 | | The Daily Reckoning | Monday, September 27, 2010 |
- Countdown to broke: Social Security heads over the brink,
- Learning from the Amish and taking care of your own,
- Plus, Bill Bonner on digital distractions, gold's new highs and more...
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|  | | A Charade of Mass Proportions
| A historical perspective of the social security nightmare
| |  | | Joel Bowman |
Reporting from Buenos Aires, Argentina...
"The arrogance of officialdom should be tempered and controlled, and assistance to foreign hands should be curtailed, lest Rome fall."
- Marcus Tullius Cicero, 55 B.C.
What rhymes with Cicero? Not much. But if, as the saying goes, history itself rhymes, today's welfare-warfare state has plenty worth holding up against the soft, fading light of that long-fallen empire: Corrupt politicians...predatory bankers...ruinous military misadventures to faraway lands...a gluttonous citizenry feeding at the trough of public monies and, of course, the insidious, ridiculous illusion that any single participant could have made one jot of difference to the great charade as it unfolded before their very eyes.
The charade to which we refer is the very same phenomenon the Roman poet Juvenal referred to as "bread and circuses" in the tenth of his Satires. It is the superficial appeasement of the masses by the political class who, seeking to prevent massive uprising and revolt against their rule, doll out meager alms in the form of mass distraction. The success of this grand dupe depends on, and excels because of, the widespread assumption that the political class is working for the benefit of their employers, the taxpaying populace, rather than, as is the stark, impassionate reality, their merely effecting to do so. Nothing, not a sunrise at midnight, not a man immortal, could be further from reality. Far from serving their masters on bended knee, elected officials behave more like dogs than public servants, entirely dependent on their keepers for food and forever assuming they will be around with a doggy bag to clean up their mess.
"Government," as Frédéric Bastiat, writing some 1,800 years after Juvenal, expressed it, "is the great fiction through which everybody endeavors to live at the expense of everybody else."
And so we come to better understand our own predicament today. When a lending institution lends too much and is repaid too little, the poisoned olive branch of government extends. When a profligate spender - with sufficient influence in the public sphere, mind you - falters under the weight of its own obligations, the state appears with a bottomless cup. Multi-trillion dollar bailouts, and more still to come. Schemes, scams and stratagems that, we are told, are all for our own good. From the floor of Congress to the evening news, a trumpet calls all "men and women of reason" to fight against "total collapse of our system"...to lead us back from the "edge of the abyss."
Bread and circuses...
What then, when the Treasury is spent and the Fed's arsenal deployed? When debts sold off to once willing foreigners inevitably come due? When the children to whom this legacy of larceny is left realize the hand they were dealt and demand, with clenched fists of their own, a fair and equal opportunity, the chance to ruin or succeed based on their own generation's cowardice or courage? What comes after the determined destruction of the nation's currency...again?
Nowhere is Bastiat's observation better reflected than when the looking glass is held up to Social Security. The ruse, sold to American's under the same old banners, fraught with "safety net" misnomers and "falling through the cracks" platitudes, is up. On September 30, this Thursday, six years ahead of schedule, the "fund" officially goes into the red. What will they tell us next? What price must we pay in order that the grand charade is allowed to go on? What story must we now swallow?
Don't fret, Fellow Reckoner. They'll surely think of something. And that's precisely the problem.
In today's guest essay, Ian Mathias returns with the second installment of his series on Social (In)Security. Find his thoughts below, and feel free to send us your own, here:joel@dailyreckoning.com
| | | |
| The Daily Reckoning Presents
| Opt Out of Social Security
| |  | | Ian Mathias |
"The Social Security Trust Fund is misnamed. It cannot be trusted, and it is not funded."
-Former US Comptroller General David Walker, July 2010.
If David Walker - who was essentially the US government's accountant from 1998-2008 - can make jokes like that about Social Security, we're in trouble. Indeed, as we noted in The Daily Reckoning Weekend Edition, the Social Security Trust recently began paying out more than it is taking in. Over the next 75 years, the Fund will require an additional $5.4 trillion to pay for scheduled benefits.
Given the deplorable fiscal condition of the Social Security Trust Fund, some forward-looking Americans are asking, "Why can't I just opt out?" Even middle-aged members of the Baby Boom generation are wondering if there will be any Social Security left for them when the time comes...and if they wouldn't be better off abandoning the government's mandatory retirement plan.
So can you opt out? In a word, yes.
How Do You Feel About a Horse and Buggy?
It's true; you can opt out of Social Security...if you belong to a fiercely independent religious culture like the Amish.
Back in 1954, when the Social Security Administration first began taxing and covering "agricultural workers," the Amish took issue with Social Security's forced participation. The program, also known as Federal Old Age, Disability and Survivors Insurance, is a pretty brash affront to the Amish credo. Not only are the Amish famous for "taking care of their own," but the whole concept of insurance goes against their faith. As people extremely serious about God's plan, they don't take kindly to a government-mandated hedge against His prerogative.
