Among the pointless ceremonial activities that the federal government undertakes, State of the Union addresses are about the most egregious. We can do this by numbers:
- President says a few platitudes
- His party applauds
- The other party doesn’t
- If the Speaker of the House is of a different party, he has the toughest job of all. Seated behind the President, the Speaker has to show slight indignation at the party-line tripe being spewed mere feet in front of him, but not such effrontery that he becomes the focus of attention. Thus, the introduction of a prop, the inkstand, to distract viewers from his facial gesticulations.
The whole speech was platitude upon platitude, as if a) you were expecting anything else, 2) the President’s speechwriters were capable of writing anything else, iii) the public is going to sit through an hour, 5 minutes and 7 seconds of anything that requires conscious thought. Fortunately for us, committed to providing you with new blog posts 3 times a week, the President delivered a personal finance aside:
[T]omorrow I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in.
First, the MyRA is an account, not a “savings bond.” A savings bond can be a component of an account, but we never went to Occidental College. The MyRA is a glorified way of offering government debt and guaranteeing the slightest of returns to the investors who are most in need of growth, rather than wealth preservation.
The MyRA is a Roth IRA (you pay taxes when you contribute, not years later when you withdraw, making it the inverse of a traditional IRA) with a twist. The twist is that the MyRA consists of nothing but short-term T-Bonds. (Check out the 10-year T-Bond rate, 3rd column from the right, and see how many of the annual yield numbers beat 3%.) T-Bonds are a fantastic, safe investment if safety is your primary goal. Safety sounds good to the greenhorn, as it conjures up images of an impregnable front door, an ADT dispatcher on call 24/7, stepping on home plate triumphantly, or being wrapped in the clutches of a large masculine loved one. But if you haven’t got a retirement plan yet, and you want to spend your golden years doing something other than staying in an assisted living facility and hoping that tonight’s dinner entrée will be easy to chew, loading up on T-Bonds isn’t going to get you there.
You know who buys T-Bonds? Institutional investors, looking to move money out of one investment and into another. You know which individuals buy T-Bonds? No one. The returns suck. We defy a single reader to show us proof that they own more than $1000 in T-Bonds.
Wednesday night, the President conveniently neglected to mention the continuing rise of the deficit. A greater negative national balance means the Treasury needs to issue more debt, i.e. T-Bonds. But how to attract more investors to buy those T-Bonds? The Treasury could always increase the interest rates, but our biggest creditors - China, Japan and the UK – are already saturated with U.S. government debt. Or, the White House and its fiscal policy arm, the non-autonomous Treasury Department, could aggressively encourage employers to offer MyRAs.
Opportunity costs. You can’t spend (or save) the same dollar twice. Every one directed toward a MyRA is one fewer dollar invested in the stock market. Good, those greedy corporate Wall Street pigs already have enough of our money. Oh wait, stock returns have consistently outpaced bond returns over the length of the typical investor’s career? Never mind, then
Even worse, MyRA contributions will not be indexed to inflation. That’s what TIPS, Treasury Inflation-Protected Securities, a different kind of Treasury issuance, are for. Subtract the inflation rate – even the official inflation rate, which shaves a point or two off the real rate – and you’ll find that the MyRA doesn’t do a thing to help disenfranchised working Americans save for retirement. And again, should you want a MyRA, you’ll pay the taxes on these contributions up front.
Getting MyRAs to work – i.e., the government getting sufficient interest in them from investors – necessitates the invention of not merely a straw man, but a straw group. That’d be the poor working people, simple folk just trying to put bread on the table, but prohibited from doing so because…what’s a good, believable reason? How about “Their employers don’t offer 401(k)s”? Boom, this is easy.
The returns on the MyRA are not only minimal, and possibly negative even without factoring in taxes, the absolute last people they’re designed for are the “working families” whom the government continues to simultaneously lionize and condescend to.
If you make modest money, and your employer doesn’t offer a 401(k), open your own IRA. Do it at Vanguard, TD AmeriTrade, whatever. And for God’s sake, don’t invest it in T-Bonds. Also, pay off your consumer debt first.
Last night, a poster at Free Republic joked that given “that the market is run by absolute idiots,” the only tangible benefit the MyRA will make will be to increase the stock price of over-the-counter issue Myriad Entertainment & Resorts (symbol: MYRA). First publicly traded 17 years ago, Myriad plans to someday open a casino in Tunica, Mississippi, a/k/a the Redneck Riviera. Sure enough, after not breaking past 1¢ a penny for years, yesterday morning MYRA rose to 10¢ in an hour, more than doubling its previous all-time high.