Saturday, 07 September 2013

In Passing

Lightning on the horizon

Batten Down The Hatches!  Dept
While the world was glued to the developments in the Mediterranean.., Poland took a page straight out of Rahm Emanuel’s playbook and in order to not let a crisis go to waste, announced quietly that it would transfer to the state - i.e., confiscate - the bulk of assets owned by the country’s private pension funds... without offering any compensation.  ...While a change to state-pension funds was long awaited - an overhaul if you will - nobody expected that this would entail a literal pillage of private sector assets.
But why is Poland engaging in behavior that will ultimately be disastrous to future capital allocation in non-public pension funds (the type that can at least on paper generate some returns as opposed to ‘‘public’’ funds which are guaranteed to lose)?  After all, this is a last ditch step which no rational person would engage in unless there were no other option.  Simple: there were no other options, and the driver is the same reason the world everywhere else is broke too - too much debt.

By shifting some assets from the private funds into ZUS, the government can book those assets on the state balance sheet to offset public debt, giving it more scope to borrow and spend...
And of course, once Poland borrows like a drunken sailor using the new window of opportunity, and maxes out its new and improved limits, it will have no choice but to confiscate more assets, and to make its balance sheet appear better, until one day, there is nothing left in the private sector to confiscate.  At that point the limit itself will have to be legislated away, and Poland will simply continue borrowing until one day there are no foreign lenders willing to take the same risk as the nation's private pensioners.  At that point, Poland, which is in the EU but still has the Zloty, can just go ahead and monetize its own debt by printing unlimited amounts of its currency.

Of course, we all know how that story ends.
Prediction: This may be the first, but it won’t be the last.

[And there’s more to the story, so Read the Whole Thing.]

Oh, and how’s that 401K of yours doing, hmmmm?
Unconstitutional?  What’s that?

(HT: ‘‘Methos,’’ in Ace’s comments.)

Posted by: Old Grouch in In Passing at 00:05:22 GMT | Comments (1) | Add Comment
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1 I keep telling the wife not to gaze too lovingly at those 401(k) statements.  She won't listen.

Posted by: Nathan at 09/07/13 16:00:00 (cBrDo)

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