To be realistic, we must recognize that the growth rate of the federal government has been accelerating and continues to accelerate under the current administration, while at the same time, the private sector continues to shrink. So the real question is “How will the government sustain itself?”
The logical solution would be for the government to do what we should all do, and that is learn to live within our means. Realistically, the government (ie most politicians) will never support such an approach for multiple reasons, including getting enough votes to secure re-election. Also frustrating this approach is the fact that US debt is becoming less attractive to foreign buyers (Source: Washington Post, April 7, 2010). So the only alternatives seem to be:
1. Print more money,
2. Generate more revenue by raising taxes, or
3. Discover new ways to access OUR assets.
Just to put the factual background, let’s go over what happened in Argentina. In 1902, Argentina was one of the richest countries in the world. At the time, the United States was the only country close to Argentina in terms of being the second most powerful economy in the world. Both countries were behind Great Britain.
In 1916, a new president was elected. The campaign appealed to the middle class and was based on “fundamental change.” The changes that were implemented included: “mandatory pensions, mandatory health care, and support for affordable housing…. to stimulate the economy.” These programs resulted in two important changes: (1) the government assumed more control over the economy, and (2) new taxes were assessed to finance the government’s efforts. Not surprisingly, after some time government payments exceeded taxpayer contributions.
Do you think this is starting to sound a lot like US entitlement programs, specifically Social Security and Medicare? If you’re still not worried, read on!
The situation in Argentina only got worse under the Perón administration when the target of all the rhetoric was first focused on the “rich” and then broadened to include the “middle class”. Under the Juan Perón administration, the government expanded rapidly, unions grew, and social spending accelerated geometrically. Long after Perón’s departure, the government continued to spend far more than it could afford, resulting in “hyperinflation” in 1989.
For 1994, the net result of all new income taxes, taxes on the rich, value added taxes, etc. totally crushed the private sector. In 2002, Argentina was experiencing an economic collapse much like the Great Depression in the United States.
In short, in a period of 100 years, Argentina went from the number two position in the world to a state of extreme poverty in which it could not meet its debt obligations.
Just think what would happen if the United States follows the same path as Argentina. As the Heritage Foundation reported on October 31, 2008, the president of Argentina “announced that she would go ahead with her plan to seize the nation’s private pension funds… the seizure of the funds is necessary to protect Argentines.” of the global market crisis. But most observers believe the real motive is to use the $30 billion in seized assets to relieve the massive debt obligations his… government has racked up.”
If our government took the same approach, perhaps more subtly, IRAs alone would provide access to around $4 trillion. Just think of how many new government spending programs, new czars, and new agencies that kind of money could support!
I must say that asset seizure is probably beyond the realm of probability in the US. Retirement asset seizure probably won’t happen, but it could end OUR freedom of choice regarding retirement savings, one bite at a time.
Consider the following:
1. The New York Times recently acknowledged that Social Security has already begun “paying out more in benefits than it receives in payroll taxes, a major threshold not expected to be crossed until 2016, according to the Congressional Budget Office.” .
2. The US Treasury has begun submitting proposals to provide various incentives to divert money to “government-approved investments.”
3. Based on a study finding that most Americans have saved too little for retirement to supplement their Social Security benefits, there are proponents in the current administration who propose forcing workers to save 5 percent of your income. Maybe not such a bad idea, except that it is further proposed that these savings go directly into a government-run “Guaranteed Retirement Account.” The net result of this proposal would be to leave you with less to control through an IRA. Also, you have to ask yourself: What would protect this account from ending up in exactly the same condition as Social Security?
I don’t know about you, but it seems to me that there is a bad wind that takes us all down the same path as Argentina. Keep your eyes open! Keep an eye out for the first step which will likely be naming the US Government Retirement Czar!
As an additional thought, if you can’t relate to Argentina’s history, take a close look at the growth of social programs in the European Union over the last 60 years, and see where they are today!
The timeline for failure seems to be getting shorter: Argentina took 100 years; it only took the EU 60 years. How quickly will the next country fail financially, and more importantly, could it be us?