Best of the Week
Most Popular
1.War on Cash, Bank of England Planning Hyper QE, Scrapping Cash for Digital Currency - Nadeem_Walayat
2.Stock Market End Run Smash Crash Looks Imminent... - Clive_Maund
3.Europe Refugee Crisis, UK to Repatriate 120,000 Hungarian Economic Migrants Back to Hungary - Nadeem_Walayat
4.The Great Deflation Will Destroy All Bubbles – These Too - Harry_Dent
5.Deflation Signals Abound for U.S. Dollar, Forex Markets and Commodities - Rambus_Chartology
6.U.S. Housing Market Two Outs in The Bottom of The Ninth - James_Quinn
7.Poland, Czech, Slovakia and Hungary Refugee Hypocrisy After Flooding UK with 4 Million Economic Migrants - Nadeem_Walayat
8.The Two Real Reasons Crude Oil Prices Are Currently Slipping - Dr. Kent Moors
9.R.I.P. Interest Rates - Andrew Snyder
10.Steps from a Deep October Stock Market Selloff - Bob_Loukas
Last 5 days
Gold And Silver – A Reality Check - 3rd Oct 15
Stock Market Primary IV Still, or Primary V Underway? - 3rd Oct 15
The Oil Industry’s Day of Reckoning - 3rd Oct 15
U.S. Interest Rate Hikes Keep On Slippin' Into the Future; Treasury Yields Sink Again - 3rd Oct 15
China's Stock Market Crashing; Time for Panic or Restraint - 3rd Oct 15
SPX Stocks Bulls Struggle to Regain the Upper hand... - 2nd Oct 15
The Two Faces of Stock Market Volatility - 2nd Oct 15
Money Supply and the Fed’s Serious Inflation Risks - 2nd Oct 15
Stock Market How Bad Can This Get, And How Fast? - 2nd Oct 15
A Worrying Set Of Recession Signals - 2nd Oct 15
Negative Jobs Report Sents SPX, TNX Lower - 2nd Oct 15
Don't be Fooled by the Recent Equity market Rallies. Its a Bear Market, Stupid! - 2nd Oct 15
US Bond Market - How to Fix This - 2nd Oct 15
Survival Secrets from Colorado Resource Investing Front Lines - 2nd Oct 15
What Two Risks From Rising Interest-Rates Could Each Trigger A New Global Crisis? - 1st Oct 15
Stock Market S&P 500 Volatility-Based Price Probability Range - 1st Oct 15
Dow Stock Market About To Crash Like October 1929? Get Your Physical Silver - 1st Oct 15
Stock Market Negative Expectations Once Again - Will It Break Down? - 1st Oct 15
Advice for Biotech Investors: 'Hold Your Powder' 'til Winter - 1st Oct 15
Best Short-Term Commodity Market Opportunities - Video - 1st Oct 15
The Coming Corporate "Crime Wave" - 30th Sept 15
Stock Market Retracement May Have Run Its Course - 30th Sept 15
A Stocks Bear Market Is Now More Likely Than Not - 30th Sept 15
The Killer Ape, Human Evolution, Artificial Intelligence and Extinction End Game - 30th Sept 15
Junk Bond Market Imminent Collapse Threatens (Unwelcome) BIG Rate Rises - 30th Sept 15
Stocks: Why Following the Crowd is Usually a Big Mistake - 29th Sept 15
This Stocks Bear is Just Waking from Hibernation - 29th Sept 15
Interest Rates All Bad at 0%? - 29th Sept 15
If Stocks Can't Hold These Levels, We'll Have a Bear Market - 29th Sept 15
7 Bullish Gold Price Indicators - 29th Sept 15
Crude Oil Price Is Going to Fall by 50%… Again - 29th Sept 15
SPX Triggers a Amall Head & Shoulders Formation - 28th Sept 15
Stock Market Bubble Balloons in Search of Needles - 28th Sept 15
Gold and Silver, Precious Metals Complex Getting Interesting - 28th Sept 15
Economic Channels of Distress - Fourth Turning Crisis of Trust - 28th Sept 15
Stock Market Testing Important Levels - 28th Sept 15
Stock Market Going Down, Gold Chop Continues - 27th Sept 15
Stock Market Primary Wave IV Inflection Point - 27th Sept 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

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

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

By: Gary_North


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 . He is also the author of a free 20-volume series, An Economic Commentary on the Bible .

© 2012 Copyright Gary North / - 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.

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


22 Mar 12, 07:19

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

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)?

23 Mar 12, 18:51

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

Biggest Debt Bomb in History