Curried Wealth Building
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May 22, 2011
Issue 148  -  Government Oppression
 
 
 
The main problem with our government officials is a "know better" attitude.  They truly believe that what they think is right and if you disagree, you just don't understand.  The laws being passed, proposed and discussed are just plain scary. Of course politicians want to get re-elected, but that is so they can inflict their will and put their "plans" into motion.  This often has terrible consequences because a lot of these people have no real world experience.  They've studied things and think that implementing them will produce rote outcomes.  This is rarely the case.  Here's an idea coming from these geniuses:
 

Senate Bill Would Limit Savers Using 401(k)s as Rainy-Day Funds

By Margaret Collins - May 18, 2011 4:08 PM ET

Workers will be limited in tapping their 401(k) retirement plans for loans under legislation two senators introduced today that’s designed to counter the erosion of retirement assets.

“Because of the difficult economic times, more and more Americans are treating their retirement accounts as rainy day funds,” Senator Herb Kohl, a Wisconsin Democrat, said in a statement today. “A 401(k) savings account should not be used as a piggy bank.”

Kohl, 76, who’s chairman of the Senate Special Committee on Aging, introduced the “SEAL 401(k) Savings Act” with Senator Mike Enzi, 67, a Wyoming Republican. The bill would reduce the number of loans workers may take from a 401(k) and give participants more time to repay after losing a job. It will allow savers to contribute to their plan after taking a hardship withdrawal and ban debit cards linked to the accounts, according to the legislation.

The Senate bill would limit the number of outstanding loans for each participant to three. Employers would have the option to reduce the number for their plans, said Joe Bonfiglio, a spokesman for Kohl’s aging committee. There is no rule right now limiting the number of loans workers may take and it varies by company, Bonfiglio said.

Leaving a Job

Almost 28 percent of participants in 401(k)-type accounts had an outstanding loan at the end of 2010, which is a record, according to a study released today by benefits consultant Aon Hewitt, a unit of Chicago-based Aon Corp. (AON) The average outstanding loan balance was $7,860 and 58 percent of plans permit participants to have two or more loans at a time, said Aon Hewitt, which used a database of about 2 million employees in 110 plans.

“The big risk with loans is that participants leave their job,” said Alison Borland, head of retirement strategy for Aon Hewitt. Most 401(k) plans require employees to repay loans in full when leaving a job, usually within 60 days, said Borland, who’s based in Nashville, Tennessee. Almost 70 percent default, Borland said, so the unpaid funds get counted as taxable income and may add to the burden of a jobless worker.

Depending on the rules of an employer’s 401(k) plan, workers generally may borrow from their retirement account for any reason and pay the loan back with interest. About 89 percent of participants were in plans offering loans in 2009, according to the Washington-based Employee Benefit Research Institute, which has a database of 21 million 401(k) savers.

Payroll Deductions

Workers generally may borrow as much as 50 percent of their vested account balance up to a maximum of $50,000, according to the Internal Revenue Service. The loan must be repaid within five years, unless the money was used to buy a primary home.

Employees can repay the loan through payroll deductions and can continue to make contributions to their retirement accounts, Borland said. More than 80 percent of those with a loan do continue to save, she said.

“For these workers who take a loan, repay it and continue to save, they haven’t done significant damage to their retirement prospects,” Borland said. “They are at significant risk if they change jobs or lose their job.”

The average interest rate on loans from 401(k) plans is the prime rate plus 1 percent, currently 4.25 percent, David Wray, president of the Profit Sharing/401k Council of America, said in an e-mail. The median loan origination fee in 401(k) plans is and the median annual loan maintenance fee is , according to the council, a Chicago-based non-profit association of employers that sponsor retirement plans.

Tax Penalty

“Our bill would allow for a greater period of time for the loan to be paid back thereby helping families pay back the loan and allowing the funds to be put back into their retirement savings and avoid the tax penalty,” Senator Enzi said in a statement today.

For workers who lose their jobs before repaying a loan, the bill would let them pay down their balances into an individual retirement account before filing their taxes for that year. The IRS and Treasury Department would need to issue guidance on how the process will work, Bonfiglio of the aging committee said. About $663 million of 401(k) loans in 2008 were deemed taxable distributions, according to a December report by the Department of Labor.

Loan Flexibility

The flexibility to take loans or withdrawals is an attractive feature of the accounts for some participants, said Sarah Holden, senior director of retirement and investor research for the Investment Company Institute, a mutual-fund trade group based in Washington.

“Knowing that you can borrow the money if you need to frees people to participate in the plan and contribute more,” she said.

