In any case, reader Digger asked, "what could happen to retirement accounts - specifically pension funds, IRA's, and 401K's in the scenario that you anticipate?".
This is something I am passionate about as evidenced by the fact that I liquidated all of my past corporate job 401ks several years ago (when gold phils were ~$900/oz) and bought gold and silver bullion coins with the entire sum. This was not "a trade" per se. I don't want to trade or "invest" my retirement savings. Moving my entire retirement fund into bullion coins was not an act of speculation for me. I just wanted the buying power to be there when I needed it, no questions asked, no permission asked, no forms to fill out, no nothing. It was a change in long term horizon strategy based on the facts as I saw them unfolding. I paid the early withdrawal penalty and all the taxes on them because, after careful consideration of the big picture, I came to the conclusion that in a crisis possession is 9/10s of the law. Always has been, always will be.
I concluded that my 401k accounts from two past employers were essentially bank deposits (and thus legally treated as loans to them) in some financial institution of unknown leverage. I realized that industry and banking had colluded with government (Ike's "military industrial complex") over time to herd everyone into the paper asset market so that such assets could be used as reserves to underpin massive leveraged gambling by them. I sensed that the concept of privatizing gains while socializing losses had always been the norm but that as the end game approached it would be increasingly difficult to hide from Mark and Patsy.
I believe that inability to remove one's value from the system on demand and in an easy fashion without penalties is already an existing form of capital controls and that they would only get worse as the crisis wore on. To me it seemed like the march toward slaughter. I decided to reclaim my property and to take care of it myself. I have never regretted that decision and I will continue to not regret it even if gold does bottom at $700/ozt some day. I sleep well know that what I have is mine and that nobody can implement capital controls on me with the stroke of a pen "for the good of the system and of society as a whole". Here is a past post of mine which I just updated with a few comments. The mindset in that post is why I cashed out of the 401k system in late 2008.
So here is how the game plays out IMO and based on the current information that I have and trends that I have observed for many years: Those who get out of the Ponzi while it is possible end up with something in their hands. Those who stay in too long get slapped with capital controls which will effectively end up being partial or total confiscation. In the case of the 401k, as soon as some big stock market losses begin to occur, the government will eliminate all avenues of early exit for retirement funds. They will not even offer early withdrawal with penalty when you change jobs the way you can today. They will try to keep as many people locked up in their asset market as possible.
Why? Because retirement fund redemptions require asset sales by the fund managers and that will only lower the falling asset prices even more due to the pricing laws driven by supply and demand. Governments knows that the virtuous cycle on the way up (higher prices, even if only debt-driven, get more people interested in participation) transforms into a vicious cycle once falling prices have been established as the new trend. It also knows that the massive credit ramp up will AND MUST eventually result in a vicious credit unwind. If this is allowed to occur at free market pace (i.e. every man for himself) it will result in massive social upheaval and unrest. At stake is perhaps even the overthrow of government and death in the streets of those responsible for the pump and dump. Don't roll your eyes at this! What do you think the Arab spring was or any of the other similar massive social unrest is that is going on all over the world right now? Why after so many years of seemingly unassailable rule was Saddam hanged and Gadhafi dragged into the street and shot?
Remember: while the marginal players are affected first and worst, even the all seeing Eye of Horus at the top of the pyramid (scheme) comes tumbling down when all the underpinnings have collapsed.
The global precedent is already there: Cypridiot bail ins, Private pensions nationalized in Argentina, Poland's theft of half of everyone's private pension, similar scams for Bulgaria, Ireland, and even France. There was also the Venezuelan nationalization of private property in the Exxon matter,
Thus, those in the system will be "asked" (literally at gun point if you say "no") to take it up the @$$ for the good of the system. "The System" is of course the club owned by the elitist Ponzi scheme operators. It is their system, their club, not yours. Your role is limited to that of playing the Mark and the Pasty. The theft will be propagandized; billboards and print media will accuse you of being selfish and unpatriotic if you want your value back out of the system. In fact, they will urge, cajole and even legislate that we provide more deposits. They will probably even limit the amount that retirees can withdraw to some stupidly trivial amount per unit time and they will do it "for your own good". Today Mark and Patsy ask the financial pundits "how much should I withdraw each year". In the not distant future they will ignore the old pundits and instead be asking the federal government "what is the max I can withdraw at once?". In my view, all I did back in 2008 was to avoid the rush.
