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Most people who have been following the news about Ireland are aware of the austerity measures, such as middle-class tax hikes, the lowering of the minimum wage, and massive layoffs. But the most outrageous action the government is taking concerns pensions.
Fine Gael, Labour and Sinn Féin attacked the intention to use the National Pension Reserve Fund to help provide a further €10 billion in further capital for the banks. In total, the banks could end up getting another €35 billion if their losses are bigger than expected.
It’s a case of blatant theft. The government is stealing from the working class to give to the wealthy bank creditors.
Ireland is not alone.
Hungary is playing hard-ball with its own citizenry.
Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension.
Economy Minister Gyorgy Matolcsy announced the policy yesterday, escalating a government drive to bring 3 trillion forint ($14.6 billion) of privately managed pension assets under state control to reduce the budget deficit and public debt. Workers who opt against returning to the state system stand to lose 70 percent of their pension claim.
“This is effectively a nationalization of private pension funds,” David Nemeth, an economist at ING Groep NV in Budapest, said in a phone interview. “It’s the nightmare scenario.”
The private pension system was mandated by the Hungarian government in 1998 in order to off-load public obligations.
The path Hungary is taking has been walked before. In 2001 Argentina seized $3.2 Billion worth of private pensions in a desperate attempt to stay afloat. They forced that money into sovereign bonds, and then defaulted on their debts a few weeks later, thus wiping out 70% of the purchasing power of the savings.
Two years ago Argentina simply nationalized the pension system when tax revenue fell short. Hungary made its move when a bond sale fell short of expectations.
Other nations are also moving in this direction. France seized 36 Billion Euros from the pension system the other day in order to pay off other debts.
Poland’s Prime Minister Donald Tusk had to deny the government was about to raid pension funds after it was leaked the government was considering suspending payments to private pension funds.
Professor Jerzy Hausner, a member of the National Bank of Poland’s interest-rate-setting council and one of the architects of Poland’s current pension system, told Polskie Radio “I can’t describe [the government’s proposal] as anything but desperate, and those are the very mildest words I can use.”
The Counter Example
While the raid on the working class rages from one nation to another, the news out of Iceland, the first nation to go under, has been mostly absent. Iceland’s President explains why in very simple terms:
Iceland’s President Olafur R. Grimsson said his country is better off than Ireland thanks to the government’s decision to allow the banks to fail two years ago and because the krona could be devalued.
“The difference is that in Iceland we allowed the banks to fail,” Grimsson said in an interview with Bloomberg Television’s Mark Barton today. “These were private banks and we didn’t pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks.”
What a concept! Let the risk taking bankers go under. Don’t make the public pay for it, and the real economy will be stronger because of it.
Of course the Iceland government shouldn’t be too proud. They wanted to bail out the banks too, but the people of Iceland prevented them from doing it.
Both the government and people of Ireland should take a good look across the waters to Iceland and learn something.
What lessons should Americans take home from this? The obvious lesson is: Let The F*cking Banks Fail! Don’t shift the cost to the taxpayers. It’s not just good capitalism, its the moral thing to do.
But we also need to look closer at what governments do when they need cash. Our government has been living off of Social Security surpluses for decades now.
Those surpluses are shrinking and will soon be gone. Before that happens the government will be looking around for more cash, and that means your retirement savings. They are already considering plans.
Under Ghilarducci’s plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.
The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.
No one knows what the future holds, but you can be certain that if the government runs short on cash they will grab at anything they can get.