About 19 percent of participants in 401(k)-type plans rate their efforts toward reaching retirement goals as “very effective” and only 16 percent are “confident” they will have enough money to retire on time, according to a survey released today by BlackRock Inc. (BLK) The New York-based money manager has more than $325 billion in defined contribution assets under management, according to the report.

A 401(k) plan’s terms also may let individuals take a hardship withdrawal that doesn’t have to be repaid if the borrower demonstrates a financial need such as medical or funeral expenses. That money generally is included in an employee’s income for tax purposes and may trigger an additional 10 percent tax penalty, according to the IRS. Employees also are generally prohibited from making contributions to their account for at least six months after taking the withdrawal, the IRS said.

 
This is one of those bills that looks so good and yet is so evil.  This is more control of YOUR money.  It's YOUR money.  If you want to take it out and blow it, oh well, not the government's business.  If you want to take out 42 loans, oh well, it's your money.  That's not how officials think.  They must "protect" you from yourself.  They know best of course.  Of course their "brains" have led us to this point:
 

U.S. Treasury Taps Retirement Funds as Debt Limit Reached
Ron DeLegge
May 16, 2011

Mission accomplished! The U.S. government officially reached its debt ceiling today and began tapping into federal retirement funds to stay afloat.

In a letter to lawmakers today, Treasury Secretary Timothy Geithner declared a “debt issuance suspension” period that allows the government to take money from the Civil Service Retirement and Disability Fund and Government Securities Investment Fund. (Public protests from federal workers about the looting of their retirement funds are coming to a street corner near you. Stay tuned.)

The U.S. Treasury’s issuing of $72 billion in bonds and notes today pushes the U.S. government to the brink of its borrowing limit, according to an unnamed Treasury official cited by Reuters.

Geithner has already given Congress an August 2nd deadline to increase the government’s borrowing bap by $2 trillion over the $14.294 trillion limit or else. President Barack Obama agreed saying a failure to increase the U.S.’ debt limit might cause disruptions to the global financial system and cause economic pain domestically.

Liabilities Galore
While tapping into federal retirement funds to pay for non-retirement liabilities is a definite punch below the belt for federal workers, it’s just the tip of the iceberg in financial perversity we’re likely to witness in the near future. Simply put, the U.S. government’s liabilities are truly awesome.

Take Medicare, a government sponsored health program for the elderly and disabled, for instance.

Medicare will become insolvent five years sooner compared to estimates given in last year’s report by its trustees. Starting in 2024, Medicare won’t be able to pay for all the health care benefits it’s promising. Saying that Medicare will run out of cash in 13 years instead of saying by 2024 helps the mind to better understand how close to doom it is. 

The 'Flight to Safety' 
How has the Treasury market reacted to all of this ominous news? Over the past year, exchange-traded funds or ETFs linked to U.S. Treasuries have gently risen. The iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT), which owns long-dated Treasuries, has increased by 6.35% over the past year. Likewise, Treasuries with intermediate durations between 7-10 years (NYSEArca: IEF) have increased by roughly 7.50%.

Put another way, bond investors (NYSEArca: AGG) have seemingly shrugged off the U.S. government’s fiscal problems. They continue to buy U.S. debt and get returns that gently rise. There are no signs of a violent correction (yet), so everything must be OK. Isn’t this what a “flight to safety*” is all about?

Regardless of Treasury market’s calm readings**, people close to the center of the storm aren’t hoodwinked.

Economist Robert Reischauer, one of two public trustees for Social Security and Medicare, said, "Under current law these vitally important programs are on unsustainable paths." Come to think of it, if that statement doesn’t fittingly sum up the U.S. government’s entire fiscal situation, what does?


*One of mainstream media’s favorite ways to refer to U.S. government bonds. Why did the crowd pile into Treasuries? Why of course “It was a ‘flight to safety!’”  

**Past performance is no guarantee of future results. 

 
This activity would of course be illegal for a company.  People would go to jail.  But hey, the government makes the rules and they have the guns, so anything goes I suppose.  One day, in the not so distant future, all the roosters will come "home" and that will be that.  Until then, the show must go on.  Check out this excerpt from contraryinvestor.com:
 
 
 As always, economic data “looks” can be deceiving.  Directly to the point, the Fed data above uses as its denominator disposable personal income (DPI).  And that’s important why?  DPI necessarily includes taxes via its very after-tax definitional character.  But much more important in the current cycle, DPI includes government transfer payments.  We’ve spoken about the magnitude, and therefore importance, of this issue many a time.  Unprecedented in terms of current percentage of US personal consumption expenditures, personal income, etc.  So here’s the deal and here are the numbers.  Personal income less transfer payments peaked in the first quarter of 2008.  Since that time government transfer payments have increased approximately $540 billion.  In the spirit of honesty and integrity, in addition to increased unemployment benefits in the current cycle, the largest portion of government transfer payments goes to the elderly and the poor.   In the top clip of the chart below, and in a bit of compare and contrast with the chart above, we’re looking at household debt as a percentage of personal income less government transfer payments.  As is clear, we’re barely down from all time highs at present.  A very different picture than the chart above that implies meaningful reconciliation.
 
