The thirteenth stage in America’s Financial Endgame™ is the point when the government moves to socialize institutional retirement assets for the purpose of supporting bond prices. The reason for this will be a major collapse in bond prices that catapults the borrowing costs of the US government. it is certain that a move like this will be massively unpopular, and it will only occur after there has been sustained inflation, a sustained recession, and a spiraling economic crisis that generates public outcry for the government to take action.
It is important to iterate that I sincere hope that I am completely wrong, and that this does not happen. In many cases, a situation such as this represents the end of what America was created to be. The use of authoritarian power to seize large swaths of private wealth is ordinarily the province of petty dictatorships. The notion that this could happen in the United States of America is very frightening, and not particularly comfortable to contemplate. The purpose of this analysis is not to articulate any hope that these events will happen … rather to show how the current chain of events is pushing us toward the destructive cycle of America’s Financial Endgame™. As astute investors, we need to understand the dangers that we are facing and be ready to take the actions that will protect ourselves and our families from financial ruin.
The situation that the government will inevitably find itself in is one where bond prices are in free fall, and capital is desperately needed to support the prices and continue to subsidize the deficit spending. When international sentiment shifts away from the US dollar as the global reserve currency, the drop in demand for bonds will place the government in a major pinch. The easiest target for the government to go after in this pursuit is institutional retirement assets. Retirement account assets held by pension funds, and major financial companies will be the easiest for the government to force into bonds since they are the ones that will be the most visible.
The movement toward socializing retirement assets is expected to go in the following sequence:
- Public Pension Funds: These are already owned by the government, so shifting the allocation to 100% US bonds would be relatively simple.
- Public University Endowment Funds: The endowment funds of public universities are the most likely second stop on this progression since the universities are heavily subsidized by public funding. It would not require an excessive amount of political pressure to drive a shift in the allocation of endowment funds to 100% US bonds.
- Private Pension Funds: The shift from university endowment funds to private pension funds will be much more tenuous, since the government does not have direct influence over private pensions. The most likely way that this would manifest itself is to generate a “opt-in” for pension recipients past a certain age where all of their retirement funds are placed under stewardship of the government in exchange for a defined pension benefit. It is possible that the move to socialize retirement assets stops at the public funds, due to the political backlash that will be associated with government seizure of private wealth.
- Private Retirement Account Funds: This is both the last and least likely stop on the move the socialize institutional retirement accounts. In order to shift these funds over to US bonds, the government would have to go to each major financial institution to gain access to their financial capital. The most likely method that this would take is also an age-based “opt-in” program. There is a possibility that this opt-in would be voluntary, there is also a possibility that it will be mandatory for people who are within a certain age bracket. With over $10T of financial capital in IRA + 401k assets, there will be great temptation to use this pool of resources to support bond prices.
It is important to note that there will need to be a steady drumbeat of persistent economic crisis and malaise before a wealth confiscation of this magnitude could occur. In a “normal” situation where both sides of the House and Senate debate bills before their passage, something like this is all but certain to never ever occur. The only way that something like this could transpire is if “emergency executive powers” are granted to the government for the purpose of taking actions that are necessary to avert the economic crisis. This will be the lynchpin that decides whether the US descends toward authoritarian control.
In the event that this situation unfolds, the investors who will be in the best position are those with financial assets that are not tied up in major pension funds or funds from major financial companies. By owning assets that are less visible such as individual brokerage accounts, real estate, or physical commodities like gold and silver, it will make your wealth much more difficult to acquire as a part of an effort to support bond prices.
It is important to understand that the motivation for a move such as this will not necessarily be an authoritarian power grab. (Even if that is what results as an unintended consequence) The events that precipitate an action such as this will be very sharp and extreme in nature. In reaction, the political establishment will be seeking the fastest method possible to stabilize the financial system. In this situation, they will need to find the largest concentrations of financial capital that can be accessed as quickly as possible to support the government bond market. In such a situation, it is not feasible to chase after individual accounts that are not large enough to make any sort of material difference.