Back in 2000 I wrote Becoming Your Own Banker — The Infinite Banking Concept and in it I briefly addressed the subject of retirement plans and specifically Tax-Qualified Retirement Plans. Since that time it has become more apparent to me that this idea needs to be addressed more fully. Americans have become increasingly dependent on an idea that is defective and won't work. Basically, it is a Socialist idea and history has proved conclusively that Socialism won't work.
There is a fundamental reason that this is so, that most people fail to recognize. To make my position on this subject perfectly clear let me state that, as of this writing, I am 78 years old. I have been a Christian since age 9 and have studied the Bible through and through during these years. I have also studied, with a passion, the teachings of the "Austrian" school of economics for over 52 years. From this background it is very evident to me that all government programs are nothing more than a manifestation of man trying to play God, in the pagan sense of the word. The book of Exodus in the Bible tells you that God is a jealous God. He won't put up with such efforts by man trying to displace Him in the order of things.
All government programs are initiated under the guise of "helping" citizens – when the real object is to control their lives. There is always the "hidden agenda" that is never stated. And Americans swallow the apparent immediate benefit, never realizing that there is a hook in that bait. In fact, as a student of Austrian Economics, if you give me the mission statement of any government plan I can predict, in due course, the eventual outcome with absolute certainty. As Shakespeare said, "The Truth Will Out." Just give it enough time. But man sees things over a very short time span as compared with that of God. His time table and ours are different.
All such efforts by man eventually fail but they do so over a long enough time frame that man does not see it happening to him. He is subject to the "boiled frog syndrome." Put a frog in water his temperature and he is comfortable. Add a tiny bit of heat and he is still comfortable. He gets used to it. Add a tiny bit more and he is still comfortable, etc. Keep that process up and you can boil him! Now, I don't know whether that is true or not, but it is a great word picture of what has happened in the economic world of America.
Another object of this writing is to demonstrate that we live in a world of lies! Everywhere we turn we are confronted with lies to the point of not being able to recognize this fact. John Stossel wrote a book in the recent past entitled Myths, Lies and Downright Stupidity in which he demonstrates this truth. Napoleon Bonaparte is credited with the observation, "History is lies agreed upon."
Just a few days after September 11, 2001 Stephen Yates, a Philosophy Professor affiliated with the Ludwig von Mises Institute wrote an article on LewRockwell.com about a book he had read recently where the two authors had predicted that something like 9/11 was going to occur somewhere about that time frame — give or take a couple of years on either side — that would change the world forever. Has the world changed since that time? Unless you are a "boiled frog" just look at what is happening all around you. Try taking a trip in an airplane. The world had changed significantly! All kinds of nonsense is going on under the supposed mission of protecting us.
The authors pointed out, go back 70 (+/–) years and you have The Great Depression. The world changed and has never been the same. Go back another 70 (+/–) years and you have The War of Northern Aggression — known to some as The Civil War. That was no civil war — a civil war is when two or more factions fight for control of a country. Jeff Davis, et al., in the South had no designs on taking over Washington, D.C. and running this country, no more than George Washington, et al., had in taking over London, England some 70+ years earlier. To the contrary, in both cases — they wanted to get away from the oppression of outrageous taxation! But, there is the ever-present hidden agenda that can be exposed only by historians who look deeply enough in the archives to ferret out the truth — more evidence of the fact that we live in a world of lies.
At that time the United States lived under a tax system of tariffs on manufactured goods. The South was an agricultural economy and the North was based on manufacturing. As a result 85% of the taxes were being paid by the South. Would you guess where the money was being spent? In the North, of course! If you lived in the South and were the least bit conscious of what was really going on, you would probably be a bit ticked off at this situation.
The taxes were being spent on corporate welfare — railroads, canals, internal improvements. The platform on which Lincoln ran for election was a high tariff, internal improvements, and a central bank. Henry Clay was Lincoln's idol and he labeled it The American System. It was a mercantilist economic plan based on the “American School” ideas of Alexander Hamilton, expanded upon later by Friedrich List, consisting of a high tariff to support internal improvements such as road-building, and a national bank to encourage productive enterprise and form a national currency. This program was intended to allow the United States to grow and prosper, by providing a defense against the dumping of cheap foreign products, mainly at the time from the British Empire
That so-called Civil War was not about slavery — it was about taxation. Read Tom DiLorenzo's book, The Real Lincoln. Read his follow-up book, Lincoln Unmasked. Read Charles Adams' book, When in the Course of Human Events. Read Lerone Bennet's book, Forced Into Glory. Finally, read Emancipating Slaves, Enslaving Free Men: A History of the American Civil War by Jeffrey Rogers Hummel. When you have finished these books you will begin to see more clearly the hidden agenda that is ever present in any government activity.
