To be realistic, we have to recognize that the federal government's growth rate has been accelerating, and continues to accelerate, under the present 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 all should do, and that is to learn to live within our means. Realistically, the government (i.e. most politicians) never will support that approach for multiple reasons, including procuring enough votes to ensure re-election. Also thwarting this approach is the fact that US debt is becoming less attractive to foreign buyers (Source: Washington Post, April 7, 2010). Therefore, the only alternatives seem to be:
1. Print more money,
2. Generate more revenue through increased taxes, or
3. Figure out new ways to access OUR assets.
Just to set the background based on facts, let us review what happened in Argentina. In 1902, Argentina was one of the richest countries in the world. At that time, the US was the only country close to Argentina in terms of being the second most powerful economy in the world. Both countries were running behind Great Britain.
In 1916, a new president was elected. The campaign appealed to the middle class and was predicated upon "fundamental change." The changes that were implemented included: "mandatory pensions, mandatory health care and support for low income housing.... to stimulate the economy." These programs resulted in two major changes: (1) the government assumed more control over the economy and (2) new taxes were assessed to fund the government's efforts. Not surprisingly, after some time the government's payouts exceeded the taxpayers contributions.
Do you think this is starting to sound a lot like the US entitlement programs -- specifically Social Security and Medicare? If you are not getting concerned yet, then read on!
The situation in Argentina only got worse under the Peron administration when the target of all the rhetoric first focused on the "rich" and then broadened to include the "middle class." Under Juan Peron's administration, government went through a rapid expansion, labor unions grew and social spending accelerated geometrically. Long after Peron was gone, the government continued spending way beyond its means resulting in "hyperinflation" in 1989.
By 1994, the net result of all of the new income taxes, taxes on the wealthy, value added taxes, etc. totally crushed the private sector. In 2002, Argentina was experiencing an economic collapse very much like the Great Depression in the US.
In summary, in a period of 100 years Argentina declined from the number two position in the world to a state of abject poverty whereby they were unable to meet their debt obligations.
Just think what would happen if America follows the same path as Argentina. As reported by the Heritage Foundation on October 31, 2008, Argentina's president "announced she would move forward with her plan to seize the nation's private pension funds.... seizure of the funds is necessary to protect Argentinian's from the global market crisis. But most observers believe the real motive is to use the $30 billion in seized assets to ease massive debt obligations her... government has run up."
If our government adopted the same approach, perhaps on a more subtle basis, IRA accounts alone would provide access to about 4 trillion dollars. Just think about how many new government spending programs, new Czars and new agencies that amount of money could support!
I would have to say that seizure of assets is most likely is beyond the scope of probability in the US. Seizure of retirement assets probably will not happen, but eating away at OUR freedom of choice regarding retirement savings could happen one bite at a time.
Consider the following:
1. The New York Times recently recognized that Social Security already has begun to "pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until 2016, according to the Congressional Budget Office."
2. The US Treasury has begun introducing proposals to provide various incentives to divert money toward "government approved investments."
3. Based on a study conclusion that most Americans have saved very little for retirement to supplement their Social Security benefits, there are advocates in the present administration who are proposing to force workers to save five per cent of their income. Maybe that is not such a bad idea except that it is further proposed that these savings go directly into a "Guaranteed Retirement Account" run by the government. The net result of this proposal would be to leave less for you to control through an IRA. Moreover, you have to ask yourself, What would protect this account from ending up in exactly the same condition as Social Security?
I do not know about you, but it seems to me that there is an ill wind blowing us all down the same path as Argentina. Keep your eyes open! Watch for the first step which likely will be naming the US Government Czar of Retirement!
As an added thought, if you cannot relate to Argentina's history, take a close look at the growth of social programs in the European Union during the past 60 years, and look at where they are today!
The time line for failure seems to be shrinking -- it took Argentina 100 years; it only took the EU 60 years. How quickly will the next country fail financially, and more importantly, might it be us?
Mr. Newman has roughly 40 years of industry experience - 28 years as part of the Ford Motor Company management team, and more recently, as President and COO of the Strategic Alliances Consulting Group, Inc. His business background encompasses a broad spectrum of experience in various disciplines including purchasing, finance, product planning, export planning, business planning and international business development.
On behalf of Ford Motor Company and his other clients, Mr. Newman successfully negotiated a variety of joint ventures, licensing agreements, acquisitions and divestitures around the world. As President and COO of Strategic Alliances, he developed a strategic and business planning process that was implemented successfully at many automotive supplier operations in North America and in Europe, at a charitable organization and in several entrepreneurial business enterprises.
To read more about Mr. Newman's business insights on business alliances, negotiation and other must have business tips, read his Book, Beyond the Chicken Dance ( http://www.beyondthechickendance.com )
People believe that hunger and poverty exist only in developing and under developed nations. However, this is not true. There is still a lot...
A tongue-in-cheek warning is making the rounds: If an email offers you a functioning link to create an account on HealthCare.gov, it'...
Global Economies Are On Edge I know for many of us...news seems to be nothing more than presentation of a gathering of all the negative ...
I pretty much have everything I need to make my life happy and enjoyable. My husband is loving and good-natured, my children have found good...
he path towards destruction is slow. It starts with a slight, a twist of the tongue, a false accusation. The benefit of the doubt is forgo...
Designer, exclusive collection of leather handbags are marked as expensive ranges of handbags. Hence those repertoire of handbags are limite...
What's the cost of solar today? Well, it depends a great deal on where exactly you are located, but no matter where you're located,...
To be realistic, we have to recognize that the federal government's growth rate has been accelerating, and continues to accelerate, unde...
A song about people picking cotton was pulled from a middle school concert in suburban Detroit after a black parent complained that it glori...
Two years ago, Louisiana Gov. Kathleen Blanco signed off on a special taxpayer-funded assistance program for military families, but not a si...