A Totally Fracked Planet

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For several years, in these pages and elsewhere, I have noted America’s steady progress toward true energy independence — not because of government help but in spite of it.

We will reach energy independence in the not too distant future, thanks not to any corrupt crony green energy industry (solar, wind, ethanol, or biodiesel) but to the vast resources of shale oil and gas made available by advanced fracking technology.

I have not reported on recent developments on fracking progress abroad. A couple of recent articles provide interesting food for geopolitical thought.

First, the report out of Aussie Land of a shale oil field with the promise of prodigious production. The Arckaringa Basin field in South Australia is now being explored by seismic mapping and drilling. The field has between 3.5 billion and a mind-blowing 233 billion barrels of oil (BBO). Even at the lower end of the estimate, it would be on a par with our own shale oil production.

But if the field contains anything like the upper end of the estimate, it would be a geopolitical game changer, with a value, at current prices, of about $20 trillion, which would make Australians among the richest people on earth. This would be several times more than Australia’s current proven reserves of oil, and would turn the country into an oil exporter on a par with Saudi Arabia (with estimated reserves of 263 BBO, or billion barrels of oil) and surpassing Venezuela (211 BBO), Canada (175 BBO), Iran (137 BBO) and Iraq (115 BBO).

Here is both good news and bad news, geopolitically. The good news is that Australia is a long-standing close American ally, so the prospect of its becoming a major exporter (instead of a minor importer) of petroleum means lower prices for us and another source of world oil that is favorable to us (unlike Iran, Venezuela, and to some degree Saudi Arabia).

The bad news is that Australia now becomes a possible target for energy-hungry China, which is growing rapidly in military might and economic size (in fact, it just surpassed the US to become the world’s largest trading economy, holding $1.2 trillion in American assets).

The second report is a Wall Street Journal article about the shale gas boom in Eastern Europe. The pace of exploration in Central and Eastern Europe has exploded, with British/Dutch-owned Royal Dutch Shell, American-owned ConocoPhillips, and French-owned Total SA buying up exploration rights in Poland. Poland is sitting on top of shale natural gas reserves equal to 35-65 years of its current consumption.

Ukraine is also blessed with shale-gas reserves. Chevron, TNK-BP (a joint venture of BP and a group of Russian investors), and Eni (an Italian company), are all vying to develop shale gas there.

Environmentalist groups in Bulgaria, the Czech Republic, and Romania have gotten their governments to put a moratorium on fracking (which American environmentalists are pushing for too). That opposition, together with the higher costs of drilling in Europe (in part because deposits lie deeper there) and the fact that contracts with Russia’s Gazprom are locked in for decades, make development go more slowly.

But the long-term geopolitical prospect is that Central and Eastern Europe — once enslaved by the Soviet regime, now bullied by Putin’s quasi-dictatorship — now have it within their power to free themselves, eventually, from energy dependency on Russia.

Fracking is leading to some interesting geopolitics. One hopes it will lead to some productive politics, right here at home.




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Nobels Oblige

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I don’t know who serves on the committee that awards Nobel Prizes, but I can’t help thinking they’re not very different from the guys on committees in civic organizations all over the planet, the do-gooders who get together for lunch one Wednesday a month to gossip and tell faintly bawdy stories and, Oh yeah, does anybody on the Peace subcommittee have any thoughts about who gets this year’s prize?

I’ve been on committees, and there’s usually somebody who became infected by a big insight on the way over. In the case of the Peace Prize subcommittee, the insight was probably something along the lines of, “You know, I’ve been thinking. There hasn’t been a war in Europe for a long time. We should encourage that kind of behavior. What if we give the Peace Prize to the whole continent?”

Then somebody would have pointed out that, “Well, there was that affair in Bosnia.”

“The European Union, then. Bosnia isn’t part of the EU. There haven’t been any wars in the European Union.”

“But there’s only been a European Union for 19 years. There’s no way it could have kept the peace all the way back to 1945.”

“Wasn’t there something before that? Some kind of iron and coal deal between France and Germany in the Fifties? Maybe that’s the reason we haven’t had a war.”

“It was the European Coal and Steel Community.”

“The arms manufacturers, then. Maybe we could give the . . .”

