History is full of examples of governments who when they can’t pay off their debts, begin to confiscate private-sector assets. The most recent example is Cyprus. After the close of business Friday, March 15th, 2013, the government of Cyprus declared that they were going to deduct 6.75% of every bank account of less than €100,000 ($130,000) and almost 10% of accounts valued at €100,000 or more. This sparked a round of protests in Nicosia the capital of Cyprus and by Tuesday the government caved to the will of the people and rescinded the law.
Argentinians on the other hand were not so lucky. Recently, the Kirchner government froze bank accounts and forcibly devalued dollar accounts to pesos. But worse than costing savers 10% like in Cyprus, Argentina took 66%. This is on top of defaulting on $95 Billion in debt in 2001, and recently confiscating the entire Spanish Repsol oil company. Additionally, in October 2008, Kirchner confiscated US$30 billion held in the country’s ten privately managed pension funds. Did you catch that? She raided the PRIVATELY managed pension funds to pay off government debts.
Not Only 3rd World Money at Risk
It is not only 3rd world governments that are desperate to raise money these days. Just a couple of months ago, with the stroke of a pen the U.S. government raised the maximum tax rate on individuals making more than $400,000 (or couples making more than $450,000) from 35% to 39.6% and it is currently dealing with sequestration. Back in 2008, the U.S. government considered a plan to impose the Orwellian named “Guaranteed Retirement Accounts” which should be called Guaranteed Confiscation Accounts on all U.S. employees. Under this plan, every American would be forced into these new Social Security-like retirement plans. With one hand the government would deposit $600 into your GRA, and every worker would be responsible for depositing an additional 5% of each paycheck into the account. But with the other hand, the government would dip into all the IRAs in the country by making the gains in those plans no longer tax-deferred. Plus the new GRAs would require you to “invest” a portion of every GRA into government bonds, in effect forcing you to loan the government money on their terms (for your own good of course- sarcasm). GRAs would also limit investments to ones approved by the government.
So the government is already eyeing your IRAs. Fortunately, that plan did not pass, but sooner or later the pool of IRA funds will become too tempting for the government to ignore.
But that is not the only way for governments to raid your savings. The easiest
and the least noticeable way is through inflation. The government simply prints extra money and spends it. By the time it trickles down to you, it has diluted the value of all the money in the pool and your income buys less. It is much harder to protest against this type of theft because it is not as sudden but instead happens gradually as the inflation rate creeps ever higher and the money becomes worth less and less.
So what can you do to protect your savings?
One answer is to put a portion of your investments into precious metals like gold, silver and platinum. If you are concerned by government confiscation the best way to do this is to buy the physical metal and arrange to store it yourself somewhere out of the hands of the government and safe from prying eyes. Of course, you need to be sure it is also safe from theft either by strangers or even friends or relatives. There are stories of gold coins going missing one at a time… so be sure yours is stored safely.
Another option is to secure your IRA with tangible assets. This is not as easy as simply buying gold coins, or calling up your IRA and telling them to buy a stock, but it can be done. The key to IRA Qualified Bullion i.e. putting gold into your IRA is to find an IRA custodian that allows you to invest in precious metals, unfortunately, most do not. That is not because the government prohibits bullion, it doesn’t, but it does have specific guidelines that must be followed and most custodians do not want to be bothered with it (plus they don’t have the facilities necessary either.)
The two most respected names in the gold IRA custodial business are GoldStar Trust and Sterling Trust. It’s extremely important to choose a reliable custodian because one of the IRS requirements is that your gold is stored at a location that you don’t have physical access to. Plus although GoldStar or Sterling are your IRA’s legal custodian; they store it at a certified depository, like Delaware Depository Services or a COMEX gold depository. So you will never see your IRA gold and therefore must have complete trust in your custodian. But once you have an agreement with one of these specialized custodians you can transfer a portion of your other IRAs into precious metals.
Over the last 13 years, gold and silver have been some of the best-performing assets, although prices have pulled back a bit over the last year, making this a good time to consider hedging a portion of your portfolio with precious metals to protect against the ravages of government spending.
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