social Security Trust Fund" (SSTF). It does not exist. Kirchner's concern for Argentina's investors is touching. I have an idea for her: tell Zimbabwe Ben (ZB) she needs commodity prices to increase to avoid defaulting on Argentina's debts to US banks. We'll see how quickly ZB asks his handlers what to do. I wonder who told Kirchner to try to seize the pensions? A financial advisor who was "formerly" with say, Goldman Sachs?

Anyone with a pension plan, be warned. Argentina just "set an example" in showing the world how to seize your money. What gall, to claim the pension managers are plundering the plans.

I would like the WSJ to denounce the $700 billion bailout, like it has Argentina's proposed $30 billion pension asset theft. I hope Nancy Pelosi doesn't read about Argentina. It might give her ideas. How does Uncle Sam use the SSTF, if not for current outlays?

People who live in glass houses should not throw stones. The Economist should ask Badeni to look at Uncle Sam's solvency, or lack thereof.

I chose to believe the President of Argentina is lying.

Where will Americans go when Uncle Sam threatens them with asset confiscations similar to those contemplated by Argentina's "New Evita"? Hint: it's a four-letter word.

Citigroup's Argentina Bond Accounting

"Citigroup Inc. agreed to settle a lengthy federal investigation into its accounting of Argentina bonds during the debt crisis earlier this decade. ... In reaching the settlement with the [SEC], Citigroup agreed to cease and desist from future securities-law violations, a relatively light sanction. The SEC alleged Citigroup failed to keep accurate books and records and didn't maintain sufficient internal controls over accounting, but it didn't allege the New York bank committed fraud. ... We are very pleased to see this accounting matter from six years ago resolved with no fine or penalty,' said Citigroup spokeswoman Shannon Bell. ...The Argentina crisis saddled some banks, including Citigroup, with billions of dollars of losses. Many of the debt products at the heart of the currency credit crunch don't trade on public exchanges. And once the over-the-counter market for them dried up, banks turned to in-house models to value the debt. How banks came up with those models, what assumptions they used and how timely they were in taking losses are areas the SEC is interested in. ... The Citigroup case 'highlights the importance for all companies to make sure they conduct proper impairment analysis and use reasonable assumptions when they're valuing securities,' said Scott Friestad, co-deputy director of the SEC's enforcement division. 'In this instance, Citigroup failed to do that' when confronted with the crisis in Argentina. ... The SEC says Citigroup should have reported pretax losses between $236 million and $416 million, instead of the $82 million the bank reported", my emphasis, Kara Scannell and David Enrich (S&E) at the WSJ, 17 June 2008.

This is another SEC triumph for investors; a "cease and desist order", a nothingburger. Bell is pleased Citigroup got no "fine or penalty". Good. Look at Craig Giles (CG) fate, see my 25 June 2008 post. Was CG Citigroup's blood sacrifice to Mike Garcia (MG)? Should MG have thrown CG into a volcano's mouth? The SEC "alleged Citigroup failed to keep accurate books and records". Was that an FCPA violation? What's your opinion MG? Friestad indicates Citigroup did not "conduct proper impairment analysis". Do Friestad and the PCAOB think KPMG should have found this? If so, what will they do about it? Amazing, CG goes to prison over $2 million and Citigroup used its own models to justify not reporting at least $154 million ($236 - $82) in losses and no one is indicted, nor subject to a civil fine by the SEC.

Argentina and Indonesia Act

"Barely six years after Argentina committed the biggest sovereign-debt default in history and devalued its currency, locals and Wall Street investors are asking an unsettling question: Is is about to happen again? ... Nonetheless, troubling signs of financial panic have appeared. Middle-class Argentines are rushing to cash out savings accounts to buy dollars, a sign they think the government is in big trouble and the currency will plunge. ... The X-factor is Argentina's first family: President Cristina Fernandez de Kirchner, the irascible former president who many believe still calls the shots. With the government's popularity in decline amid a 23% inflation rate and a failure to end a farmers strike, concerns are mounting over the long-term sustainability of the Kirchners' populist policies. ... 'The objective probability of a crisis similar to those of the past is, in the Argentina of today, virtually nil,' Central Bank President Martin Redrado wrote in Sunday's La Nacion newspaper. ... Complicating matters, the government must still contend with the still-painful memories of the 2001 financial crisis, when a deperate government froze deposits, wipiong out the savings of many middle-class Argentines. ... 'There is no confidence in the Argentine financial system, period,' said Ernesto Bodenheimer, 59 years old, an activist who led an organization of bank account holders seeking access to savings frozen during the last crisis. 'The slightest noise and you get your money out.' ... We suspect that the authorities are under some pressure to engineer a devaluation of the peso in order to protect local industries from import competition,' Morgan Stanley economist Daviel Volberg said in a research note. 'This would of course be a high risk move'," WSJ, 19 May 2008.

"Indonesia increased fuel prices by almost 30%, a move that shows how Asian nations are grappling with the financial pressures of high fuel subsidies in an era of $130-plus oil. China, India and Malaysia face a smiliar dilemma. ... Indonesia's energy minister, Purnomo Yusgiantoro, said the government could no longer afford subsidies that have kept fuel prices here about half the level of the U.S. ... China's oil subsidy program stood at $8 billion in 2007. It was just 0.2% of gross domestic product, according to Citigroup. .. In India, fuel subsidies represent about 0.9% of GDP, according to Citigroup", WSJ, 24 May 2008.

Buy dollars? Are the Argentines nuts? Buy gold! Does anyone remember Walter Wriston, Citigroup head, 1967-84? He used to say, "Countries don't go bust". What a fool. I look at Argentina and see the US. We Americans see a commodities boom. I think it's a flight from the dollar. Congress is considering legislation to control "speculators" which some Congressmen think "unceccesarily" increase oil prices. Self righteous, arrogant fools. Are foreign exchange controls next? Does anyone remember 1963-74's Interest Equalization Tax? If you want commodity prices to stop rising, have Helicopter Ben (HB) "stop the presses!". Study the British pound devaluations, see my 27 September 2007 and 12 May 2008 posts. Argentines should ignore Redrado, just like Americans should ignore HB. US Congress take note. Why a "high risk move", Volberg? For whom? I think all US dollar denominated long-term bonds are a sell.

When all else fails, even governments act rationally. See my 22 May 2008 post. Eventually I expect most of the world's countries to end commodities subsidies. Who knows, maybe Congress will end food stamps?