“You’re telling us we should give the prize to an arms manufacturer?”

“Why not an arms manufacturer? Alfred Nobel made his fortune selling dynamite.”

“Now you’re saying Alfred Nobel was an arms manufacturer?”

“Just saying.”

“An arms manufacturer would be a bold stroke, I’ll give you that.”

“We should try something new this time around. I don’t think we’ve given the prize to arms manufacturers before. Here, let me check the list. Krupps is available. Nobody’s awarded the Nobel Peace Prize to Krupps of Essen.”

“You think the rest of the world would stand for it?”

“I think the rest of the world stood and applauded when we gave the prize to Barack Obama for . . . does anybody remember what we gave it to President Obama for?”

“For not being George Bush?”

“And for having an African father.”

“But Krupps of Essen? That’s a different kettle of pickled herring. Surely . . .

“That’s the beauty of the thing. We could give it to the European Union and not have to say anything about Krupps.”

And that was that. Awarding the Nobel Peace Prize to the EU was just the ticket to encourage Europeans to keep on not murdering each other. And the cent-or-two in prize money they all got out of the deal would create real, tangible benefits for good behavior.

Now, I don’t want to come down too hard on guys who donate their time to good causes, but the whole process seems a bit slapdash to me. I mean, there’s no denying the subcommittee was onto something. A clam would have known that entire European countries going 67 years without invading one another is not only a big deal, it’s a big, historically unprecedented deal that hadn’t happened on the continent since, well, since before the invention of invading. That kind of behavior deserves recognition, and receiving the Nobel Peace Prize is just about as recognized as anybody gets in this life. I just think the subcommittee’s aim was bad when they picked the EU to honor.

It was the same sloppy thinking that led them to look at the results of the 2008 American elections and decide to encourage our good behavior. Then, instead picking the American voters, or the constitutional system that allowed us to dump Jim Crow and George W. both, the subcommittee fixated on the beneficiary and handed the prize to President Obama.

As worthy as their intentions were, it doesn’t take much to know that it wasn’t the EU that kept Europe out of war. It wasn’t Europeans at all. If peace had been up to Europeans the Eiffel Tower would have been melted down for cannon years ago.

It was us who kept them from exterminating each other. For two-thirds of a century Italy hasn’t attacked Austria. Spain hasn’t gone to war against Holland. Greece hasn’t had a final smackdown with Turkey, and none of the other possible permutations of the way European governments find to kill each others’ citizens have taken place because we wouldn’t let them. And for a really good reason.

It wasn’t just to keep the Reds out that we didn’t bring home all of our troops after the Second World War. Having already sent two generations of Americans to die saving Europeans from each other, we didn’t want to do it a third time and we stayed over there and sat on them and made sure they didn’t start shooting again. For decades we even drafted otherwise decent young men and forced them to go to Europe to do the sitting. If our guys had wound up in the Balkans after WWII, Bosnia wouldn’t have gone to war, either.

Had the members of the Nobel subcommittee thought it through, they would have given this year’s Peace Prize to the ones who deserved it . . . not to the beneficiaries of the peace Europeans enjoy, but to those responsible for the peace: the American military. Besides, America doesn’t have anywhere near as many soldiers as they have people in the EU and the prize money would have gone a lot farther.




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Europe’s Next Tax Horizon

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If they weren’t so snide, smug, and supercilious, you would almost be tempted to pity the wretched Europeans — you know, the culturally superior members of the human race. I mean, they are more or less bankrupt, what with their “generous” and “compassionate” welfare states now running out of tax money. And, brother, do they have taxes — in the matter of taxation, they are the wet dream of Obama-worshipers. They have confiscatory income taxes (in France, now set at 75% for the highest bracket), massive property and gas taxes, and national sales taxes (aka VAT taxes) in the mid-20% range that is standard in the rapidly declining continent.

The idea of cutting the sickeningly bloated welfare state is unpopular in these benighted regimes, and normal tax sources are now taxed to the max. So the challenge to the welfare statists is to come up with new tax sources.

