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The Federal Government is running massive budget deficits which is creating a massive supply of Treasuries. But there is no demand and so the Federal Reserve is monetizing the debt. But these colored coupons merely amount to certificates of confiscation. Where will Congress find the capital to buy Treasuries? Most likely, your retirement account and screwing up your retirement calculator.
MASSIVE BUDGET DEFICITS
The Obama administration is on track to need approximately $2T of new debt sales or about 300% of 2008 debt to fund their aggressive spending. But an disproptionately large amount of purchases come from the ‘Household Sector’. Eric Sprott of Sprott Asset Management enlightens us:
We must admit that we were surprised to discover that “Households” had bought so many Treasuries in 2009. They bought 35 times more government debt than they did in 2008. … Amazingly, we discovered that the Household Sector is actually just a catch-all category. It represents the buyers left over who can’t be slotted into the other group headings. …
Our concern now is that this is all starting to resemble one giant Ponzi scheme. We all know that the Fed has been active in the market for T-bills. Under the auspices of Quantitative Easing, they bought almost 50% of new Treasury issues in Q2 and almost 30% in Q3. It serves to remember that the whole point of selling new US Treasury bonds is to attract outside capital to finance deficits or to pay off existing debts that are maturing. We are now in a situation, however, where the Fed is printing dollars to buy Treasuries as a means of faking the Treasury’s ability to attract outside capital. …
As we have seen so illustriously over the past year, all Ponzie schemes eventually fail under their own weight. The US debt scheme is no different.
Ponzi schemes fail when capital seeks safer and more liquid assets by burrowing down the liquidity pyramid. This is similar to the process that happens in a credit contraction. As I wrote earlier, the Federal Reserve will fail with quantitative easing.
CERTIFICATES OF CONFISCATION
Treasury instruments have been, are and most likely always will be certificates of confiscation. The saving retirement calculators are almost guaranteed to fail because of this uncertainty. Here is a visual explanation so you can understand the math.
So likewise Treasury Inflation Protected Securities (TIPS) are just an invitation to be stolen from. This makes your simple retirement calculator even less useful.
RETIREMENT ACCOUNTS
Congress looted the Social Security Ponzi scam many years ago. The social security retirement calculator is completely broken and predictably riddled with fraud.
Where is the next largest pool of capital for these vampire squids? Yes, your 401k (now a 104k), SEP-IRA, Roth IRA, etc. How will these tax eating parasites slurp that value?
The Telegraph reported,
The Argentine state is taking control of the country’s privately-managed pension funds in a drastic move to raise cash. … So, over $29bn of Argentine civic savings are to be used as a funding kitty for the populist antics of President Cristina Kirchner.
On 8 January 2010 Kirchner has attempted to fire the chairman of the central bank because he has refused to use about $6.6B of the funds to pay international debt that falls due in 2010 but a federal judge has ruled Mr. Redrado should be reinstated at the independent central bank. What a mess! The President wants to fire the banker because he will not hand over everyone’s pension money to overseas bankers.
Businessweek has reported,
Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing a steady payment for life, according to an institute-funded report today. … The institute’s member companies manage $11.6 trillion of assets in mutual funds, including employer-sponsored 401(k) accounts.
While the state sponsored retirement accounts may appear alluring, particularly when your employer matches your contribution, you may get more than you bargained for. Like this English man if you contribute to your state sponsored retirement accounts then you may find unwittingly find yourself in an uncomfortable situation and have no one to blame but yourself. The tax eating looters and moochers will attempt to force you to become infected with their lecherous colored coupons.
CONCLUSION
The nation does not need Washington DC and individuals do not need Washington DC usurping their retirement accounts and forcing the purchase of Treasuries. Doing so is simply attempting to sustain the unsustainable. But that is most likely what will happen.
Now is the time to begin reducing your exposure to this political risk and safely sheath your capital in safer assets outside of these retirement accounts. For a reliable and free retirement calculator use the Numeraire Spreadsheet and realize that for hundreds of years a one ounce silver coin will buy you approximately one steak dinner. For the ultimate no confidence vote just buy gold, silver or platinum and learn some good hawala techniques like the Argentinians.