Continuing with the train of thought by Stephen Yates — go back another 70+ years – I have forgotten what happened. Then go back another 70+ years – I forgot that one, too. But the pattern is there! You can count on it — every 70 years or so something significant happens that changes the world in which we live.
So, I e-mailed Stephen immediately and brought to his attention that the Soviet Union came apart after 70 years. In my book, Becoming Your Own Banker I had predicted back in 1976 that Social Security would fail. Before it fails they will attempt to prop it up. The source of funds they will use is reserves on private pension plans, HR-10 plans, IRA's, et al. People laughed at me but in less than a year the first "trial balloon" went up that this is possible. And now, it is common knowledge. In early October 2008 the incoming administration had personnel discussing confiscation of all such plans and combining them into a Guaranteed Retirement Account, or some name like that. See this website. See how the "boiled frog" syndrome works? One small deviation from tried and true principle and people become comfortable with it. It becomes "normal." This leads to another deviation, etc., etc. etc. In due time it will lead to a complete U-turn in behavior and acceptance. The Constitution of the United States is a perfect example. It started out based upon proven principles, but now I'm sure that at least 90% of what goes on in Washington, DC has no basis in the Constitution at all.
Anyway, Social Security in the U.S. started in 1937. Do the math. We are overdue. Any day now it will self-destruct. But the easiest thing the government can get to in order to try to keep the Ponzi scheme alive is to confiscate the reserves on all the other tax-qualified plans. It is the largest block of securities in the world and so it will be irresistible to government authorities.
And for you Bible scholars, in the Old Testament the Israelite nation ended up back in slavery. In the book of Jeremiah he predicted they would be there for 70 years. They were only there for 68 years — but that's close enough for government work!
All the tax-qualified retirement plans are a function of the IRS Code — which has only been around since 1913. The world got along very well before income tax. We had surpluses in the national budget before then. Wise men told us what would happen when a country gets in income tax — and we see the results in spades now!
Before World War II there weren't many pension plans. According to the Congressional Budget Office website. The Revenue Acts of 1921, 1926, and 1928 initiated tax advantages for employment-based retirement plans. By 1929, about 15 percent of private-sector employees were covered by employment-based plans, which were concentrated in large corporations and in sectors in which government oversight tended to be the strongest.
And, then along comes WWII. I was a teenager at that time and very aware of what life was like. When you went to buy gasoline in those days it did not matter how much money you had — the limiting factor was — do you have an A, B or C sticker on your windshield of your car. A bureaucrat in Washington knew how much gasoline you needed. This is an emergency! We have a war going on! Never mind that we had no business being involved in that war. For a starter on this subject read Churchill, Hitler, and “The Unnecessary War”: How Britain Lost Its Empire and the West Lost the World by Patrick J. Buchanan. Then read The New Dealer's War by Thomas Fleming. And The Roosevelt Myth by John T. Flynn. Also, The Pearl Harbor Myth by George Victor.
More evidence that we live in a world of lies. And we conduct our lives on the basis of that erroneous understanding.
When the housewife went to the grocery store, it did not matter how much money she had. The limiting factor was another form of money called "ration points" and even with both these items she could only buy so much meat, so much butter, so much of this, so much of that. Everything was controlled! Frozen! A Socialist paradise!
And so were wages. You could not give anyone a raise! Well, under such restrictions, how does a business give an employee a raise without giving him a raise? Benefits, of course! This marked the real beginning of Retirement Plans and Health Plans that were tax-qualified. It only applied to corporate employees. This is an exception to the IRS Code, which was adopted in 1913. The USA didn't declare war until December 1941. In 1950 Paul Poirot at the Foundation for Economic Education wrote an essay entitled, The Pension Idea in which he demonstrated conclusively that the idea would never work. And here we are, early in the 21st Century and we see corporate pension plans falling apart with increasing rapidity.