The investment choice available in pensions and 401ks will be stocks, bonds and money markets, all of which will get killed during deflation. I think everyone "gets" this regarding stocks but probably thinks bonds and perhaps money markets will be safe havens. For those who labor under this misunderstanding, please consider that the basis of the 2008 collapse was "an electronic run on the banks" (that links to a short video which is worth your time to watch).
All the typical relationships in the past like higher interest rates signaling inflation will fall apart as I have written so many times in these pages. Those models are all based on a working fractional reserve system which still contains the trust of the victims. While interest rates will be going up soon, it will have nothing to do with inflation. It will be due to people losing faith in the US government (an organization which is rapidly beginning to resemble the chaos and corruption of every other 3rd world despotic $hithole out there). Stocks will fall AND bonds will fall AND money markets will fall. As Prechter likes to say, in a crisis "it's all one market".
My interpretation of his words is that, in a crisis, everyone remembers the old rules (or re-learns them the hard way) and there is no older rule in any herding culture than possession being 9/10ths of the law. We might mask this truth during the pump but when the tide goes out and we get the dump it becomes intuitively obvious: people will become more interested and concerned over the return of their capital than return on their capital. People will also figure out what I know to be true: money cannot work for you. If you engage in a something-for-nothing venture like "investing", you might win, but it was not because your money did any work. It takes work, productive human labor, to create new value. Thus, transferring funds to winners in the from losers in the capital markets is not work; it's gambling. Period. Once those with retirement funds in the system figure this out, once they understand how badly they were hoodwinked into putting EVERYTHING into their Madoffian paper asset retirement fund, once the insult of realization takes hold that they believed the con men who told them it was the "responsible" thing to do.... well, that kind of thing doesn't heal easily if ever at all. It can take one, two or more generations to forget that kind of treachery and abuse of trust.
In any case, I expect to see capital controls during the deflationary stages while the nominal value of your assets get hammered and then further loss of real buying power during the massively inflationary stages. These things, in aggregate, will essentially be a bail in of the fraudulent system using your retirement money. I think it was planned the whole time and I think it was a minor variation on the old con game known as the honeytrap. By offering some sweet sounding deal like tax deferral ("better than sex!") they got us to voluntarily store our retirement savings in a government controlled system. When the crisis hits and possession again is revealed to be 9/10s of the law, they will possess your money and you will not be allowed access to it. At some point the deflation will end and the dollar value of your savings will have gone down dramatically. At that point the government will declare the stock market "too risky for people" and nationalize your 401k and in fact demand that people "save" even more into their "safe" system. That is when the big inflation will occur and the vast remainder of the buying power of the retirement account will disappear.
This is but one series of mechanisms by which the game can go. There are certainly other variations but at the end of the day the result will be negative for savers in their system. Government can't take money from the already poor who don't have anything to take. And even if they knew what I have (which they don't because I am the only accountant involved) they won't be able to steal from people like me who have exited their system without a firefight (I will lawfully defend my property from all comers using lethal force under the existing laws of the state of Texas).
Thus, government will be forced in the name of their own corrupt survival to take from those with the demonstrated ability to pay and who have left themselves no avenue of escape. George Carlin saw it clearly: "they are coming for our retirements". Bottom line with respect to government controlled retirement funds, the truth is the same as the punch line figured out by the WOPR computer after having computed all the possible game moves in both tic tac toe as well as global thermonuclear war: "The only winning move is not to play".
Here is a 2010 post on future inflation. They key word there being "future" with the understanding that it could take a good while because, "The currency is already worthless because it is backed by nothing. In fact, it’s a bit insane that we still treat it as if it had any value given that we defaulted on gold convertibility in 1971."
Here is a 2011 post on future inflation. as I wrote there, "It could be 2 months or 12 years but it's a very good bet that it won't last forever".
Captain,
ReplyDeleteThank you for the reply and very informative post.