 
 
The top chart shows improvement in the debt situation, but if you look at the bottom chart and notice that WITHOUT government payments to people there wouldn't be anywhere near the consumer debt repair.  It's just a shell game as the government moves the debt "pea" from one place to another.  Of course it will eventually have to be paid, or defaulted on.  That's when the rubber will have to burn as things are resolved.  Until then the oppression and usurpation of our rights continues as it has in Ireland:  (coming soon to a theater near you) (from GATA)
 

Dave from Denver…
Wednesday, May 11, 2011
Do Not Think That Ireland Can't Happen Here
"Ireland" being the systematic confiscation of your retirement funds by the Government. I'm sure as most of you know by now, the Irish Government has announced that it will now tax private retirement funds in order to fund "job creation." That means taking money privately earned and saved by citizens and using that money to pay public employees to do no-value-added, useless labor. You know, like digging tunnels underneath roads to that turtles can get from one side to the other without risking their lives.

I have said for a long time that the system here will be held together until "they" take every last crumb of wealth away from the middle class. "They" being the people who control the system - i.e. big banks in conjunction with big government. The multi-trillion dollar retirement asset pool will be just too tempting for our politicians NOT to tap into and I'm sure Wall Street already has made noises about how to go about doing it so that Wall Street can keep making money of it. As the explained in the commentary I've linked below, the Government has already plundered the Social Security trust, taking the money that was in there and writing IOU's - exchanging the funds and putting Treasury bonds in the Trust. So why does anyone possibly want to believe that the Governent will leave private retirement funds alone? That's either naivete or denial.

With regard to this whole matter, here is a quote from the blog mentioned above that nicely sums up the predicament you all are in:
Chances of this money being repaid to Social Security in full? Slim. The trend is more debt, not paying off existing debt. In fact, I’m convinced that politicians have their eyes firmly fixed on the trillions of dollars in private, individual retirement accounts (IRAs) in the United States to fund new spending.
Here is the
LINK - it's an excellent read. I say "you all" because starting in 2006, I have moved all of my IRA money into physical gold and silver and if I don't want to pay any taxes on the use of it I can move to Utah, which recently passed a law which exempts gold and silver used as currency from taxation.

If you are still skeptical that this will happen in this country, I would like to point out that there have already been hearings in Congress in which academic and banking professionals presented their ideas on why it makes sense to require that all retirement fund assets should be moved into a trust that is funded by Treasuries and uses the interest on the trust to annuitize everyone's retirement payout. If you play around with google you can probably find the actual press releases which describe those hearings (I lost my links when my laptop blew up over the summer).

The best part about the situation in Ireland is that Government employees are exempt from the taxes being levied on retirement funds. I would expect the same thing to happen hear given the huge fight being waged right now across the country to preserve 100% of public employee pay and benefits. It's okay to plunder the private the wealth but the Government and its drones are sacred!

One last point. I personally do not believe that you can avoid overt or de facto compensation of your retirement funds by moving them offshore, as the blogger above recommends. I think anything that has an electronic trail will be fair game, open season. The ONLY way you can preserve your hard-earned wealth is to move as much of it as you can "off the grid." And the only way I know of to do that is to convert your paper largesse into gold and silver.

 
This is what WILL happen.  They are going to confiscate the retirement accounts or make you do what they want with them.  There really is no alternative.  If you are putting a large chunk of cash in retirement accounts thinking that they will be there when you retire, that is a crap shoot in my opinion.  I'm saving outside the box and on my terms.  I also have a 401k and IRAs, but I've greatly reduced what I "feed" them.  Remember if they grant you special exemptions and benefits they can take them away.
 