The Germans — ever keen and crafty — may have solved the problem. It was recently reported that the more left-wing German political parties (the Social Democrats and the Greens) are now suggesting a wealth tax of 1% on total assets of 2 million Euros or more. So even if you are retired or otherwise unemployed, but along the way you and your spouse have managed to buy a nice home, jewelry, perhaps a portfolio of stocks and bonds, maybe some artwork — the total value will be assessed (at no doubt inflated valuations — remember, the entity doing the assessment will be precisely the one that pockets the money), and looted.

Anyway, that’s where it will start. Remember, the original American federal income tax started very low (top rate of 7%). So did the VAT tax in all the European countries cursed with it. What happens is that the burst of new revenue always results in not just the expansion of existing social welfare programs but the creation of whole new ones, which — like bay cockroaches — will only grow and multiply further.

Indeed, one German “thinktank” has called for a one-time tax of 10% on all wealth over 250,000 Euros. This would likely bring in about the equivalent of 9% of GDP, and an eager exit of capital from the country.

But again, who believes it would be done just once? The same egalitarian arguments for doing it once will be used to justify doing it (say) every other year, or even every year, or even every 6 months, or even . . .




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Who are the Real PIGS?

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As Europe continues to flounder, and as people continue to wonder whether (or more likely, when) Greece is going to default on its sovereign debt, various commentators have bandied the epithet “PIGS” (or “PIIGS”, depending on which nations a commentator wants to include).

By this acronym they refer to a group of countries — Portugal, Ireland, (Italy), Greece, and Spain — that have borrowed profligately, unlike such disciplined places as France, Germany, and the United States. What the miserable PIIGS need to do is start getting their snouts out of the troughlearn to manage their economies efficiently, as their betters do.

It’s obvious that the PIIGS need to liberalize their economies and better manage their fiscal houses. But the morally supercilious tone of the commentary annoys me. I don’t think the US or the major European states are in any position to be giving lectures. Their own levels of debt are outrageous, too.

A recent report brings the point home. If you don’t look at sovereign debt by sheer amount, but look instead at per capita debt — that is, take the aggregate national debt and divide it by the number of citizens in a country — you will see that the PIIGS aren’t as piggish as we are.

Spain’s per capita debt is $18,395. Portugal’s is slightly more, at $19,989. But France’s per capita debt exceeds these two by a wide margin. It’s $33,491.

Again, Greece is outrageous at $38,937, Italy at an amazing $40,475, and Ireland — Erin go Bragh!—at a staggering $43,887.

But the US, the paragon of fiscal rectitude, already stands at $44,215 per capita — more porcine than any of the PIIGS. And under Obama’s latest budget plan, that debt will reach $75,000 per capita (in current dollars) within a decade.

Americans can truly join the PIIGS as they squeal “Oink! Oink!”




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Europe: The Problem and the Prospects

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The flow of history sometimes looks so obvious in hindsight.

In 2004 the European Commission issued a formal warning to Greece, having found that it had falsified budget deficit data in advance of joining the Eurozone. That’s right, Greece had not just failed to meet the budget requirements for joining the new currency — lots of countries did that — but it had lied about it for the privilege of swapping drachmae for euros.

Over the next few years the Greek government's modest attempts to reform the coddled Greek labor market, particularly the obese public sector, met with massive protests, many of them violent.

In the late spring of 2009 I sat across from an old law school friend, drinking wine on the terrace of a Parisian bistro near the Bastille. It was a mild early evening with hours of sunlight left, yet as usual my friend was already in his cups. But then, this guy (call him “Jay”), was smarter drunk than I am sober.

As I drained my glass of Beaujolais Cru, just a few years after Greece had joined the Euro, the Greek debt crisis was in full cry. Bailout negotiations between the EU and Greece had begun. Jay is a prominent international finance lawyer, and he represented the EU on the legal side of the negotiations. So I ordered another drink and got an inside view of the proceedings.

Jay and I debated the virtues, vices, and prospects of a bailout. It was all very speculative and academic, reminding me of so many college rap sessions in which my friends and I handily remade the world to no good (or ill) effect. The curious difference here, decades later, was that Jay really was involved in remaking the world.

