Best of the Week
Most Popular
1.Dow Stock Market Trend Forecast 2015 by Nadeem Walayat - Nadeem_Walayat
2.Gold And Silver – Forget The News. Silver $12 – 14? Gold $1,000 – 1,100? 5 - Michael_Noonan
3.A TOP Formation In Apple Inc. - Crash Condition Signal Recorded - David Harris
4.Gold Gets Safe Haven Bids But COMEX Has Stopping Power - GoldSilverWorlds
5.The Swiss 10-Year Bond Illustrates Central Banks` Flawed Monetary Policy - EconMatters
6.Exponential Explosions in Debt, the S&P, Crude Oil, Silver and Consumer Prices - DeviantInvestor
7.“Forgive Us Our Debts” – Only Way To Prevent Economic Meltdown - GoldCore
8.Is Russia Planning a Gold-Based Currency? - Marcia Christoff-Kurapovna
9.Stock Market Trend Forecast 2015 Video - Nadeem_Walayat
10.Gold GDX ETF Technical Analysis - Austin_Galt
Last 5 days
Don't Let This Stock Market Myth Cost You Your Gains - 28th Feb 15
Recession is On The Way; Beat The Stock Market Crowd, Panic Now! - 28th Feb 15
Stock Market Indexes Creeping Towards the Edge - 28th Feb 15
GGD Going for Mexican Gold - 27th Feb 15
Foreign Real Estate Is the New Swiss Bank Account - 27th Feb 15
10 Reasons Washington Has War Fever - 27th Feb 15
Gold and the Euro Tragedy, Iraq 3.0, Ukraine Conflict Three Ring Circus - 27th Feb 15
Deepak Chopra - New Age Genius or Bullshit Expert? - Video - 27th Feb 15 - Videos
New Greece Drachma Revealed Amid Bank Runs - Greeks Buy Gold Sovereigns - 27th Feb 15
Will Month Long Stocks Rally Continue? - 27th Feb 15
The Only Public Hedge Fund You Should Own - 27th Feb 15
UK House Prices Trend 2015 and the May General Election - 27th Feb 15
Why America is Ungovernable - The Republicans’ Civil War - 27th Feb 15
Gold vs Gold Stocks: Bullish Anomaly Developing? - 27th Feb 15
I Heart Capitalism, Nasdaq Stocks, Then And Now - 27th Feb 15
The Fed’s History of Assassination - 27th Feb 15 i
Gold Bull Market Forecast - Money Will Rotate Into These Dead Investments - 27th Feb 15
"Audit the Fed"? We've Already Done That (Well, Kind of) - 26th Feb 15
Forget Peak Oil; Worry About Peak Demand - 26th Feb 15
Currency Wars, Again - 26th Feb 15
The Fed Waited Too Long: Here Comes Inflation - 26th Feb 15
Investing Inertia Won’t Keep Your Cash Safe - 26th Feb 15
The Net Neutrality Scam - 26th Feb 15
Will Conservatives Out of Control Immigration Crisis Boost UKIP Election 2015 Prospects? - 26th Feb 15
EU Warns Ireland and Euro Zone of Debt Dangers - 26th Feb 15
Commodity Prices Set To Plunge Below 2008 Lows - 26th Feb 15
Ukraine Hyperinflation as Currency Plunges 44% in One Week! - 26th Feb 15
The State of the Global Markets 2015 - 53 Page Report - 26th Feb 15
NASDAQ New 15 Year High - Stock Market Death By Overdose - 25th Feb 15
12 Reasons Why Barry Ritholtz and Many UK Experts Are Mistaken On Gold - 25th Feb 15
Sugar Commodity Price To Sweeten Up - 25th Feb 15
Investor Profits from China 2,000-Year Unstoppable Trends - 25th Feb 15
How to Borrow Cheaply from a Government-Owned Bank - 25th Feb 15
Debt Be Not Proud - 25th Feb 15
Liberal Democrat Election Blood Bath - Could Nick Clegg Lose Sheffield Hallam? - 25th Feb 15
Wheat Commodity Price Technical Trend Forecast - 24th Feb 15
Bitcoin Price Might Stay below $250 - 24th Feb 15
Another Important Stock Market Inflection Point Approaching - 24th Feb 15
Gold: The Good, Bad, and Truly Ugly - 24th Feb 15
Eurozone Gold Holdings Increase to 10,792 Tonnes As “Reserve of Safety” Amidst Crisis - 24th Feb 15
Bird Doo; Yellen Goes to Congress - 24th Feb 15
Is Gold Investing Risk Free? - 24th Feb 15
The Bull Case For Gold Price 2015, and the Bear - 24th Feb 15
Europe - The Intersection of Three Crises - 24th Feb 15
Gold Price Just Needs More Time - 24th Feb 15
Gold Price Downtrend Looks Set to Continue - 23rd Feb
Silver Price Depressing Downtrend Will Eventually End - 23rd Feb 15
5 Reasons Why You Should Sell Amazon Stock - 23rd Feb 15
Global System Catastrophe Is Key Threat To Human Civilisation - 23rd Feb 15
Greece Crisis Yields Ideal Market Opportunities - 23rd Feb 15
Gold and Silver Stocks or General Stock Market Indices? - 23rd Feb 15
Swimming With Sharks: Goldman Sachs, Schools and Capital Appreciation Bonds - 23rd Feb 15
Stock Market - The Fed Still Has Your Back - 23rd Feb 15
Soybean Commodity Price Technical Outlook - 23rd Feb 15
Gold Weekly COTs and More - 23rd Feb 15
Stock Market New Highs With Weak Breadth - 23rd Feb 15
Greece Surrenders to Troika - 22nd Feb 15
This Greek Tragedy is a Global Farce - 22nd Feb 15
Copper Commodity Price Technical Outlook - 22nd Feb 15
U.S. Dollar and Investing in Gold Stocks - 22nd Feb 15
Is Putin's Russia Ready For Total Economic War With the West? - 22nd Feb 15
Stock Market New All Time Highs - 22nd Feb 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The State of the Global Markets 2015

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.


© 2005-2015 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