After WWII sole proprietors and partners noticed that because of pension plans corporate employees had a tax advantage over them. So appeal was made to the authorities, "We need a tax-break, too." The result was the creation of Keogh Plans (HR-10 plans). Initially, participants in this category could contribute $2,500 per year to such a plan. "The contribution will be taken off your income for tax purposes this year. It will build tax-free until your retirement age — and you are going to be in a lower tax bracket at that time!" Of course, when you look at the history of the IRS Code and all the changes that have taken place — and you can rest assured there will be changes in the future — none of them to your advantage. The sole proprietors and partners agitated more and the contribution limit was raised to $7,500 per year.
More time passed and the balance of the population said, in essence, "Wait a minute, you authorities have blessed the corporate employees with a tax-break, you have blessed the sole proprietors and partners with a tax-break — what about us? Give us a tax-break, too!" And so, along comes Individual Retirement Accounts. How was the idea sold to Congress? The rationale went something like this — the savings rate among everyday Americans is decreasing — our capital base is eroding! If we will give these folks a tax-break then they will start saving more and we will solve this problem. Of course, the amount of the contribution was limited, too.
What was the result? The savings rate actually went down! Naturally! All you have to do to understand this phenomenon is watch this TV commercial in Birmingham, AL years ago by Jefferson Federal Savings & Loan. (By the way, they don't exist any more, along with thousands of other savings & loan organizations). Ron Eason, their public relations man is sitting in a big easy chair, coffee mug in his hand before the blazing fireplace. He looks you squarely in the eye and says, "How is your retirement plan doing? Mine is fixed! I have an IRA at Jefferson Federal Savings & Loan. Do you know that for as little as $10 per month you can start an IRA there. Your contribution will be taken off your income for tax purposes and it will build tax-free until your retirement time, and you will be in a lower tax bracket at time?"
What did Joe SixPack conclude as a result of watching this commercial? He says to himself, "Wow! With a plan that good, I don't have to save half as much as I did before! I can take the difference and make a down payment on a boat!" And so, the savings rate went down. During that era, for two successive years, when I got my New York Life annual statement for premiums due, there was another letter from the president of the company explaining how the savings rate had gone down.
And so, following this chain of events — pension plans, then Keogh Plans, and finally IRAs and 401-Ks — now everyone has an exception to the IRS Code! All of these plans are a function of the IRS Code! Consider then, this reasoning — when government creates a problem (onerous taxation) and then, turns around and grants you an exception (any tax-qualified plan) to the problem they created — aren't you just a little bit suspicious that you are being manipulated? All of these plans were introduced as a means of helping citizens out. If they really wanted to help, all they had to do is reduce the taxes! Do you really think they want to do that? The real object is to control your life!
Does this help you to see the hidden agenda that is always there in any government program? The best way for them to accomplish this goal is to make you dependent on them for sustenance. There is a tremendous element of dependence in the act of worship. You will worship that on which you are dependent. They sell these mind-crippling ideas through the use of lies!
Along this chain of thought — when I got out of the Air Force in 1954 and went to work in the civilian world did you know that Social Security did not apply to Farmers? It did not apply to Doctors, Lawyers, and Clergymen, either. One by one, they succumbed to the siren song of dependence on government.
As of the time of this writing, students currently graduating from religious seminars can opt out of Social Security. Years ago, when I was in the life insurance business I convinced three young seminary graduates to opt out and simply put what they would have to put into SS into high-premium whole life insurance with a Mutual Life Insurance Company. The results would be far better than any alternative. After several years of doing so, all three fell by the wayside, a victim of the siren song of government dependence. The deciding factor was the introduction of Medicare. When it came into existence it was tied to SS — one could not be covered for Medicare without being covered by SS. They just couldn't visualize life without Medicare! The world got along very well without SS, Medicare and hundreds of other government programs for years but the hidden agenda of government methodology combined with the "boiled frog" syndrome has plunged America into a one-way trip to disaster. All empires fail — and so will this one.
When Christian leaders (Clergymen, Pastors, Church Leaders) don't understand the connection between the act of worship and the concept of dependence, isn't this a time of impending disaster? They claim to profess worshiping God but can't visualize life without a government program! Back them into a corner by suggesting that SS, for instance, be terminated and you will see who they really worship. Their behavior tells the truth of the matter. Americans are "captives in Egypt" in slavery and don't know it! Once you take a handout from a government program, it does something to your mind. You can't think straight — and you become a slave.
