by Gary Christenson, Deviant Investor:
Social Security Pensions? Surely they are safe … the government told me they were safe. But there is more to the story, so read on.
Private Pensions? State retirement accounts? An IRA or 401(k)? Equivalents in Europe, the UK, Australia, and Japan are probably similar. All are at risk and will be discussed further in part two.
Few individuals think about such things, our unpleasant realities, the facts, and mathematical inevitability. It is easier to dream about the “free stuff” we will collect when our favorite Presidential candidate is elected. You know … “hope and change, a chicken in every pot, no more foreign wars, reduce the deficit, free college tuition, free health insurance, lots of free stuff for everybody, no new taxes, kinder and gentler, the check is in the mail,” and further nonsense.
DEVALUING FIAT CURRENCIES: Public and private plans pay benefits in fiat currencies – debt based currencies that, in the case of US dollars, are a liability or a debt, of the Federal Reserve. Dollars are not money, just colored paper or digital credits “guaranteed” by a central bank with a long record of devaluing the currency, destroying purchasing power, bad forecasting, and lying. The paper and digital stuff will definitely purchase less in the future.
ZIRP AND NIRP: Central banks, in their “wisdom” have lowered interest rates to near or below zero. Over $12 trillion in sovereign debt “yields” negative interest rates while most short term paper pays almost nothing. These low rates reduce the interest expense of insolvent governments, encourage massive borrowing by corporations and individuals, and stimulate bubbles in housing, auto-loans, bonds, the stock market, energy loans, and more, but … LOW INTEREST RATES DESTROY RETURNS THAT PENSION PLANS MUST GENERATE TO REMAIN SOLVENT.
POLITICIANS: When governments and politicians run short of funds, can’t tax more, and will not reduce expenditures, they look elsewhere. Pension funds, IRA funds, and 401(k) funds are fat, multi-trillion dollar targets – not for confiscation of course – but for “strongly encouraged” or required purchases of low yielding and depreciating government debt.
Both public and private plans are at risk because of chronic (Chicago, New Jersey, Connecticut, Illinois, Kentucky, California etc.) underfunding, as well as reduced benefits, and rapidly diminishing purchasing power of the currencies that are used to distribute benefits.
Fiat currencies are continually devalued. A dollar, euro, pound etc. buys much less than 15 years ago, and far less than in 1971 when President Nixon “temporarily” abandoned the link between the US dollar and gold.
Expect fiat currencies to devalue further. Central banks assure us they want inflation, they own the “printing presses,” and will definitely devalue their currencies. The “trick” is to do it unobtrusively, carefully, and to force the masses to pay for the inflation and currency devaluation from their savings, investments, and pension plans.
When financial systems are stressed, when recessions are created, when wars are started; governments demand more revenues and increased spending. Raising taxes is unpopular so sneaky methods are needed – such as the proposed SAVE UP Accounts Act, MyRA, or more mundane confiscations such as in Hungary, Poland, and Bolivia.
In short: The system is rigged, the fix is in, and citizens must increasingly take care of themselves and depend less upon public and private retirement systems.
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