I’ve posted twice already about my theory that the government is moving towards outright confiscation of wealth. We’ve seen what happened in Cyprus—effective confiscation of all bank assets in excess of €100,000, destroying the life savings of many citizens and ruining many businesses. I’ve posted about plans for the US government to ‘assist‘ people with their retirement investments. Please read those articles if you haven’t already done so.
The latest evidence of my theory being put into action comes in the form of President Obama’s budget. In it, he proposes limiting the total assets in a retirement account to $3,000,000. First off, it’s clear that new contributions would be banned. That’s a given. The question is, what happens to assets in excess of that amount? There are several possibilities. One would be forced distribution, at current tax rates. This would immediately raise revenue (taxes would have to be paid on the distributions). Another option would be the transfer of those funds to Social Security to ‘maintain’ the ‘safety net’ for those who don’t have personal retirement accounts. Another option would be to transfer those excess funds to insolvent pension funds (mostly for public employees). Don’t think it can happen? All it takes is a change to tax laws and a cap on the total value of the retirement account.
Of course, this will be sold as a “make the rich pay their fair share” and “it’s not fair that rich people have more money for retirement”. Standard class warfare tactics. Anyone defending the current uncapped accounts will be painted as a protector of monied interests and an ‘enemy’ of the people. As they said on BSG, “All this has happened before; All this will happen again”. Sadly, the only viable solution to this in history has been revolution-violent or otherwise. As the government tries more and more radical ‘solutions’ to stave of the inevitable collapse, more and more draconian controls will be put in place. See my article on the real motivation for gun control.
Every time a government issues unbacked currency, the economic system eventually collapses. This is usually the result of incessant printing of currency by the government in a vain attempt to print/inflate their way out of a unsolvable budget problem. Politicians, having little or no knowledge of history, often being purposefully ignorant of it, try to buy off the population with ever larger, more costly schemes. They go into debt, and when they are no longer able to borrow enough, resort to printing more currency. At that point, inflation takes over, there is a lack of confidence in the currency and collapse is virtually inevitable, since politicians generally won’t even consider the necessary steps to rectify the situation long-term. All one has to do is read Paul Krugman to see the thinking I’m talking about. Sure, they can stave off the collapse for a period of time, but unless their budgets are brought into balance and currency is backed by some kind of asset (usually precious metals like gold or silver), it’s a delaying action at best.
Some will note that the prices of gold and silver have been falling. That’s true. And it makes sense in the short term. Because the government is printing so much money and maintains interest rates of zero (ZIRP) there is a huge stock market bubble. Banks and others are moving from metals to stocks for the immediate gains available. In the long term, though, this bubble, like all others in the past, will pop. Inflation will force the Fed’s hand, causing interest rates to rise (in a vain attempt to stave off the inevitable collapse of the currency) which will cause money to flow from the stock market into interest-bearing assets—a reversal of the current flow direction. There is also a real estate bubble building, and the government is once again trying to inflate it through lax lending policies. Where have we seen this before? In addition to the lax standards, banks are keeping many foreclosures off the market in an attempt to reduce supply and drive up prices. Just like before.
How should a rational person respond to all of this? First off, it must be acknowledged that while all of the above is true, nobody can be sure of the timing. This could happen in the next few months or it could take a decade or more. It’s inevitable, but the timing is uncertain. That means a rational person will hedge their bets as best they can and try to ensure they are in the best possible position for any outcome. In other words, don’t run out and sell all your stocks and bonds today, don’t stop saving/investing and don’t stop funding your retirement fund. The best, safest hedge is, at it always has been, precious metals. Convert at least some of your investments to gold or silver and take possession of them. In a crisis. you might not be able to get them from the bank, even if they are in a safety deposit box. Gemstones are also a possibility, but somewhat riskier as they are harder to trade, have a volatile market and are not generally though of as ‘money’ in the way gold and silver are.
How much of your net worth you convert to gold and/or silver depends on what you think the timeframe is. The shorter the timeframe, the larger the percentage of your assets you should convert to precious metals (or some similar physical store of value). Personally, I don’t see how this can go on for more than a few years before systemic failure strikes and a significant portion of wealth is simply seized by the government. If your money is in the bank or stocks, it’s trivial for them to take it. If you have physical possession of your wealth, it’s much harder for them to get it. Even more reason to defend your 2nd Amendment rights—they allow you to defend your possessions. I say this because the US government has, in the past, successfully confiscated most private gold holdings. I wouldn’t put it past them to try to do so again (silver was not included then, but it would shock me if they didn’t try to include it in a future confiscation attempt).
A final note—property (i.e. ‘real estate’) is not a good, safe investment. If the mortgage crisis didn’t teach you that lesson, then a simple consideration of the following should make it clear. While you own ‘title’ to the land, the government claims ‘eminent domain‘ and the courts will allow them to take it from you for ‘just’ compensation. And they will pay you in paper currency that they control and that they can simply print more of to pay you. The thing is, they don’t have to resort to this. All they have to do is increase your property taxes to a point that you are no longer able to afford them. When you don’t pay, they simply take your land and sell it out from under you. Just like the feudal lords did. Or, even easier, they can simply zone you out of using your property. In other words, you don’t really own and control your land.
If the above doesn’t convince you, I suspect nothing will. If the above does convince (or reinforce your convictions), then take action now. Spread to word. The more like-minded people who follow this, the easier the economy will recover after the collapse, as there will be significant amounts of gold and silver in circulation. Many philosophers in the past saw this coming. In a quote attributed in various forms to many commentators, but finding its roots in Plato’s analysis of democracy in The Republic:
“When the people find they can vote themselves money, that will herald the end of the republic.”
[updated 2013-04-09 and 2013-06-25 to correct grammar, spelling and punctuation]