As an aside, think of Professor Obama noodling over, say, the constitutionality of a federal mandate that everyone buy health insurance, the kind of seemingly harmless brain game that is played all day, every day in our universities and law schools. Most of the highly accomplished students who, like Obama, attended the top schools become convinced that they know what’s good for you. And some of them attain the power to give it to you. A student’s collectivist or paternalist nonsense is harmless. But with the stroke of a pen wielded by the nerd who used to sit next to you in Social Studies, governments convulse huge sectors of the economy. The difference is that the harmless nerd, the student Obama, for example, has become the hand of power.

At that early stage of the Greek debt crisis (which became the Italian, Irish, and Portuguese debt crisis, which became the euro crisis, which became the Europe crisis, which is becoming the second dip of the Great Recession, and which may doom the European Union to diminishment or dissolution and trash the feeble recovery in the US), it was hard for me to see the historical context of the problem. Jay went straight to it, talking about the German fear of inflation and profligacy, at odds with the German fear of the consequences of a divided Europe.

With the stroke of a pen wielded by the nerd who used to sit next to you in Social Studies, governments convulse huge sectors of the economy.

I know this is remedial history, but just in case: Germany suffered three great traumas in the 20th century, and two great boons. The three traumas were the first war of Europe divided, WWI; the second war of Europe divided, WWII; and between them the hyperinflation of the Weimar Republic, which probably resulted in German National Socialism. The two boons were first, Germany’s long, vigorous period of growth and prosperity, which persisted and accelerated in conjunction with the economic, monetary, and political integration of Europe; and second, German reunification, which came with the collapse of Soviet communism.

France, the other dominant player in the current crisis, has learned much different lessons from history. Of course it fears Germany as Germany fears itself, but it trusts government in a way that Germany does not. The French ruling class favors European unity, not just because it wants to restrain Germany but also because it thinks it can harness the Germans. This has made France the serial instigator of Euro-government activism.

At the center of France’s vision of European peace and unity is an organ grinder with an elephant instead of a monkey, but the elephant does not collect peanuts and coins; it distributes them. France is the organ grinder. Germany is the elephant. The rest of Europe stands around applauding, and collecting peanuts and coins.

Later in 2009, Greece lost its credit rating. Much bad news, “reforms,” and bailouts followed in a parade of horrors that continues now more than 2.5 years later, like shit hitting a fan in super slow motion. Greece, the EU, France, and Germany made and broke a series of promises about Greek debt. Greece was solvent. There would be no second (or third) bailout. Greece would never default. Greece would reform. Etc.

More of the same, until something really breaks, is a good prediction. Sarkozy the organ grinder will play furiously. Like an Indian mahout, he will even bring out the “ankus,” the goad. At the sharp end of the ankus are reminders of Germany’s behavior in World War II. The elephant will give out more coins and peanuts in greater quantities but with greater reluctance, and greater resentment for the crowd of client states that surround the center of Europe. In exchange, the crowd, and even France, will give up freedom, sovereignty, and independence. France does not like loss of sovereignty but believes it will always call the tune. The UK will congratulate itself for staying out of the euro and will refuse to sacrifice its own sovereignty to save the newish currency.

By helping us see how people in nation states see themselves, history helps us guess what they will do. But it does not tell us the results of their choices, which they themselves always fail to predict. After all, none of the EU, France, Germany, or Greece intended the Greek crisis or predicted it early enough to do anything to avoid it. How did that happen?

Descriptions of economic crises past reveal the historian’s perspective, bias, and even philosophy. The Great Depression makes a good example, over which commentators continue to fight. Was it caused or worsened by too much trade protection, too little Keynesian stimulus, a shrinking money supply, the bursting of the credit bubble that preceded it?

Soon there will be as many descriptions of the euro crisis.

I see that crisis and America’s subprime mortgage debacle as symptoms of the same contradiction, one that has strained most of the developed economies for decades and seems to be reaching some kind of limit now. The contradiction is between the love of state largesse and the limits of governments’ ability to raise revenue. That is not a very original observation, but in diverse countries and regions, the fallout from this strain takes surprisingly diverse and original forms.

The form of the fallout seems to depend on the particular weaknesses of a country’s institutions. In Greece, they overborrowed, overspent, cheated, lied to their creditors, and chronically failed to collect taxes due. In Germany they turned a blind eye, because European profligacy spurred Germany’s exports, and exporters had the ear of the German government.

