Tuesday, January 28, 2014

Tax Deferred Treasury Plan

You swore that you never would leave me, baby
Whatever happened to you
--Led Zeppelin

Of the many laughable proposals forecast to be floated by the president in his State of the Union speech tonite, none earned a greater guffaw from me than the proposal for a 'savings' plan that would allow people to buy Treasuries tax-deferred for retirement.


Sorry...hard for me to laugh uncontrollably and type at the same time.

Point one. Lending money to someone else (which is what you effectively do when you buy a bond) is not 'saving.' Saving is putting resources aside for the future. Lending is loaning resources (from savings) to someone else with expectations that you will get them + additional resources (interest) back in the future. When you buy bonds, you are not a saver; you are a creditor. Your savings go down and your risk profile goes up.

Point two. Lending your savings to the US government at this point in time virtually guarantees that you will lose at least part of the savings years from now that you put at risk today. This will occur thru some combintation of a) decline in the value of loan (bond price goes down), b) outright default (bond price goes to zero), c) covert default (inflation enables the govt to pay you back in devalued dollars).

Calling a T-bond purchase program a 'savings plan' is one of the better oxymorons that I have heard in some time.

Don't be the moron in this oxymoron.

1 comment:

dgeorge12358 said...

The trick is to stop thinking of it as 'your' money.
~IRS auditor