Figure 1 More evidence to help you visualize why Social Security will ultimately fail.
In figure 1 you are looking at a graphical representation of a 1958 Commissioners Standard Ordinary Mortality Table — the pattern at which people died at that time. In constructing such tables Actuaries are dealing with a population of 10,000,000 selected lives — people who have been through a screening process. They have passed a physical exam and are judged to live until normal life expectancy. And, until recently they were dealing with a theoretical lifespan of 100 years. The graph you see is extracted from that data. Out of the 1,000 born at that time, 10% were projected to die by age 45. Out of the remaining 900 twenty five percent were expected to die by age 65. Seventy five percent were expected to die after age 65. So, it is evident that most of the deaths occurred after age 65.
Let's take time out here and examine where this weird idea of age 65 came from. The idea of retirement is a relatively recent concept. Nowhere, to any degree, in history is the word even mentioned. I have studied the Bible through and through for many years and can't find anywhere that "… and so, Moses retired and lived happily thereafter." Basically the idea started in Germany about 1890 with Bismarck. These were the folks that gave the world the idea of retirement.
Bismarck set retirement age at 70. In 1916 it was reduced to age 65. In 1890 life expectancy for Germans was about 45, so you see, it was probable that the average person would never collect anything. Anyway, this is where Roosevelt (FDR) got age 65 for our Social Security in 1937. At that time life expectancy for American males was about 61 years. Now it is about 78 — and we have most people talking about retiring at age 65 — or even less! Get real! It can't happen!
I have read predictions of living to age 120 is possible due to increased technology. Life insurance companies now have policy plans of Life Paid-Up 121 years in view of this possibility. But, yet, there are people who hope to "retire early" — say age 55 or so. "I'm going to work for 30 years and retire for 50 years." Get real! It can't work!
I have read studies where it will take 80% of my grandchildren's income to supply Social Security income to their parent's generation. That is impossible to do! It can't work!
Furthermore, I drew up the following scenario over 30 years ago and no one had the courage to repeat it. "Three men were born in the U.S. on the same day. One was Caucasian, one was Hispanic, and the third was Black. They all had similar jobs during their working life and hence paid maximum into the Social Security scheme. They all achieved retirement age and drew their first SS check. But, one month later the Black man died. It is a statistical fact that Blacks don't live as long as Hispanics and Caucasians. You can pass all the laws you want to and you can't change that fact!
The next month the Black man's widow died. How many times have you heard reports of one spouse dying and the surviving spouse dies shortly thereafter? I read an extensive study lately about the effects of loneliness on longevity. It is real! What happened to all the money the Black man paid into SS all of his working life? The fact is, it doesn't exist! That money has already been spent by the US government and worthless IOUs are put into a file in a cave in West Virginia. There is no money in the SS Trust Fund!
The following month the Hispanic man dies — and the month after that his widow dies. What happened to all the money he put into SS? Same thing — it doesn't exist!
The net result of the foregoing is that the money the Black man and the Hispanic man paid into SS goes to sustain the Ponzi scheme for a few more years for the benefit of the White man's widow — because they outlive the White men. Please tell me how long that scheme will last when everyone catches onto this fact! This is totally unfair and is a sterling example of the Law of Unintended Consequences that is the hallmark of every government program. They will never work because they are all manifestations of man trying to play God in the pagan sense of the word. God is a jealous God. He won't put up with such nonsense. Will US Citizens ever learn!?
Investments of Tax-Qualified Plans
And so, since WWII there has been the accelerating emphasis on Tax-Qualified Retirement Plans. The contributions have to be put to work in investments of some kind. In the very recent years emphasis has been on 401-K plans (defined contribution plans) as opposed to the original Pension Plans (defined benefit plans) that are disappearing from the scene. What has been the universally recommended investment for these contributions? Why stocks or mutual funds, of course! They are always going to go up!
(Try reading The Brainwashing of the American Investor by Steven R. Selengut. Read Eat The Rich by P. J. O'Rourke. Read Devil Take the Hindmost by Edward Chancellor. Read Inventing Money by Nicholas Dunbar.) These books will be a good start in understanding the lies that people believe and upon which they have based their financial future.