DISCLOSURES: Long physical gold, silver and platinum with no position the problematic SLV or GLD ETFs.
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{ 13 comments… read them below or add one }
thank you for sharing and educating me ,and all the other folks who very much need to know this information. My wife and myself have been buying physical precious metals. I do have a question.There is much talk about a new reserve currency.If that is the case,is there anyway to know how soon this may occur?And if this is the case,what kind of impact would this have on the precious metals? thank You
Trace,
I’m just a bit confused on that Argentinian bit. It says that the state is taking control of the pensions but then later on it talks about the state getting mad at how the central bank isn’t doing what it wants with the pension funds. Who has the pension funds… the state or the central bank?
Reading one of the articles you linked it says:
“Fernandez had ordered the central bank to use about $6.6bn in reserves to help cover $13bn in international debt falling due this year.”
As I understand it the government took $29 billion from the private pensions. Then it is ordering the central bank to uses $6.6 billion to pay a short term debt. So are these two events not related in the sense that they are coming from different money? I’m just confused because when you said, “On 8 January 2010 Kirchner has attempted to fire the chairman of the central bank because he has refused to use about $6.6B of THE FUNDS” I thought you meant the funds were coming from the $29 billion looted and not the bank’s reserves. Is this correct?
Great article Trace, amazing.
Mark
Trace,
I’ve read several articles regarding the ‘looting’ of tax deferred accounts. I’ve also read an account of a committee discussing how it might be done without sending folks to DC with pitchforks.
My wife and I have most of our savings IRAs and 401Ks. Is there any way to invest those funds which would protect them from forced investment in certs. of confiscation? Or is the only option to bite the bullet and pay the taxes and penalties?
I’ve been meticulously following your advice, as well as Sinclair’s, Casey’s and long list of hard money folks, and haven’t found a solution to this dilemma–save biting the bullet. Seriously, I read a lot and have found no solution to this problem; perhaps there is none. Our tax deferred acounts started out as a great way to save and avoid taxes, but has turned into our Achilles Heel.
Any suggestions, any at all, would make our day.
Thanks much for all you’ve done to help us poor schmuck savers out here.
Best, Steve
Thanks Mark.
Ray, no real idea on when a new reserve currency will come about. It will most likely be very bullish for the precious metals though.
Derrick, from what I understand it is funds on deposit at the central bank. I do understand your confusion about the conflation of the money and I am not exactly sure on the source of all the funds and where they are being spent. Like our Federal Reserve their system is not exactly all that transparent.
Steve, this is really a personal decision that should be made very carefully and deliberately. You will likely want to employ the use of a skilled accountant and attorney as there may be some exceptions that allow you to get money out without penalty. I have never trusted in the state sponsored retirement accounts and consequently have only contributed immaterial amounts to them so I am probably the wrong person to ask. I have voted NO CONFIDENCE for a long-time.
Ever heard the story about how monkeys are trapped? A gourd is placed inside a box and a hole is cut that is large enough for the monkey to fit its hand in but small enough that when a fist is made it cannot be moved through the hole. The boxes are then placed out in the jungle and the monkeys will grab the gourds and will not let go and allow themselves to be captured. The people just walk right up and put a bag over the monkeys. Go figure.
Trace, it is ironic that the timing of this proposal coincides with the lifting, in 2010, of the income limits for those that wish to “convert” a traditional IRA into a Roth IRA (with tax consequences on the amount converted). While there is a tax penalty to do the conversion (converted amounts count as income in the year converted, but a loophole allows the taxes owed to be split over the following two tax years) is it just possible that the Roth IRA will not be included in the “treasuries” proposal and that the 2010 lifting of income limits is not a coincidence? Could this lifting of income limits for IRA conversions be nothing more than an “escape” route for those in the know? Should we all convert to a Roth (if we can afford the tax bite) to avoid force treasury purchases?
