Market Havoc and Threats to Your Pension

Dees Illustration

Bob Chapman
International Forecaster

We have warned subscribers and listeners and those on the Internet over and over again that government was going to come after your private retirement funds including 401K’s and IRA’s that hold $6.6 trillion in investments.

This past week in a grand deficit cutting bargain the Senate Finance Committee explored “Tax Reform Options Promoting Retirement Security.” The excuse is to make 401K plans more efficient; to keep Social Security afloat and to switch funds from these retirement plans to be used elsewhere by government. It is called a looting procedure. The idea is to replace the 401K with a tax break that would allow government to offer bigger benefits to low earners and changes in withdrawal choices at retirement. It would include a change in the way Social Security benefits are calculated to reduce eventual payout and subsidize the poor via a government guaranteed annuity. There would also be an increase in the retirement age. This approach is similar to something you would find in the communist manifesto. Take from the bigger producers to subsidize the lesser producers. Each according to his ability and each according to his means.

We are told Social Security will be out of funds in 2036, which is untrue and the Congress does not mention that the trust fund has been looted since June of 1935. All that is left are worthless bonds. Those that read the Act will find that if government does not have the funds for Social Security they must sell bonds to fund any shortfalls. This fact is, of course, ignored by the Congress and the person who calls himself president. They are more interested in loophole-closing rate-lowering tax reform, which are code words to cut current Social Security income and transfer those funds to other pet socialist projects, that government deems more important.

The Congress could care less that you paid taxes for a lifetime for this payout, and it is not a benefit, because you paid for it, and have your benefits shifted to those on lower income brackets or to pet socialist projects. What upsets the socialist and fascists in government is that the tax break for defined contribution retirement plans is that it will cost the Treasury $212.2 billion between 2010 and 2014.

What really galls them is that 80% of the payout goes to the top 20% of earners and they want those funds to be redistributed to the less fortunate, to offset debt or to be applied in other socialized areas. One of the proposals is to roll back the current $16,500 annual 401K tax deferred contribution to a level of $10,500. If this is followed government would capture $450 billion in additional tax revenue, and low-income workers would not be affected. We suggest Congress change the law and tax the $2.2 trillion parked offshore in tax havens at 35% and bring in revenue of $800 billion or more and to keep that revenue stream going. That means only $1 trillion would have to be cut from military spending and we’d have a balanced budget. That would be just too simple and it might upset the transnational conglomerates and the military industrial complex.

Needless to say, Americans would stop saving conventionally and purchase gold and silver related assets that have appreciated more than 20% annually for the past 11-1/2 years. These changes would render 401Ks and IRAs redundant. The incentive would be gone and all those funds might not be available to the government for redistribution to low-income citizens.

The bottom line is the government wants your retirement and more taxes. Private annuities could face insurance company collapse if the Dow went to 3 or 4,000 and of course the government is insolvent. For current retirees there has been no COLA increase as inflation has ranged from 5% to 11.2% and by the looks of it the CPI will be rigged lower again, so there never will be an adjustment in payout. The latest is a chained CPI, which would further lower benefits.

This is the brave new world planned by your masters. You people should smarten up and dump your retirement plans now. Stop being seduced by the tax breaks or shelter and run your own savings away from the clutches of government. If you don’t you could end up losing it all.

There are those who make excuses for the Federal Reserve and for the European Central Bank as well. Both are controlled by the banking community and are only interested in enriching themselves. These central banks take their orders who own or control these central banks. In the case of the ECNB and other sovereign banks, they are responsible for the terrible state of finances in the euro zone. Yes, we know the banks, and sovereign bans made the loans or brought the bonds, but the ECB has a direct connection into these institutions. The ECB president Jean-Claude Trichet is supposed to be a very bright banker. If that is so, why did this happen on his watch? We will tell you why. It is because he serves the bankers and not the people. He is just another front man for the Illuminists, just as Mr. Bernanke is. Mr. Trichet has only 2-months to go and then he can rejoin his banker friends.

As a result of Europe’s version of the financial wild west Greek credit default swaps are at a record 3,470 BPS as investors, citizens and others await default. Greek two-year yields rose 852 BPS and the Italian 10-year notes rose 12 BPS to 5.39%. The euro was off 3.9% this past week and probably is headed lower. These past three weeks Mr. Trichet engaged in a bond buying program of Italian and Spanish bonds, is a foolhardy undertaking. It resulted in the resignation of Mr. Stark, because he opposed the bond-buying program. Mr. Stark was the vice chairman of the German Bundesbank for four years. German banker Alex Weber and Bundesbank President Jens Weidmann also agree with Mr. Stark.

