September 30, 2013 What Do We Worry About? We worry about you! The federal government is in shutdown mode (as it has 18 times in the past 40 years); we might be bombing Syria, or not. The debt limit debate is coming up ($17 trillion in debt and $60 trillion in unfunded spending promises). But we worry about the government seizing your assets! What, you say; taking my assets? Yes. Earlier this year Obama floated an idea for the government to limit the size of IRAs and 401(k)s. When made, it was dismissed by the pundits as improbable. Well, Poland has pulled a stunt that exceeded Obama’s suggestions. It just seized half of the Polish people’s private retirement funds. All government bonds in these pension plan portfolios were forcibly transferred to the government and since the bonds are no longer held by individuals, the government declared that the national debt was reduced by the face amount of the securities! The government calls this nationalization a “pension overhaul.” All this and not a word in the American Press! Forbes 10/7/13 p. 44. We all know what happened in Cyprus earlier this year. At the urging of the Germans and as the price of a bailout, the government seized a chunk of everyone’s bank account. To put a lid on the ensuing uproar the International Monetary Fund, the European Central Bank and the European Union decided that deposits of less than $100,000 euros (est. $130,000) would not be molested. Deposits above that level got walloped unless you were politically connected, whereby you were given preferential treatment. The U.S. is no innocent party to this idiocy as our fiscal mess and the Federal Reserve’s destructive acts attest. Our Social Security trust funds, which supposedly have $2.7 trillion in reserves, enough to cover three years of payments. Polish style - those coffers are empty. The money was spent by politicians as soon as the cash came in. The trust funds are stuffed with non-marketable treasury IOUs. This means that more money will have to be raised to pay those $60 trillion of benefits when they come due. From who – from us, of course! The situation in Poland is indicative of a virus that is infecting many governments and that will make the next financial crises much worse than it would otherwise be. Forbes 10/7/13 p. 27. This is what we worry about and try to plan around! We are trying to protect your purchasing power in light of the foregoing. Bring On The Iconoclasts It worries us when there is consensus on anything: religion, sports, weather, etc. Moreover, it worries us now that there is consensus within the Federal Reserve’s Open Market Committee that the Fed’s easy money policy will continue and ignore or even encourage inflation. Being wrong about the inflation imposes great costs on an economy. When inflation comes, it comes rapidly. And the less concern there is about inflation, the greater difficulty a central bank will have in halting it. In LBJ’s day or Richard Nixon’s, few expected that “guns and butter” would eventually force the Fed to raise interest rates to the high teens. This was what I was taught in college; almost 50 years ago, that “a little inflation” is good for the economy. How well did that turn out! It’s good we had a Paul Volcker to right things. What makes our economic leaders forget the past? Intimidation is one answer. Our university professors lean further to the left than they used to and are more likely to support larger government. Ergo – this works backward. Professors are likely to dismiss the damage that debt and inflation, which usually follow big spending, leave in their wake. The press and bloggers have also turned soft on inflation over the years. Bring on the iconoclasts to challenge the Bernanke-Yellen orthodoxy! IRS Shutdown Information During the government shutdown, the IRS will scale back its operations. You should continue to: 1. Keep filing returns on time 2. Keep making deposits on time The IRS will not provide: 1. In person assistance 2. Live telephone assistance 3. Appointments 4. Refunds The IRS will: 1. Continue to send out automated notices As always, if you have any questions about these or any other matters, do not hesitate to call us. Remember, We’re Here For You!