So in the late '50s, the Amish started their resistance to Social Security. Naturally, they were quiet and reasonable about it. Some put money into a bank account and insisted the government place a lien on it. At least that way, some Amish thought, they weren't voluntarily paying into the program. Others signed a petition and sent it to Capitol Hill. But, naturally, the IRS paid no attention. The IRS kept insisting that FICA taxes be remunerated...until eventually many Amish just stopped paying.
The whole conflict came to its climax in 1961 when the IRS went after one of these "delinquents," Valentine Byler. Long story short, he owed over $300 in back Social Security taxes, so the IRS repo'ed three of his six horses. No kidding. (At one point in this fiasco,Reader's Digest reported a judge berating the government's representatives, "Don't you have anything better to do than to take a peaceful man off his farm and drag him into court?" Apparently not.)
To the Amish's credit, they kept resisting the FICA tax, insisting that it violated their 1st Amendment right to practice religion free of government interference. Byler's story, as you can imagine, was a real hit with the media and within a few years the IRS caved under public pressure. In 1965, the government passed a law that allowed US citizens to opt out of Social Security.
Of course, only a small minority of Americans can legally stop paying Social Security taxes and strike their beneficiary status. In order to qualify for the IRS's exemption, you must:
- Convince them you are part of a religion that is "conscientiously opposed to accepting benefits of any private or public insurance that makes payments in the event of death, disability, old age or retirement."
- Have a ranking official of this religion authorize that you are a true believer
- Prove that your religion has been established - and continually opposing insurance - since at least 1950.
So unless you are Amish, Mennonite, Anabaptist or part of another very small religious sect, odds are you're stuck paying (and receiving) Social Security for the foreseeable future. Still, we won't fault you for trying: Look around for Form 4029...you'll have to file with the IRS if you seek Social Security exemption. Be careful what you wish for...exemption might be the swan song for your life, auto and health insurance, too.
Learn from the Amish
Even though your opt-out chances are slim to none, there's plenty to learn from the Amish battle against Social Security.
1) This story should serve as a reminder of what the whole program really is: insurance. When FDR first introduced Social Security in 1935, he said it would "give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age." It was never intended to be a program in which nearly everyone paid in and nearly everyone expected to be fully paid out...even though that is what it has become today.
We suspect that kind of insurance language will return. The rich - who are so exceptionally unpopular these days - might soon be reminded they are not "average" and that Social Security was not designed to supplement their fat 401(k)s. (Whether that is in any way ethical, or even what qualifies you as "rich" in America, is a debate for another Daily Reckoning.) At the least, expect this cash-strapped government to raise the wage base for the Social Security tax or institute a benefits means test in the near future.
2) The framework of Social Security is flexible. There are plenty of people alive in America today who were around before this program even existed. Those same people saw it amended and reformed many times in the '30s, '40s and '50s. Exceptions have been made along the way. And in 1983, under the Greenspan Commission, the government gave Social Security yet another dramatic reform.
Thus, there is no reason to think Social Security can't be amended again, for better or for worse. Maybe the government, like it did in the '80s, will change the rules and hike taxes, raise the retirement age and reduce benefits. Or if you are as persistent as the Amish, perhaps you can influence legislation in your favor. (Your odds increase dramatically if you own or control a large multinational corporation.)
3) Most importantly, like the Amish, expect a self-sufficient retirement. "The best revenge is living well," the saying goes. Thus the best way to survive the plight of the Social Security Trust Fund is to not need it in the first place. Take a page from the Amish playbook and minimize your taxes...contribute the most you can to your company's tax-deferred 401(k) plan. Better still, enroll in a self-directed 401(k), where you can invest in stable, dividend-yielding companies that might compound your returns. A few of those companies might even have a dividend reinvestment plan (DRIP) where you can use those quarterly payments to reinvest in the underlying stock... That's a double serving of perfectly legal tax evasion.
There's something to be said for the Amish way of taking care of your own, too. Their lifelong financial planning doesn't just revolve around their individual net worth, and neither should yours. If there's money to spare, set up some tax-deferred accounts for family members. Not only could it empower them, but depending on your situation, you might be able to alleviate your own tax burden at the same time. They'll thank you 10-20 years from now, when David Walker's joke isn't quite so funny.
Regards,
Ian Mathias
for The Daily Reckoning
P.S. This might sound a little strange, but you can also supplement your retirement income by tapping into the public social security funds of other countries. There's quite a few state-owned organizations out there that not only fund the retirements of its citizens, but also their loyal shareholders. My colleague Jim Nelson recently released a presentation on exactly how to enroll in such a plan... Watch it here:
Legally Collect Thousands of Dollars Each Year... from the Other Government-Backed Retirement Program.
| | Bill Bonner
| When Zombies Buy Gold
| |  | | Bill Bonner |
Reckoning from Baltimore, Maryland...
Last week it looked like the feds' efforts to reflate the US economy might be working. Gold was hitting one new high after another. Stocks were going up too.
The Dow rose nearly 200 points on Friday. Gold hit $1,300...but couldn't close at that level. When trading came to an end gold was $2 short of the $1,300 mark.
What's up? It's hard to know. If gold is going up, analysts reasoned, it must mean something. What? The obvious explanation is that inflation is coming.