Of course finances is only one area of oppression, don't know if you've seen this:
 
 
Feel safer?  No, me either.  This total disregard for the constitution and personal rights is so far down the road that there is probably no getting back without drastic happenings.  The people doing these "safety" searches are so brainwashed and impervious to our roots and founding its mindboggling.  The goal is to create obedient debt serfs who do what their told without asking questions.  That way, whatever they want to do gets done.  One way to create these serfs is with the yoke of debt.  Our debt level is super high and this makes people controllable.  One of the most insidious methods to do this is through college.  Check out this chart:
 
 
 
Looking at these (manipulated) numbers is only useful in comparison to one another.  Inflation is much higher than these figures state, but looking at one to another can be useful  Notice that energy and education are by far the largest gainers here.  Energy is logical and understandable, but education?  Why?  To create debt serfs, that's why.  Put that big debt yoke on and move forward young man.  Or not.  The government has the biggest hand in this as they CREATED it.  With cheap loans and grants, the price of education had no place to go but up.  Too much money chasing the limited slots causes the rise.
 
Also remember that student loans are NOT dischargeable through bankruptcy and you have a big problem.  If you're interested, here is a full length documentary about the college model.  I don't agree with everything here but it's got a lot of incredible data:
 
 
People, young kids, starting out life with $100,000 of debt is just plain wrong and to make it sound like its necessary, as many will, is beyond the pale.  Kids deserve to start out life with a clean sheet and the government "help" needs to stop.  Unlikely though, as that may be, I can dream. 
 
The oppression will intensify as our situation worsens.  This will lead to a tipping point where something will have to give.  Not sure when that will be, but you definitely want some "protection" that is off the grid.  Of course that is my old friends gold and silver.  It is possible the gold and silver will languish over the summer as this is the norm.  Then again, they could take off anytime.  I have mine already so I'm not worried.  If you have none, don't wait to start a position.  Do that now.  In case you need more evidence that is a good idea: (gata)
 
Morning Bill,
Robert McTeer, former president of the Dallas Fed, had an interesting comment this morning on CNBC. In summary, he said that gold and silver were in a bubble and that if he had any money he would short them.

Really? Let's think about that for a second. Can you think of any other asset class that a person associated with the Fed would say sell? Would they ever say sell stocks? Would they ever say sell the dollar?

I think we can all draw our own conclusions.
Keep after them,
Geoff

Still think the Federal Reserve doesn't care about gold?  This fear mongering is proof.  They FEAR gold.  Don't let them win.  Make sure you have yours.  Buying over a lazy summer is a great idea.
 
 
Positions
 
GORO  (closed $29.55, up $2.55, average price paid $6)
  
 
Mexus Gold  (closed $.20, even, average price paid, $.22) 
 
There was more news from Mexus this week:
 

Submarine Cable Update: 

Mexus has purchased a new SeaSpy Marine Magnetometer and all supporting equipment for surveying and locating the submarine cable, and is waiting delivery of the equipment which is expected on May 27, 2011. Mexus’ crew headed by Captain Brian Farcy and Ken Setters standing by to pull the estimated 500,000+lbs we have located in Washington state on a trial basis for the new Magnetometer surveying equipment. Mexus intends to pull the 500,000+lbs in Washington before heading back to Alaska. The 500,000+lbs of cable is believed to be a small portion of the cable located in Washington.

Caborca Mine Update: 

The Caborca Mexico crew, headed by Julio Baltazar, are installing Mexus’ deep well pump in the 8” 750ft deep well which should be producing water in approximately 10 days. This is an essential step for our placer project on the property.

Mexus is definitely cranking things up.  It looks like they will be collecting 500,000 pounds of cable in Washington before moving north.   This cable could be worth more than $2,000,000.  This will be offloaded and converted to cash which should fund the summer.  Then cable collection will continue in Alaska.  The nice thing about this is that once winter has shut things down in Alaska, they can return to Washington and just keep going.  That is awesome and should greatly add to the speed of the company's expansion.  In addition it looks like the mining operation is coming along nicely in Caborca.  This could also prove to be very profitable.  I feel like it's a great time to buy Mexus.  A company valued at $30 million dollars that can bring in $2,000,000 in a week or two, won't stay at $30 million long.  It's been in a boring downtrend and this new activity could prove to be the spark.  Remember, with a micro cap company the price movements tend to be violent.  I know that's a little hard to believe with the way this has traded, but there are long phases of boredom followed by strong movement, up or down.  I obviously believe that the next blast with Mexus will be up.  The LAST thing you want to do is buy when it is skyrocketing.  The temptation is so great, but it's usually not a good move.  Buy now, if you like the prospects and are comfortable with the risks. 
 
Alexco Resource Corporation -  AXU  (closed $7.63, down .27, recommended at $7.90) 
 
Stocks    (Current status, out, sold on March 18)
 
Physical Gold  (Closed $1,513,  up $18,  average price paid $395)
 
Physical Silver  (Closed $35.06,  down $0.24,  average price paid $5.31)
 
I'll close with a video that gets a 10 for creativity, hope she says yes, have a great week!