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The Daily Reckoning

If Hugo Chavez can guarantee investment returns, why not Obama?

One professor suggests that the US allow people to trade in their 401(k) assets for a government guaranteed investment.

By Guest blogger / November 29, 2010

Venezuela's President Hugo Chavez speaks during an emergency cabinet meeting in Caracas Nov. 29. He has promised guaranteed returns to people who invest in government-owned industries.

Handout/Miraflores Palace/Reuters

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Back to Venezuela. Yesterday, we noted that old Hugo is promising to give investors guaranteed returns from government owned industries (including those recently expropriated from private owners).

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Well, if you want to make a lot of money by investing in foreign markets you should put your money where blood flows in the streets. And maybe Venezuela is getting close. It is the most mismanaged economy in the Western hemisphere – with the possible exceptions of Haiti and Cuba. In the past 12 years, it has exported nearly half a trillion dollars’ worth of oil. Yet, by all indications, the Venezuelan economy is falling apart.

Chavez has not been able to deliver on his promises. Key indicators – poverty rate, literacy, etc. – have generally improved, but not as much as in Mexico and other Latin American countries. And expropriations and continued rabble-rousing has scared off foreign investment.

Voters seemed to turn against Chavez in last month’s legislative elections, so the man has turned on the heat. More expropriations. More threatening rhetoric. More nonsensical policies.

We have not followed prices on the Venezuelan stock market, but brave investors might want to have a look.

But hey, if Hugo Chavez can guarantee investment returns, why not the US government?

It’s coming, dear reader.

Once again, we are grateful for the opportunity to see in real time such spectacularly stupid things as must make the gods weep. Or laugh.

When governments become desperate for money, they take it wherever they can get it. It’s probably just a matter of time before they begin to eye the American retirement system. They’ve been living on “excess” Social Security contributions for many years. That is, people paid more into the system than they got out of it. Until this year. Now the system is in deficit.

So, they’re bound to look at 401(k) and other retirement programs.

It was reported in the press that there was a proposal to seize these private retirement plans. Not so. But on October 7th, Teresa Ghilarducci, a professor at the New School for Social Research in New York, proposed to Congress that they introduce a program where workers could “swap their 401(k) assets…for a Guaranteed Retirement Account…that would be composed of the equivalent of government bonds that pay a 3% real return.”

How about that? A guaranteed return of 3%. Wait, is that AFTER inflation? Hmmm. Yep. That’s what the proposal calls for.

Another crackpot idea…but just wait. The feds will pitch it as a solution to the problem of negative returns in 401 k plans. After inflation, deflation, maybe even hyperinflation, and a bear market…these GUARANTEED returns will sound like a good deal. A guaranteed 3% ain’t bad.

This is, effectively, what Argentina did. It nationalized private pension plans to protect retirees! Could the US do it too? You bet.

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