By the way, stocks are often referred to as "securities." I don't see anything that was secure about Enron, about Worldcom, about Healthsouth, about Long Term Capital Management, etc., etc., etc. The list could go on for several pages. How do they get away with such designations? Words have meaning. So the favorite strategy is to change the meaning of words. "Boiled Frogs" feel more comfortable that way!
At the end of WWII there was a significant increase in birth rate in the US. A generation later there was a "birth dearth" — the birth rate went down. Demographers called this phenomenon a "pig in a python." A python is a large snake. Snakes don't chew things up — they swallow the victim whole. This creates a lump in their bodies and that lump moves down their digestive tract until it is absorbed over a period of time. Hence, their great word picture used to describe the "Baby Boomers." The first "Baby Boomer" turned 60 in October 2007.
Go back and look at the graph in figure 1. Do you see the "pig in a python" on a vertical plane? That data was for 1958. What has happened to "the pig" since that time? It has dropped significantly — or you could move the year 80 on the graph up to where 65 is located and you would have a pretty accurate picture of the situation today.
According to all Tax-Qualified Plans, when one turns 70 you must begin to take income (taxable) from your plan. That means you have to sell your stocks or mutual fund shares. Pray tell, who will you sell them to? Where are the buyers in the next generation? Furthermore, there is no way Americans can enjoy their present standard of living without the Chinese and Japanese buying our government bonds. When we buy their merchandise, we pay for it with our dollars. They have to do something with those dollars, so they buy our bonds. Years ago, Milton Friedman is credited with saying, "What could be more idyllic than the Japanese sending us high-quality goods — and we send them worthless bits of paper in exchange?" Will they continue to be fools forever? I don't think so!
About ten years from now, there will be a large number of boomers who will have to sell their stocks and mutual funds. What happens to the value of these things when there are no buyers? All HELL is going to break loose in the economy at that time! Again, as of the time of this writing (mid 2009), suppose that you had your retirement nest egg in stocks and mutual funds and you just turned 70. Great time to be selling, huh? Ten years from now is almost certain to be much worse! To help you understand this more fully, subscribe to DailyReckoning.com and read Bill Bonner's stuff every day. Better still, read Financial Reckoning Day by Bill Bonner and Addison Wiggin. Read their follow-up book, The New Empire of Debt.
Bonner says, "We are at the beginning of a DEPRESSION – not a recession! The cure for a depression is a depression! The correction will be equal and opposite to the buildup." America has been living in a "fool's paradise" for about 30 years. Brace your selves, there are some trying times ahead. Just imagine what it will be like if you have put your confidence in Tax-Qualified Retirement plans.
Surely, sometime in you life you have eaten corn on the cob during a meal. Have you ever counted the kernels on the cob? I did recently — it was over 500. Suppose you were a farmer and put a kernel of corn in the ground under favorable conditions. It produced a cornstalk with three ears of corn, each with about 500 kernels. So, one seed produced 1,500 kernels. Now, suppose you are going to be taxed by the government — on which would you rather be taxed — the seed or the harvest? Most every thinking person says, "The seed, of course." But, have you noticed that every Tax-Qualified plan is predicated on the opposite? They all say, "Your contribution is taken off your income for tax purposes now — it will build tax-free until your retirement time — and you will be in a lower tax bracket at that time."
Lies! Lies! Lies! Americans have swallowed those lies for many years, but eventually reality sets in and there is all kinds of despair. Woe is us! What can be done? And they clamor for more government plans to rectify the disaster that was caused by the original government plans! Unbelievable! That kind of behavior qualifies for the definition of insanity — doing the same thing time and again and expecting different results!
Hopefully, this article has helped you to see that government plans can't work. They are manifestations of "man trying to play God, in the pagan sense of the word." God is a jealous God and he won't put up with such nonsense. Does this help in recognizing the "boiled frog syndrome?" Governments promote their plans through the use of lies. But eventually, truth will out. Free people contracting with one another can solve all our financial and economic problems. But, one has to recognize a lie when it shows up. All Tax-Qualified Retirement plans need to be avoided like the plague — because they are!
R. Nelson Nash [send him mail] is a business consultant in Birmingham, AL, and author of the book, Becoming Your Own Banker.