Washington Is My Sugar Daddy

The debt ceiling fiasco and other news have prompted me to consider just how tightly the Government and I are joined at the hip.  In round numbers, 90% of the family annual income comes directly from the government: two social security payments and a federal retirement.  The Medicare benefit could be factored in and would surely raise this percentage.  Clearly my wife and I are completely dependent on the federal government for our livelihood.  If the government money vanishes, we have investments that could be used to help pay our living expenses for a period of time, especially if we don't live long and happy lives.  Approximately 70% of this money is in IRA accounts.  IRAs are tax advantaged accounts authorized by the government and the rules governing IRAs are frequently modified by the government.

Given these circumstances, the ongoing debt ceiling debate took on a sense of immediacy for me as Turbotax Timmy G. announced the Treasury Department would be unable to fully invest in the Civil Service Retirement and Disability Fund and the Government Securities fund of the Federal Employees Retirement System starting Monday. The funds "will be made whole" once the debt limit is increased, and federal retirees will be unaffected Mr. Geithner said.  But what if the debt limit is not increased?  Are Federal retiree funds going to disappear.  This ploy by Geithner is similar to Paulson's infamous threats to Congress in 2008 to get them to authorize the banker bailout.  Thanks to Barry Ritholtz at The Big Picture for the following chart showing the pace of debt ceiling increases since 1940.  The chart is turning parabolic just like many others these days.

                    











We also have reports from Europe concerning the confiscation of private pensions.  Could 401Ks and IRAs funds be confiscated here?  I don't see why not.  All you need is a market crash, some widely publicized complaints from pensioners who lost their money, a Senate hearing, a quickie Commission, an Executive Order, and poof, next thing you know-- mandatory Treasury Bond purchases by all IRA and 401K participants.  Someone has to buy the darn bonds if the Chinese won't.

I have a strong sense of vulnerability right now.  If the country is in serious financial trouble, and I believe it is, then I must be in serious financial trouble as well.  Beyond finances, we Americans are increasingly dependent on the government for everything from food stamps and healthcare to tax breaks and jobs.  All our eggs are pretty much in one basket these days and I was always taught that was a no no.