Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
U.S. Economy Faltering Momentum, Debt and Asset Bubbles - 23rd Oct 14
Annuities - Afraid Your Money Will Vanish before You Do? - 23rd Oct 14
What Debt Deleveraging? - 23rd Oct 14
How to Profit from Massive Spin-Offs with Just One Play - 23rd Oct 14
Evaluating Ebola as a Biological Weapon - 23rd Oct 14
Euro, USD, Gold and Stocks According to Chartology - 23rd Oct 14
Why You Should Always Be Invested in the Stock Market (Even Now) - 23rd Oct 14
Five U.S. Housing Market Warning Signs Point to Real Estate Market Downturn - 23rd Oct 14
The Better Short: Gold or Silver? - 23rd Oct 14
Focus on Graphite Companies with Green Energy and Technology Strategies - 22nd Oct 14
Crude Oil Price Hitting Bottom - 22nd Oct 14
Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - 22nd Oct 14
Gold Or Crushing Paper Debt Stocks Crash? - 22nd Oct 14
India Gold Demand Surges 450% and Bank of Russia Demand At 15 Year High - 22nd Oct 14
Bitcoin Stock Exchange Could Be "More Valuable than Alibaba" - 22nd Oct 14
Currency War - How to Profit from a Stronger U.S. Dollar - 22nd Oct 14
Banks Hold Treasuries and Make Loans- 22nd Oct 14
Gold and Silver Timing is Everything - 22nd Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VII) - 22nd Oct 14
Follow the Baby Boom to Biotech Stock Profits - 22nd Oct 14
Copper, Nickel and Zinc Won't Be Cheap for Long - 22nd Oct 14
How Will We Know That the Gold & Silver Price Bottom Is In? - 21st Oct 14
Is Gold as Dead as Florida Hurricanes? - 21st Oct 14
First Swiss Gold Poll Shows Pro-Gold Side In Lead At 45% - 21st Oct 14
The Similarities Between Germany and China - 21st Oct 14
The REAL Reason Why the Stock Market Turned Down - 21st Oct 14
Petrobras is a 'Scheme, Not a Stock' - 21st Oct 14
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

Government Lobster Trap: 'Why Congress Invented Tax-Deferred IRA Accounts'

Politics / US Politics Mar 22, 2012 - 02:18 AM GMT

By: Gary_North

Politics

Best Financial Markets Analysis ArticleI hope you're tucked in. Get used to the feeling of being tucked in. Don't you feel safer now? Settle down. I'll tell you a story.

Once upon a time, there were two United States Senators. One was a Democrat. The other was a Republican.


They were very concerned. The government's deficit was up again this year. Of course, it was always up again, every year. But this was becoming a problem. It was making it harder to borrow money. Creditors wanted evidence that the government could pay its bills without facing the nasty trolls called bond vigilantes.

They had to find ways to bring in more revenues.

B. We've got to get more money out of them. Any ideas?

A. We can give them a tax deduction each year to invest money for their old age.

B. Why would that get more money out of them?

A. We'll tell them they can defer paying any income tax on the profits until age 70.

B. But then we can't get their money.

A. Sure we can. We'll borrow against it. We'll use their future tax payments as collateral.

B. You mean the old "full faith & credit of the United States" routine?

A. You've got it.

B. Then what?

A. We'll raise the tax rates later. We'll tell them it's necessary for debt reduction.

B. But we never reduce the debt.

A. Of course not. But the suckers always go for it. They'll pay more taxes "just this once."

B. So we can borrow even more.

A. Right.

B. But they may start hiding their profits. Money will get hard to collect.

A. That's the beauty of giving a tax deduction now. We will tell them they have to report whatever they invest in every year until they cash out.

B. So, they can't hide it.

A. Right.

B. I am beginning to understand this. How about this? We can tell them their money has to go into government-approved investments.

A. You're right. The investments must be Wall Street approved. We'll go to the Wall Street political action committees and ask for some advance money.

B. But can it really work? Won't the rubes know the taxes must be paid eventually?

A. That doesn't matter.

B. Why not?

A. Because they are present-oriented. They want their free marshmallow now. They will ignore that they can never get out without paying a tax.

B. You mean they will regard the money as theirs, tax-free, as long as they don't take it out, even when it's ours?

A. Yes.

B. You mean they will regard it as tax-free money forever?

A. Yes.

B. But why?

A. Because present-oriented people care nothing about the future. They care only about today. They will let us control what they do with their assets, because they don't want to pay the tax.

B. But they know they must pay the taxes at some point.

A. In theory, they will know this. Emotionally, they will ignore it. These people are like children. They really will let us have control of their money if they think they must pay us what they owe today instead of later.

B. In other words, once in the trap, they will never do anything to get out.

A. That's exactly right. We can leave the door wide open. All we need is a sign. "To get out, you must pay the tax, plus a 10% penalty." They will not get out.

B. I see another angle. When the government gets in a jam over the debt, Congress and the President can declare a national emergency. We will force the management firms to hand over the assets under their management in exchange for government-guaranteed retirement bonds.

A. Yes, we could. But what could the government do with all those confiscated stocks and bonds? It could not sell them. That would collapse their price.

B. We can do this before prices collapse. Then we can sell the stocks and bonds in our personal accounts. No one with government-approved retirement fund money will be able to do this.

A. I've got it. Johnny Cochran would put it this way: "The market will hold until we unload."

B. That doesn't rhyme well, but it does sound like Cochran.

A. Then we can tell the Federal Reserve to inflate. We can use the new money to pay off the retirement bonds. The money won't be worth much, but dollars are great for paying off fixed-interest rate bonds.

B. So, that eliminates the federal debt. We can start over.

A. But they probably won't go into tax-deferred retirement accounts again.

B. We'll think of something. We always do.

Now it's time for you to go to sleep . . . like 90% of the electorate.

Sweet dreams.

Gary North [send him mail ] is the author of Mises on Money . Visit http://www.garynorth.com . He is also the author of a free 20-volume series, An Economic Commentary on the Bible .

http://www.lewrockwell.com

© 2012 Copyright Gary North / LewRockwell.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

joe
22 Mar 12, 07:19
401k

You can pay the tax now if you roth your 401k and ira. What trick is going to happen then?


Rick
23 Mar 12, 11:35
Roth IRA's: Trick? or Treat?

Joe: The trick is that there is nothing to prevent the Feds from taxing Roth IRA's again. However, I do not believe that it will even reach that point as the Feds are probably going to move to confiscate most (or all) retirement plans soon. Those plans will be converted to government annuities, and who knows what the minimum age requirement will be then (for any access to those savings)?


TOM SAWYER
23 Mar 12, 18:51
IRA

Rick what would happen to all those pension plans set up by both private and public unions? I don't see the same scenario as you do. Politicians would be out on their ear the next election cycle and replaced with those who will return the money to those who saved. Secondly taking all that money out of the economy would sink it as retirees would not have the money to spend like they do now. As a group and demographically those in retirement and approaching retirement are the wealthiest and they number a bit more than the 1%.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014