More of the same, until something really breaks, is a good prediction.

In the United States we accepted war as an excuse for big deficits, and when the electorate showed resistance to faster growth of the welfare state, Congress contrived to finance it “off balance sheet” through Freddie Mac and Fannie Mae. And now the Great Recession gives us a reason to bail out financial institutions and automobile manufacturers and to print money (“monetary easing”).

In all these cases, the severity of the crises will partly depend on how and how thoroughly a state and its people fool themselves. The exact nature and severity of the crises are hard to predict. There may be cause for real fear.

I am afraid. For the first time in years, I feel financially insecure. I thought that, through work, good fortune, and saving, I had acquired financial security. Now I don’t know. Will quantitative easing cause high inflation? Will the markets where I store my wealth behave bearishly for long enough to beggar me before I die? Will the European crisis grow so deep and severe as to badly infect the world economy? Is Greece in effect a domino? I don’t know, but it’s falling. There will be no soft landing.




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Strauss-Kahn, Exemplar of Socialism

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The libertarian critique of socialism, or “social democracy,” has usually gone something like this:

The socialist program demands a planned economy. A planned economy can result only from plans. Plans must be made by a group of experts who are not subject to the vagaries of the electoral process. To form and implement their plans, the planner-kings must know everything crucial to the economy. They must know everything significant to their own plans, and be able to predict everything significant that may result from them.

But that is impossible.

This being true, the people who become planners will be those who are either stupid enough to believe that Plans can succeed or cynical enough to care only about the personal power that can be acquired by Planning.

The libertarian critique has a logic that no socialist program ever possessed.

Now we witness the reductio ad absurdum of the socialist idea: Dominique Strauss-Kahn, head of the International Monetary Fund, chief honcho of the French Socialist Party, and prospective president of France, who was arrested Saturday on charges of trying to force a maid in his $3,000 a night hotel suite to have sex with him.

Suppose that the charges turn out not to be true. Suppose that Strauss-Kahn’s nickname, “the great seducer,” means nothing. Suppose that consensual sex is nobody’s business but one’s own. Suppose all these things — the last of which is certainly true. The $3,000 a night hotel remains a problem.

As a self-chosen representative of socialism, and an anointed planner of the world's economy, Strauss-Kahn has supposedly devoted his life to the good of the people. How, then, $3,000 a night? On what premise must the people of the world pay for that?

I’ll tell you. The premise is that Strauss-Kahn, a product of those inner-circle French schools whose graduates automatically get high government jobs, deserves his perquisites of office, because he is somehow qualified to plan the world's economy.

Is he?

No. And anyone who thinks that he himself is so qualified, and uses that idea to justify his perquisites of office, is likely to present a strange moral profile.

World economic planning is allegedly justified on humanitarian and charitable grounds. Planners, allegedly, exist to help people, especially the deserving poor. Planners are supposed to be performing an altruistic work, the modern form of a religious mission. Yet among these managers of the world economy there is a strange absence of people who live in modest circumstances, practice some kind of religious or ethical discipline, or have anything to do with normal human beings, except when the maid arrives a few minutes early in their $3,000 a night hotel suite.

There are plenty of smart people in this world. Many modest people, skeptical of their own conclusions because they are actually in touch with their fellow citizens and knowledgeable about their lives, are also smart people. Strangely, many of these smart people are socialists, but their ambition is not to become world socialist leaders.

Why?

Because the idea that a small group of people is smart enough and knowledgeable enough to plan the financial lives — in fact, the lives — of six billion people is an idea that no one with any ethical understanding would apply to himself. An ordinary moralist would ask, “Who am I to do that? I don’t know enough. I could never know enough.”

Strauss-Kahn presents little evidence of any such moral or practical reflection. But what he did with his life was predictable, under the modern socialist system. A beneficiary of unmerited advancement, he did his best to “stabilize” the world’s economy by using political means to get the productive countries to support the spendthrift countries. He who wasn't producing anything himself.