Trace,
If derryb’s thesis is correct that ROTHs are a possible way out, albeit still taking the tax bite, then the strategy my wife and I have adopted could be more valid than we anticipated.
In 2008, when our junior miners were way in the crapper, we calculated how many FRNs we’d get back as tax returns. We then shifted that amount, in shares, to our ROTHs. While we didn’t get any FRNs back, we would up with solid juniors in the ROTHs with very little tax consequence. Since then, our ROTHs have quadrupled tax free.
Granted, there was/is the risk of the equities going to zero after having paid the taxes, but so far it’s worked out as we sell into strength. Unfortunately, we still wind up with the FRNs of various central banks.
If one really thinks the equities one holds are strong and will endure the market volatility, then the strategy would be to purchase equities in traditional IRAs, welcome extreme weakness and move them to ROTHs.
Of course, the strategy depends on whether or not the ROTHs will be immune to the gov’ment scheme. But even if they aren’t, at least you’ve avoided most of the capital gains taxes and are only left with the penalty if/when you bail out of the ROTHs.
I agree with you that the best place to be is in hard assets, outside of the gov’ment’s reach. If I could do it all over again, I would have avoided this trap in the first place. But what did I know? Nothing, until I educated myself with information such as you provide.
Thanks much, Trace, for providing this website. It’s folks like you and Schiff and Sinclair who will lead the way to a better future for this once great nation.
Best, Steve
Thanks Steve. It sounds like you did some very clever tax planning with the juniors in 2008. While I never welcome price weakness there are a lot of accounting situations where this can be particularly helpful for the tax situation. A few of my colleagues do this all the time with estate planning and I had a particularly aggressive friend who wondered what I though of using a Roth into a purchase option as part of a real estate deal to shift income there over a few years. Very interesting but I never did find out what he did.
There are situations where using the retirement accounts may be good but I do agree that most people have found themselves unwittingly in the trap. I have heard from many readers that if they had it to do over again that instead of contributing to retirement plans, etc. they would have just taken their extra money each month and gone down to the coin shop and bought a gold or silver coin. Interestingly, they would be in about the same spot financially without all the risk and headaches in terms of time! There is no free lunch. Glad you find the site helpful :)
Will Congress Loot The Private Retirement System?
Future Washington revenue needs and the growing treasury debt load may ultimately require government mandates directing retirement plans to purchase government bonds. In addition, Washington will likely force trillions of private plan benefits into new proposed “universal” government Guaranteed Retirement Annuities managed by the Social Security System.
This threat of stealth nationalization and confiscation and how it could happen is outlined in the 20 page special report, “Are You Ready for the Coming Obama Retirement Trap?”
Here is a URL link allowing you to read part of the special report.
http://www.ronaldholland.com/retirementtrap.htm
Thanks Ron. That is a very plausible scenario you lay out in the article! Good to see someone talking about James Blanchard. Interestingly, a few weeks ago I was meeting with Anthem, James’s son, who has also introduced me to Tami. Small world!
Can you recommend a good tax attorney in the Seattle area who specializes in asset allocation. I’m disabled and currently have most of my nest-egg in an IRA. I’d like to put a large chunk of it into GoldMoney but want to be advised regarding tax considerations and an IRA before doing so. Or perhaps you give investment/tax advice, Trace? I’m feeling an urgency to get my money offshore. What do you think about offshore annuities as a vehicle to be safe vehicle from govt interference? I’d like to stay metals and GoldMoney looks good. Thank you! ~ Mary
Hi Mary,
I do not give the investment/tax advice but recommend you seek professional assistance. I do not know a good attorney in the Seattle area. I have sent some readers to Bill Rounds, who coauthors HowToVanish with me, and he has been quite helpful in this area. From what I understand the fees for IRAs with GoldMoney are pretty high so I do not really like that vehicle. I like my bullion unencumbered as much as possible. Just some things to consider.
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