From the Editor: We've been tracking this threat for years, ever since Keith Fitz-Gerald brought it to your attention back in January 2010. Today, Resources Specialist Peter Krauth weighs in on some recent developments in this story, because three of the commodities he covers can protect you. The Fed can't print these things... Here's Peter.
Central banks may have foolish policies, but central bankers are no dummies.
They know exactly what they're doing. They even comprehend a few of the implications, too.
Which is why it's interesting that some American central bankers have suggested doing away with the debt ceiling altogether.
Famed investor Marc Faber recently said, "The question is not tapering. The question is at what point will they increase the asset purchases to say $150 [billion], $200 [billion], a trillion dollars a month."
Faber expects the Fed's current QE4 to become "QE4-ever."
That could mean years of money printing and ultra-low rates.
Even bond king Bill Gross recently chimed in his latest monthly outlook that "The United States (and global economy) may have to get used to financially repressive - and therefore low policy rates - for decades to come."
Either way, don't depend on the Fed to save you. You can save yourself.
And now you'll need to...
Your Retirement Account Is "Fair Game"
It's already happening elsewhere...
Cyprus got the ball rolling earlier this year. In the wake of its banking crisis, some depositors lost more than 60% of their bank deposits in a European Union-enforced "bail-in."
In conjunction, capital controls were set up to stem a possible stampede of outflowing funds, originally said to last a few months. Then that was extended until January 2014. Even now, Cypriot Central Bank Governor Panicos Demetriades thinks it could still be a year from now before capital can flow freely.
And these days, Poland is getting in on the expropriation game, too.
In a sudden move, Poland's federal government has "transferred" bonds held by privately managed pension funds.The idea is to turn these into pension liabilities of the state-run social security system.
Those private pensions originated in 1999, when a hybrid national pension system sent half of worker's social security tax into a private plan. Since then, the plans have grown to $86 billion, $37 billion of which is in government bonds.
In one swift move, the Polish government declared the nation's debt as being reduced by $37 billion. They euphemistically called this a "pension overhaul," since "pension theft" would have been decidedly less popular.
Even the balance of those pensions, invested in equities, will eventually be stolen. The government plans to begin transferring the equity holdings to their own coffers 10 years before the individual reaches retirement age.
It would be easy for the U.S. government to attempt the same thing.
Your Assets Are Their Target
It's not just possible for the U.S. to begin expropriations, it's likely.
Obama's April budget proposal suggested putting a limit on lifetime 401(k)contributions. Not only would it be complicated to police, it would keep contributors from adding further to their retirement accounts, thereby forcing them to pay more tax on unsheltered funds.
Back in January 2010, Bloomberg BusinessWeek reported, "The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged."
Then in February this year, the Washington Times reported: "Consumer Financial Protection Bureau director Richard Cordray recently mentioned these [401(k)] accounts in a recent interview, stating "That's one of the things we've been exploring and are interested in, in terms of whether and what authority we have."
The idea, apparently, is to "protect" accountholders from financial scams and risky investments.
Of course, they'd gladly convert those holdings into U.S. bonds for you. I guess Uncle Sam is having a harder time unloading the same "quality stuff" to the China these days. The Chinese have already plowed trillions into U.S. Treasuries, and recently indicated (again) that they're looking for ways to diversify out of the greenback.
You can, too.
Become Your Own Central Bank
Governments with the foresight - and means - to do it are buying gold.
Official gold purchases have been on a tear, with the World Gold Council forecasting central banks to remain net buyers again in 2013, as they have for past three years.
So, don't be fooled when Bernanke says he "doesn't pretend to understand gold prices," and that gold is "not money, but a precious metal," and that central banks hold it because it's "tradition."
Bernanke is no fool. And neither is Mario Draghi, his European Union counterpart.
In a recent speech at the Harvard University Kennedy School of Business, Draghi said that when he was governor of the Bank of Italy - owner of the fourth largest gold reserve in the world - he "...never thought it wise to sell it."
He also told the audience that gold reserves provide protection against U.S. dollar fluctuation and that risk diversification is why nations have essentially stopped selling reserves.
All of this points to one solution...
You need to become your own central bank. And you need to be proactive while you have the luxury of time and the clarity of thought, without duress.
Above all, you need to own things the Fed can't simply print. You want tangible, "out of print" assets.
Here are three things you need to do:
- Own and invest in hard assets like gold, silver, energy, and real estate. You can buy physical precious metals; you can buy physically backed ETFs; you can own quality resource equities, including your own home; and you can own income-producing properties and land. Assets in non-retirement accounts are more difficult to expropriate. Consider that owning gold was made illegal in 1933.
- Hold plenty of cash. Cash is king, despite the risks of inflation. Hold it as a bank balance, but watch FDIC deposit insurance limits, and consider diversifying into other currencies. Be sure, however, to hold some physical cash as well, as this could be crucial during a "bank holiday." Thanks to the Dodd-Frank Act and the Foreign Account Tax Compliance Act (FATCA), Chase Bank is already limiting "cash activity," deposits and withdrawals, to $50,000 per month.
- Hold assets internationally. This is largely the same as in owning hard assets, as above, but in another country. Consider opening a foreign bank account. It's not easy for Americans - thanks to FATCA - but holding something outside your country of residence makes it tougher for a desperate government to grab. There are reports that JPMorgan Chase, Wells Fargo, and others are making it excruciatingly difficult for individuals and business to conduct international wire transfers, but it's still possible... for now.
It's time to learn from the squirrel's instinct. We've all observed that, as winter approaches, the squirrel accumulates and stores its "assets" to survive the winter.
You'd be well-advised to do the same thing.
Accumulate physical assets... and not all in one place.