I don’t presume that an alcoholic is incapable of becoming a good author. Faulkner did. Hemingway did. And I don’t presume that a “great seducer” is incapable of becoming a great thinker. Plenty of examples argue otherwise. But I do not presume that a drunk will be good at running an airline. I do not presume that a person who lacks discretion even about consensual sex affairs will have enough discretion to plan the future of six billion humble families.

To put this in another way: how did someone as stupid as Dominique Strauss-Kahn become one of the small group of people appointed to oversee the fiscal life of planet earth?

The answer is: the logical necessities of the socialist idea. If you want socialism, you are voting for fools like Dominique Strauss-Kahn. You may not know it, but you are. Otherwise — I’m sorry, you can’t have socialism on any other terms. The fact that Strauss-Kahn rose to the top is only a sign that the rest of the candidates were actually less competent than he.

To conclude: if you want someone running your life, and the life of the world, you can be assured that it will be someone like Dominique Strauss-Kahn — and if not him, then worse.




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Is Europe Liberal?

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The EC became the EU in 1992. I lived there at the time, and I wondered if, in socialist Europe, the EU would have a liberal or an illiberal influence. Trade liberalization was an important part of the EC from the beginning, and its successor is still mostly liberal on trade. But then there's everything else, mostly illiberal. And as the EU's powers expand, so does its illiberalism. Although on trade the EU is more liberal than its members, its many new powers are exercised in the interest of the state and its dependents, not in the interest of individual freedoms.

So where does the EU stand on balance? For a long time I wasn't sure. Now I am.

The March 19, 2011 issue of The Economist says that the Euro-zone countries are increasing their bailout of the Euro-basketcase countries, including Ireland and Greece. They lowered the interest rate that they charge to Greece, the country that is most deeply sunk in the basket. But Ireland "received no such concession because it insisted on keeping its low corporate-tax rate." That's right. We are not just a trade union, we are a monetary union; so raise your taxes or suffer the consequences.

On balance, the EU now has an illiberal, anti-libertarian, statist influence on its member states. Taxation and monetary policy are only two examples. There are many more. That little squib in The Economist tipped the scales for me.




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Your 401k Is a Sitting Duck

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In Liberty some time back (“Pension Peril,” March 2009), I reflected on President Kirchner of Argentina, who helped fund her country’s failing public pension system by simply stealing money from the private pension savings accounts that many of her countrymen had managed to accumulate. Her government expropriated (“nationalized”) the $24 billion private pension funds industry in order to save the public system, forcing citizens to trade their savings for Argentinean Treasury bills of dubious creditworthiness. I suggested then that such a thing might happen in the US, where Americans have many billions put aside in various retirement vehicles — a tempting target for any cash-starved government.

I think that dark day is growing closer. My feeling is confirmed by some troubling news, recently reported by the Adam Smith Institute’s wonderful website. The author of the report, economist Jan Iwanik, notes that a number of European countries are shoring up their tottering public pension plans by the Peronista tactic of stealing from those who have prudently put aside some extra money for their retirement.

Bulgaria, for example, has put forward a plan to confiscate $300 million from the private savings accounts of its already impoverished citizens and put those funds into the public social security system. Fortunately, organized protest has cut the amount transferred to “only” $60 million — for now, at least. And Poland has crafted a scheme to divert one-third of all future contributions that are made to private retirement savings accounts, so that the money flows instead to the public social security scheme. This will amount to $2.3 billion a year stolen from frugal people to shore up the improvident public system.

The most egregious case is that of Hungary. This state, which has been teetering on the verge of insolvency for years, has taken a drastic punitive step. Under a new law, all citizens who have saved for their retirement face a Hobson’s choice: either they turn over their entire retirement accounts to the government for the funding of the public system, or they lose the right ever to collect a state pension, even though they have paid and must continue paying contributions to the state system. The Hungarian government thus hopes to pocket all of the $14.2 billion that the hapless Hungarians have managed to squirrel away.

As our own national insolvency grows nigh, it is just a matter of time before the feds take a swing at the enormous pot of private retirement savings held by Americans. If you think you’ve heard nothing but class warfare rhetoric from this administration, just wait till it feels the need to take your 401ks, IRAs, and so on. The demonization of the productive and the prudent will be loud and shrill.




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