So the advisors told their clients to buy gold. The economy must be improving they said. The recession ended more than a year ago. The recovery hasn't been as strong as anyone wanted. But there must be a recovery underway...and it must mean that inflation and gold will go up.
We're sitting in a JetBlue airplane as we write...heading back up to Baltimore. Each seat has a TV screen on the back of it. A few years ago, you could get away from TV by getting on an airplane. Now, there it is right in front to you...
..which is all part of the creeping zombification of the US. Music plays all the time. It's in cars. It's in shopping malls. Some people even listen to it when they work. It's like prison...or the Orwellian future...where noise is blared out 24 hours a day, so you never have a chance to think.
And now there are all the Blackberries, iPhones, iPads...to say nothing of regular cellphones and portable computers.
And then, there's TV. You go to a bar. In addition to the music, there's often a TV screen.
With all these sources of distraction people don't have any time to think. Who has time to wonder how the dollar has any value at all? Who worries that those pieces of paper could go the way of all trash...to the dump? Who thinks about it at all? Not many people...
Instead, most people go through the day like zombies - watching TV...listening to someone else's music...surfing the Internet...chatting...schmoozing...distracting themselves...
The passengers on the plane act like zombies...watching other zombies on TV...listening to music...reading airport novels....
Then, on the screen in front of us, there's a fellow selling...gold! He's the second one we've seen. "Should you own gold," is the caption on the screen. A man named Scott Carter is advising customers to buy the yellow metal. Apparently, his company has been in the business for 50 years...
Hmmm... This is something new. The last time we saw gold on TV was an ad for a fellow who was BUYING gold. "Got gold? You can get CASH" was last year's ad. The advertiser told viewers that they should take advantage of high gold prices to get rid of their unwanted jewelry...exchanging it for cold, hard cash.
Only the cash wasn't all that hard, after all. That was about a year ago. And today, the cash is worth about 20% less than the gold.
But who cares? We're talking zombies here. Who cares what happens to them?
When the zombies start buying gold, though, the bull market enters its last stage. Ordinary people do not own gold now. They do not understand that the financial system is in jeopardy. And they cannot imagine that the dollar is not a safe place for their wealth.
As for inflation, they're for it. They have mortgages to pay. And for many of them, those mortgages are higher than the value of their houses. They'd like to see their debts reduced, by inflation.
They'd like to see their assets lifted up by inflation too. And their earnings.
Okay... Inflationary increases are not "real". The real value of the assets doesn't increase, just because nominal prices go up. But the zombies don't know that.
And more thoughts...
We had a good time in Florida. We never really cared for the Sunshine State before. Too flat. Too hot. Too many old people. Too many people on vacation.
But we found it appealing this time. There weren't too many people out and about. And there were plenty of restaurants to choose from.
Besides, your author finds that people in Florida are getting younger. They're often younger than he is. That's just what happens. If you live long enough, old people become young. You become old.
What a thrill it must have been to come down to Florida in the 1920s. Taking the train down from New York in mid-winter, visitors must have felt as thought they had discovered paradise. Warm breezes coming off the ocean. Waves breaking as they hit the beach. That old Florida style...with broad porches and shutters. And most of the state was empty...virgin territory for developers and retirees.
It's not virgin territory any more. Far from it. Now, it has a different feel altogether...a little like an old resort...a little past its prime...but still putting on airs.
We had a condo right on the beach, on the 6th floor of a building that was put up in the '60s. There is a lot of glass...and views up and down the coast. Storm clouds grew up out over the water...and then came into shore. Much more interesting than TV.
We were working...but we still had time for breakfast together at one of the local restaurants...and dinner outside on the sidewalk. It was like a vacation...
*** The bear market in real estate has knocked loose some bargains. We mentioned a house that sold for $295,000 in 2006 which changed hands again last week for $75,000. The new owners figure they'll make good money - renting it out for $900 a month.
We saw other deals too. Some condo complexes are just about empty. You have to be careful, because you could get stuck in 'dead' buildings or abandoned subdivisions...with the cracks in the pool and weeds in the parking lot.
But there are deals available...if you know what you're doing.
"I've been buying for the last 12 months," said a friend. "You've got to know what you're doing. But if you're careful, you can get a decent house with decent rental income.
"It's a funny business though. For some reason, I've run into these situations where the banks don't want - or can't - sell to me. They've got some restriction, probably designed to help the owner-occupier buy a house. Trouble is, the individual homeowners don't have cash to buy these houses. They need financing. And you can't get the best deals if you need financing. You have to have cash. So, I provide financing to my own real estate business. I get a better return on the financing than I can get anywhere else. And I get a good return on the properties too. I've already bought about a dozen houses. I'm aiming to get 40 of them. It will be a nice portfolio of houses...about the right scale for my kind of management and maintenance team.
"Since I provide the financing, I don't have to worry about prices going down another 10% to 20% - which they probably will. I just have to be sure I've got the cash-flow from rentals that I projected. So far, no problem. People still need places to live. And I can provide housing about as cheaply as anyone."
Regards,
Bill Bonner,
for The Daily Reckoning |
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