With Barack Obama, the destructive transformation of America just keeps coming.
With regularity, the country is inflicted with grand proposals from a man who achieved no major accomplishments in life before his cabal elected and propelled him into the Senate and President’s chair. But there are few of Obama’s disastrous proposals that distance him more from financial common sense than his MyRA scheme.
In a recent teleprompter speech (I overheard a clueless woman at a nearby table say “Oh, he’s such a good speaker. Look, he doesn’t even use notes”), Obama pitched a “starter savings account” which allows young or low income workers to voluntarily contribute as little as $5 a paycheck to a savings program Obama calls “MyRA”. The Wall Street Journal suggests you can call it the “Hope and Spare Change Fund.”
Get a load of this: a MyRA account allows after-tax dollars to be invested (only) in a government bond fund called the G Fund, where it can grow tax-free until retirement. Last year, the G Fund delivered a whopping 1.5 percent return. Money can be withdrawn from the account at any time with no penalty, such as the next time you want to buy a High-Def TV. Want to place any bets about how much money will be left for retirement when the money can be withdrawn at will?
Sounding like a TV huckster, Obama said “MyRA guarantees a decent return with no risk.” Let’s see: Obama wants some poor sap to invest post-tax money in a government bond fund paying historic meager yields, which provides a negative investment return after inflation. Obama is oblivious that a low return bond fund is a nonstarter, the last thing a younger worker should buy to build a nest egg. Investors with long time horizons need asset growth, and they need at least a rate of return that exceeds inflation.
Here’s what will happen: When it comes time to cash in, the savers’ MyRA accounts will be worth less to them in real terms, after inflation is factored in.
What’s really going on here, with this scheme? With Obama, there is always a catch. For any proposal he makes, one must look under the hood for ulterior motives, because things are rarely what they appear on the surface. In essence, money contributed to a MyRA is a low-interest loan to the government, so Washington can use the money to fund government deficit-spending. It’s the same scheme as with social security. Obama is trying to channel private savings into loans to the government, allowing his Treasury Department to raise money without having to sell bonds in the public marketplace.
MyRA is a new version of the Ponzi scheme. The worker loans his money to the government, with a promise that interest will be paid. The government spends the money. The principal and interest payments, which will always be paltry, will be paid back in the future by taxpayers or people who open future MyRA accounts. This is the perfect Ponzi, where early investors are paid back with money raised from later investors, after government scoops a chunk off the top for expenses.
Obama is perpetrating this new bureaucracy through executive orders, bypassing Congress once again. He has created, by executive decree, a new retirement subsidy which Congress did not vote for. His legal authority to do this is questionable, because Congress would have to fund future payments after the Treasury runs out of cash.
This scheme will also make more retired Americans dependent on government, which fits in nicely with Obama’s “nanny-state”, cradle-to-grave socialism. Yet, this costly, feel-good gimmick won’t work and a 1.5 percent return won’t raise national savings rates. However, it will provide noble-sounding sound bites to Obama’s fellow liberals at election time. Meanwhile, as stated on CNBC, its costs will “waste billions of taxpayer dollars and… isn’t it time to admit that government programs are simply not the answer?”
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