The 2008 credit crisis wreaked havoc on European, UK and US markets and as a result the latest episode, which has been playing out over the past two years, has really taken its toll on the value and stability of the euro. The euro zone is in a state of contagion with six of its sovereign members in serious financial trouble. The pull of saving the euro has been much stronger than a common sense approach to allow the insolvent to go bankrupt, something that was inevitable, and which we predicted years ago. This same pressure, or mind set, is what propelled the ECB to violate its own rules to arbitrarily buy the bonds of Italy and Spain in the open market. These acts are what finally pushed Germany citizens over the edge. It is a fundamental difference culturally, socially and financially between sovereign nations that have very little in common. We have lived among these cultures and speak their languages. We knew from the very beginning that the European approaches to amalgamation would never work. The European common market and then the European Union, an unnatural combination of people’s anthropologically, which had little in common. The 3% public debt formula that came out of the Maastricht Treaty was unattainable for at least 1/3 of euro zone members; along with one-interest rate fits all was a loser since its inception. That is because each economy was and is at a different stage of financial and economic development. The EU was an experiment and a forerunner for world government. It is as simple as that. Yes, the euro zone is crumbling and the bankers who control all these politicians and bureaucrats are going to lose out and take their losses and in that process many will face failure and rightly so. The creators of the EU, euro zone and ECB have a failing monstrosity on their hands, an expanding debt crisis. What could the ECB and sovereign central banks have been thinking about to allow such extension of credit? It defied all the rules of prudent banking. There are many to blame here reaching all the way back into the 1960s. The dogged insistence of merging of nations under the pretext of preventing future wars, when in fact it was a blatant attempt to create a one-world government.

The debt bubble has enveloped Greece, Ireland and Portugal and most likely will suck in Belgium, Spain and Italy in the process. There is absolutely no way a financial crisis can be avoided and it’s already been in this stage of failure for two years. No country can bailout these six without destroying themselves. Can 21 nations find $4 to $6 trillion to bail out the six? We do not think so, and we have said this from the beginning. Fragile isn’t the word for it, neither is contagion. The operative phrase is object failure.

You might think these are strong words, but they are not. We have watched this fiasco for 53 years knowing from the beginning it would never work. We lived in Switzerland, worked and went to school there, and experienced what it was like living in a country based on a parasitical concept. The bankers there are now in as much trouble as those elsewhere in Europe. For the sake of business they have recently attached their currency to the euro at the worst possible time. They are now going to financially suffer with the rest of Europe. You are seeing a flight out of the euro into gold and silver and you will see that same flight from the Swiss franc in the future.

How could the ECB believe that they could solve the problem by aggressively interfering in the markets? All they did was get the bankers holding this rancid paper off the books, transferring the failure on to the backs of already overburdened taxpayers? It is the same thing the Fed has done, the same model. This all is not the result of incompetence, negligence or mismanagement. This lending was deliberate and with forethought. There was and is another agenda and that is world government.

Why would anyone buy a Eurobond even if Germany backed the bond with others, if the six nations are insolvent? That could only be to keep the one world game going. Those who are waiting for the Germany to succumb may have a long wait. If the Bundestag passes such legislation there could be a revolution in Germany. Germans do not care about the credit system, the euro, the euro zone, the EC or anything else. They never wanted the EU and much less the euro. They want to cut their losses, because they see the costs being endless. They want to take their losses and move on. The situation with Greece is again at the forefront as the current German government prepares plans to back up the financial sector, as the Greeks prepare for default. Papandreou, PM of Greece, just gave a speech in Thessaloniki, blaming all his problems on the previous administration. During that speech, and before and after, the PM and his entourage were petted with eggs and yogurt, as some threw rocks. That led to men in hoods causing chaos. Greece could go into bankruptcy at any time. That would be a lifesaver for Germany, Mrs. Merkel and the CDU, the Christian Democratic Union. The PM wants to take 200,000 taxi driver licenses, which are worth the price of a home, away from them and give those contracts to a German consortium. These facts are part of the equation that you never hear about.

As far as we can see the “Eurobond” is dead, but there are things known as zombies that rise from the dead. Smug Americans should be aware that NYC Legacy banks have written about $150 billion in credit default swaps and money market funds chased the yields on sovereign bonds on about 50% of their assets. How much are they at risk – $500 billion?

