The Slippery Slope “Fallacy”

By Simon Grey, on April 15th, 2011

As reported by ABC News, what started out as a program to hold unclaimed property, such as the contents of safety deposit boxes owned by people who have moved away without a forwarding address, has gone wildly out of control. The program is now using the flimsiest of excuses to drill safe deposit boxes and sell the contents, often for below-market value, the proceeds going to the state’s general revenue.

In a case reminiscent of the Monty Python organ donor skit (or perhaps the movie Repo Men), a San Francisco woman’s jewelry appraised at over $80,000 was sold even though she lived a few blocks from her bank, had not moved, and was current on all of her box rental feeds. In another case, a man’s retirement savings consisting of $4 million of stock certificates were sold; and “A Sacramento family lost out on railroad land rights their ancestors had owned for generations”.

There’s a reason why some have said that giving power and money to the government is akin to giving whiskey and car keys to a teenager: It’s because the government can be counted on to do wildly irresponsible things when given more power and money. Is it guaranteed to do so? Technically no, but history demonstrates, yet again, that the answer is a resounding yes. As it stands, it is simply best to deprive the government of as much power as possible, for it is certain that the government will abuse it.


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Retirement Accounts Could Boost Treasuries

By Trace Mayer, on January 12th, 2010

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 Ponzi 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 Argentines.

DISCLOSURES:  Long physical gold, silver and platinum with no position the problematic SLV or GLD ETFs.



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How to Protect Your Privacy and Your Gold

By Bron Suchecki, on September 8th, 2009
Question from a reader:

“I have been acquiring Perth Mint silver and gold in the depository scheme and am concerned about confiscation issues in the long term. Probably it will not happen, but again given the mindlessness of recent policy decisions there is no reason why the Australian government could not just decide to tax the gains at a punitive level – ‘because people are making unfair gains from it’ or some other vacuous reason. Seems to me the main risk is not holding bullion, but also the ‘privacy risk’ if you want to call it that, that the government knows that you’ve got it and can therefore either tax it highly or confiscate it. Are you able to make comment about how best to acquire completely private gold and silver (ie no record of the sale therefore no one knows you’ve got it and therefore can’t confiscate it), in quantities of up to 100 oz?”

The scenario you suggest is certainly probable in any country. In an environment where other assets have declined and gold is $5000, the politics of envy may come into play. Classic example of this is the Luxury Car Tax introduced in Australia in 1986. While one can expect that a populist “gold profits tax” would get support, I think it is an open question as to whether it will go down well in Western Australia considering the high profile of gold mining in this state.

As I discuss in Australian Gold Confiscation, secessionism would be “in play” in such an environment. A “gold profits tax” could be considered as an Eastern States Federalist tax grab on Western Australia’s wealth, and could provide yet another reason to secede.

As to Government knowledge of your gold, note that the law only requires Australian bullion dealers to record your identity for purchases above $5000, not report them (unless you give cause for the bullion dealer to believe it is a suspicious transaction).

Therefore for the Government to confiscate, it will first need to personally visit each bullion dealer and go through their sale records. This gives you a bit of time between announcement of confiscation and a knock on your door. It is possible that the data collection will happen in advance of an announcement, but it is likely that rumors would circulate quickly.

In any case, those looking to take possession of physical gold should always consider the privacy implications. The risk here is a thief getting hold of the records of a bullion dealer or courier company. One needs to weigh up the convenience and cost of a telephone or Internet sale (which will leave records) versus a cash and carry purchase from your local bullion dealer.

The only way to protect yourself against this risk is to establish a relationship with your local bullion dealer and buy in cash under the relevant reporting/recording limit ($5000 in Australia). There is nothing illegal about buying a little gold with each pay packet, and most bullion dealers would understand that you are a prudent saver and not a drug dealer. But doing twenty $4990 transactions twenty days in a row would be considered a suspicious transaction and reportable.

For those whose personal circumstances mean the risk of theft is greater than privacy/confiscation considerations and thus choose to store their gold in a facility, just a word of warning not to get tricky with your identification. It needs to be clear to the facility operator who is the beneficial holder of the gold, otherwise you may have trouble establishing title to it (or being impersonated) in the future.

For example, even if there were no account identification requirements for bullion, the Perth Mint Depository would still want photo identification as an additional security measure. It is really the only way we can ensure that the person standing at our doors to collect your metal is you.

By way of example, a couple of years ago we had a call from a person who gave us an account number and account name and wanted to sell. However, he did not have the password, nor was he a signatory, so we could not take his instruction or reveal any details of the account. He gave us details, like purchase dates and amounts, that did correlate exactly with the account, but we couldn’t confirm or deny any of that – because he was not identified on the account. He became extremely agitated, but to no avail.

It turned out that he had the account opened in the name of a company by a broker/agent of his and they were the nominee directors and signatories. This privacy mechanism may have sounded good at the time, and maybe he had some other agreement with the broker to ensure they could not abscond with his metal. However, whatever structure he put in place, he had not considered the scenario where his broker was arrested and put in jail!

Not being keen contact his broker in jail, there was no way for him to get the broker to give us an instruction. He therefore had to wait, unsure if the broker had cleaned out his account. There is a happy ending to the story, as the broker did eventually get out of jail (but it was some months) and put in the sale instruction for him. In some cases, privacy may be too much of a good thing.



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Confiscation of Retirement Assets?

By D H Smith, on March 20th, 2009

There is a lively discussion under way at the Legal Insurrection blog with a post “The Revolt of the Kulaks Has Begun.” In the comments it is suggested that the administration will come after tax-advantaged savings assets of American retirement savers.

This is dynamite. It is hard to believe the administration would overreach this way, but congressional Democrats exposed them to the charge by taking advice from Teresa Ghilarducci, a critic of the retirement savings system at the New School. In effect she suggests confiscating private accounts and supplying guaranteed government accounts in their place.

Promoting my Household Initiative Plan or something like it is one way to make the administration tell us what it really has in mind for private retirement accounts.

I have been making free-market proposals to liberalize the current rules for the 46 million IRAs, SEPs, SIMPLE and Keogh retirement accounts and permit them to invest in real estate without the heavy restrictions which pertain to them now. Retirement-minded people who are in good shape, not behind on their bills, and not struggling, could benefit from this opportunity to use retirement savings to take advantage of low real estate prices in popular retirement areas.

If you believe that the money people have contributed to their retirement accounts belongs to them, then it should be their free choice to do with as they think best, to take advantage of such opportunities as they perceive, or to bail themselves out of the trouble they are in. And if the administration thinks differently, then it would have to knock down proposals like my HIP.

Let’s speak more generally about the restrictions and penalties that apply to these accounts. They are making a terrible situation even worse by restricting liquidity. Many people are being severely penalized for tapping their retirement accounts in order to try to save their homes and credit scores. Others who are behind on their mortgages and other bills, thereby damaging their credit, are nevertheless unwilling to incur the penalties they would pay to access their money in these accounts to get current on their bills. This is just madness. For the duration of the crisis, let’s free things up, and let people access their own money in these accounts to work themselves out of trouble without penalties.



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