SAVE (sāv)

With the impact of the economic crisis hitting close to home, I've had the opportunity to think about how a crisis like this can happen. It is clearly a very complex issue, with many different causes, but I believe that there is at least one very interesting comparison. The growth in the economy has occurred in parallel with the expansion of our 401k programs. Is the expansion the cause or the result of this growth? I would speculate that the answer includes a little bit of both.

We employees and employers have been putting our monies into these retirement instruments at incredible rates, literally pouring money into the stock market. The Investment Company Institute projected that 1.4 trillion dollars of 401k assets were in the stock market by years end 2007. That figure doesn't include any other retirement savings plans, not even IRA's.
Why have Americans been investing their savings for retirement into speculative markets? Primarily for two reasons. First, the stock market has historically created more profit and more wealth consistently over a long period of time than almost every other financial vehicle. Second, by taking advantage of the deferred tax allowance in the 401k, greater wealth and profit can be amassed for retirement.

But something is different. The majority of 401k money is mindless money. By that, I mean, the majority of participants in a 401k plan select stocks, bonds, mutual funds and other sources available to invest their future in, without knowledge of what they are doing. Clearly, the majority of participants are unqualified to make these selections and thus are more than speculating, they are gambling. Each year, participants place their bets and each pay period that bet is made over and over again. Making the same bet over and over again is not very bright, but it is what participants are doing. It's mindless.

So, mindless money is going to the market. A giant firehose of money each pay period is going to fund managers and those fund managers are required to buy stocks with that money. At some point, the market becomes saturated and the fund manager has to buy stock at a rate that is higher than the actual value of the company associated with the stock. This is where fear and greed shows up and where values disintegrate and where mindless money damages the markets.

OK, so a problem is defined, what next? If values are changing and we as citizens are working together to share the responsibility to rebuild our country, many options exist that honor that change. There has been recent grumbling at the highest levels of our government about changing our retirement plans to government sponsored retirement accounts and ending the tax breaks. That's ridiculous, but requiring that new investments in 401k or IRA plans be made in Treasury Bonds, Treasury Bills, State, and Local Bonds to keep the tax incentive to save for retirement makes a lot of sense in the current economic state.

Requiring investment in government obligations for a tax break will allow private sector stocks to stabilize and provide the equity necessary to fund the infrastructure that will support sustainable growth in the US economy. At the same time, each pay period, the giant firehose of 401k money would be buying back for the American people the assets currently being held by foreign investors. If this approach is implemented correctly, the investment in infrastructure would include mass transit systems and sustainable alternative energy projects that would ultimately assist in cutting off our dependence on foreign energy. This is consistent with the Progression.