Thursday, February 6, 2014

All That's Old Is New Once More

"A government bond is a certificate of guaranteed confiscation." -- Franz Pick

If you paid the least amount of attention to the news these past few days, you're aware of Barack Hussein Obama's bizarre "MyRA" proposal, ostensibly aimed at helping Americans without access to 401(k) plans to save for their retirements. The Won's proposed scheme would be least at first. And in contrast to Social Security "contributions" -- why yes, those are "sneer quotes" -- the money would be the property of the least at first. But the "savings" would be held in U.S. Government "securities," than which there is no less secure instrument in America.

The traditional small-saver "security" is the Savings Bond, but those haven't offered a rate of return above that of inflation for many years. If there's to be a new version, oriented toward the sort of accumulation of funds inherent in a confiscation scheme an automatic-savings system, new, higher-denomination instruments might be introduced for the purpose. Few, if any, savers without access to a 401(k) would be able to set aside enough per month to afford conventional $1000 Treasury bills.

One of the provisions associated with the Savings Bond is that its redemption is at the option of the federal government. The Treasury retains the option of saying, "Sorry, no, we decline to redeem your bond at this time." That provision depends upon the existence of "a state of national emergency," but whether such a condition exists is the decision of the federal government; the bondholder gets no say in the matter. Is there anyone out there who truly believes that new instruments would come with no such strings attached?

It all makes the "MyRA" scheme sound rather unappetizing, doesn't it? And anyone who can count above ten with his shoes on would realize that, once he was acquainted with the abovementioned facts. So why is Obama touting this?

Why, indeed?

Whenever a government "offers" something of this sort to the public, there's always the possibility that what starts as voluntary might later be made mandatory. When a government is as hungry for funds as ours has become -- note what it did with every penny ever paid in as Social Security "contributions" -- the odds are not in favor of continuing voluntarism.

When the revolutionary government of France first issued the assignat, in its initial attempt to "stimulate" the national economy through currency inflation, each assignat was both a medium of exchange and an interest-bearing note. But inflation has its own dynamic. As prices rose in response to the issue of new currency, and Gresham's Law caused gold and silver to disappear into private hoards, the government decided to change the rules. The first change was to eliminate the interest-bearing characteristic of the new currency. The next was to issue a new form, the mandat, which was "legal tender" sellers were compelled by law to accept. The price controls, forced loans, prosecutions of merchants who demanded hard money, and explosion of irredeemable paper that followed were important precursors to the rise of Napoleon Bonaparte. (Readers interested in a deeper acquaintance with this tragedy should read Andrew Dickson White's excellent treatise Fiat Money Inflation In France.)

This process is already well along in these United States. Indeed, Congress has already seriously entertained the confiscation of private pension funds, IRAs and 401(k) accounts:

Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers' personal retirement accounts -- including 401(k)s and IRAs -- and convert them to accounts managed by the Social Security Administration.

Triggered by the financial crisis the past two months, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly.

The testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers' retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration....

The current retirement system, Ghilarducci said, “exacerbates income and wealth inequalities” because tax breaks for voluntary retirement accounts are “skewed to the wealthy because it is easier for them to save, and because they receive bigger tax breaks when they do.”...

All workers would have 5 percent of their annual pay deducted from their paychecks and deposited to the GRA. They would still be paying Social Security and Medicare taxes, as would the employers. The GRA contribution would be shared equally by the worker and the employee. Employers no longer would be able to write off their contributions. Any capital gains would be taxable year-on-year.

The "MyRA" scheme can easily be seen as a camel's-nose-under-the-tent -- a gentle way of getting Americans accustomed to "saving" through the federal government, and eventually bringing about a regime similar to that advocated by Ghilarducci. But if your "savings" were in the hands of the federal government, how, exactly, would you go about compelling their disbursement to you? Leaving aside the obvious consequence that "saving" via a Treasury "security" means that Congress has borrowed and spent your money, and that to reimburse you would require either new taxes or the creation of still more fiat dollars?

I've been saying quite a lot recently that the federal government has proved that it cannot be trusted. This is especially the case in money matters. We all know about Washington's inability to balance its books, and about "off-budget" items that somehow elude the scrutiny of Congressional budget hawks. We're all familiar with the uncertainties attached to the Social Security program. We know all too well that Medicare is running out of money and will soon need to impose price controls, care rationing, or both to remain afloat.

The "MyRA" scheme is a straw tossed into the wind: a probe of Americans' degree of willingness to submit to still greater financial chicanery and supervision. If it receives popular support sufficient to propel it forward, what's likely to follow will not be pleasant. Nor would we be guaranteed time enough to withdraw our savings from the danger zone.

Be afraid.

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