Five US banks control 95% of derivatives, the biggest of which by far is JPMorgan Chase, which says European and Asian banks are being subsidized and that the rules favor them, which is detrimental to US banks. This claim of course is baseless. More of a psychological distraction. European banks are probably facing losses in a mark-to-market of $500 billion to $1 trillion and US banks are off at least as bad off. As an aside the events in Europe could cost US transnational conglomerates dearly. As an example Dow Chemical gets one-third of its sales from Europe, Carnival Cruise Lines 50% and Coca Cola 100%. The rest of the Dow and the S&P 500 are in the same general category. We suppose next both European and US banks will be bailed out as too big to fail by their governments. That is what is currently in process in Germany. The week of September 11th will leave a very important imprint on the system of finance worldwide. We are sure that behind the scenes the Fed is working feverishly with European banks and governments to create money and credit in order to bail these basket cases out. All major banks have eagerly violated the rules and now expect the taxpayers of the US, UK and Europe to bail them out. Smart people are pulling all of their funds out of banks and putting their assets into gold and silver coins, bullion and shares. With that in mind the US treasury, the Fed and foreign central banks continue day after day attacking gold and silver to discredit them as safe alternative investments. It works for a few days, but the effect dies quickly. They are not fooling the informed public anymore; the flight to quality grows in intensity with each passing day.

As you can see the Greek default will open up a Pandora’s Box of problems for banks and for sovereign countries as contagion takes hold. We have seen as a result that the Swiss National Bank has linked its currency, the franc, to the plunging euro, so its goods can currently compete in the euro zone. This was a short-term decision and a terrible choice. It eliminates the Swiss franc as a safe haven currency, as money flows out of the franc on a long-term basis and into gold and silver. From our point of view a terrible choice. This is your face devaluation will be something the Swiss will pay for over a long period of time. First they roll on American accounts for the US IRS, and then they deliberately devalue. They must have financial suicide in mind. Swiss policymaking is simply dumb and that goes for other countries as well. Almost all currencies are opting for an increase in money and credit to gain time. Each entity has its propaganda machines operating full tilt. As an example of desperation Treasury Secretary Geithner was interviewed by Jim Cramer, the bombastic clown at CNBC. Cramer is bright, but he is nothing less than a cheap hustler. CNBC is now absent any real talent that is credible after the departure to CNN of Erin Burnett. The Illuminists could have arranged the job at CNN. She is a member of the CFR. The network has fossilized. Monetary expediency and fiscal profligacy are the name of the game practically worldwide. That leaves little stability and forces a flight to quality. These elitists cannot help themselves. They are trapped and there is no escape from worse trouble ahead.

Greek default, as we predicted almost two years ago, is on the way. The timing we’ll leave to the psychics, but it won’t be long. We hope it is total default, because anything less would defeat the underlying purposes. Finally, Germans have refused to throw good money after bad. They have come to realize that their part of the $4 to $6 trillion bailout of six insolvent countries would render them insolvent as well. That has led the German government to shore up its national bank structure, including landbanks, which are similar to savings & loans. The government also took a hard stance toward Greece unless it meets fiscal targets. Ring-fencing financial institutions is the German equivalent of circling the wagons.

As a result the euro fell the most in a year versus the dollar. We guess they were overlooking US exposure to European debt problems. The NYC legacy banks could lose $150 billion in credit default swaps losses and how about the $300 billion that pension and money market funds invested in Europe’s toxic bonds in search for a yield? As we have always written – never, ever, ever, chase a yield. Mr. Geithner is running hither and yon trying to find political will, when Europe has simply run out of gas. Europe’s problems are unfixable and only bankruptcy can ensue in a number of countries. The EU and the euro, the basis for one-world government is dead. The silver spike has been driven into their hearts. The bank rating reductions are underway in Europe as a result of blatantly imprudent lending. Even the exulted Lord Rothschild had to infuse capital into Societe Generale to keep it from failing two short weeks ago.

Germany leads the hit parade at the biggest holders of Greek government debt with some $22 billion in exposure. Germans are looking for 50% losses in Greek bonds; a deal they turned down 1-1/2 years ago. At the time we said they were foolish and as it turns out they were. They may get 50% but we do not think so. Germany is preparing for the worst. In six state elections since Hamburg in March the CDU has lost them all. The latest in Mecklenburg-Western Pomerania, Merkel’s home state. We will see what happens in Berlin on Sunday. The voters in every election have rejected putting more money on the line for bailouts. An Emnid poll showed 53% of Germans oppose further bailouts. There is no question that Europe financially is upside down and headed for more trouble down the road. Do not feel left out the UK and US are close behind.

This is an excerpt from Bob Chapman’s key publication The International Forecaster.  We encourage our readers to sign up to his weekly publication and receive essential market analysis from one of the best in the world.