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The Daily Reckoning | Saturday, September 22, 2012 Inadvertent, unscripted truth...from a politician! Readers weigh-in on gold, IRAs and beating The Bernank, Plus, all this week’s reckonings archived for your apolitical enjoyment... ------------------------------------------------------- QE3 is a drop in the pond compared to this... QE3 may not be doing much to get America’s economy going, but THIS sure as heck could... Some market analysts believe it could ignite more economic growth than electricity or the Internet. And — beginning October 28 — it could make some Americans the kind of money most folks only dream of.  Click here now to find out how. Joel Bowman, checking in today from Buenos Aires, Argentina... Joel Bowman Here’s an email, written by a Fellow Reckoner going by the penname, “Husker Fan,” that we published in this space last weekend.  “I have about 68K in my 401K, 43K in Roth IRA’s, 34K in a traditional IRA, and about 20K between cash and gold/silver. Given that other factors come into play; age, income estimations, our only child is a third grader, etc., I’ve been toying with the seemingly crazy idea of cashing in some 401K money to buy more gold, being fully aware of a 10% penalty and paying capital gains tax.  “My degree was in finance, so I know my way around. I just want to protect what we have. Thoughts? I’m guessing there are others who’ve tossed this idea around.” First up, your Australian-born editor has no idea what a Husker Fan is...probably some kind of Iditarod enthusiast, we imagine. We do know, however, that our Fellow Reckoners responded in droves to Mr. Fan’s very timely and well-put question. We’ve included a selection of their responses below, but first, we turn to this week’s feature column. Jeffrey Tucker, the driving force behind Laissez-Faire Books kindly offered his thoughts earlier in the week on what has since come to be known as the “Romney Gaffe.” As you might have suspected, the story is not as straightforward as the airbrushed anchors populating the idiot box would have us believe.  Please enjoy Jeffrey’s characteristically contemplative take, below... [The following column originally appeared in these pages on Wednesday, September 19, 2012.] The Daily Reckoning Presents The Truth Behind the Romney “Gaffe” Jeffrey Tucker Cover the kids’ ears! Hide their eyes! Shuffle the weak and frail from the room! A politician running for president has uttered a heresy that brings into question the holy grail of democratic politics. Romney has failed to pretend as if the country is one big happy family that uses our glorious voting system to discover ever better ways of governing ourselves.  Which is to say that Romney made a gaffe.  You know the definition of a political gaffe: inadvertent and unscripted truth. That’s what the supposed scandal of Romney’s off- the-cuff comments amounts to. He told potential donors an unvarnished truth that everyone knows but which is not part of the official civic creed of the land of the free:  “There are 47% of the people who will vote for the president, no matter what... All right, there are 47% who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what... These are people who pay no income tax.” The implied model here is that modern democracy is a system that enables mass confiscation of wealth by some from others. And who can doubt it? In older monarchical systems, only a tiny elite was privileged to steal from everyone else, and if they stole too much, people would get angry and overthrow them.  Democracy solved the problem by granting everyone the privilege once reserved to elites. Now we can all steal from each other, and even from ourselves. This way, it is no longer clear who the enemy is. We don’t know whom to blame when things get bad. There is no one to overthrow but ourselves.  And things are indeed getting bad. As income falls, the household budget is ever more squeezed, we are living ever longer, and as the boomers retire, government benefits are soaring on autopilot.  Indeed, the 47% figure might be low. Other estimates put it closer to half. And it is rising. A smaller percentage of household income comes from wages than ever before. Food stamps, Medicaid, unemployment benefits, disability benefits, Social Security...Tthis stuff adds up and amounts to dependency.  He also helpfully noted that 47% do not pay income taxes. That doesn’t mean that they don’t pay tax. They are actually heavily taxed at the payroll level — a tax that pays into the very benefits that have made them dependent, a tax that has been more heavily raised under Republicans than Democrats. Everyone is taxed for every dollar earned and on the sale of nearly everything. But of course, neither party wants to talk about those taxes.  Also presumed in Romney’s talk: People vote their economic interest. Again, experience bears this out. If household economics don’t stack up, nothing else works. Politicians have limited time and money and need to get the biggest bang for their buck. No, this is not writing off half the country, as the partisan pundits are saying. It is the mapping out of an electoral strategy based on the “median voter theorem.” This is the idea that elections are won not by the partisans or extremes on either side, but by the people in the middle. This is the business of politics. It is about finding and appealing to the interests of the median voter.  Shocking? If so, you have never bumped into a campaign consultant at a cocktail party. This is how they all talk and think. Indeed, this is how politics has worked for, oh, 200 or so years, and ever more so since the expansion of the franchise.  In the video, Romney goes on to say that his job is to appeal to the independent 5% who will turn the election in his direction. Notice that this outlook also “writes off” all the people that he already knows will vote for him. He is also giving himself a license to put their interests on the shelf as well, at least in rhetoric.  For this reason, anyone who dedicates himself or herself to getting Romney elected, as a means of protecting personal wealth from confiscation, will be sorely disappointed. Republicans as much as Democrats find ways to take what is yours.  And by the way, Obama thinks the same way. Obama will never convince voters who are already dedicated to Romney, and every single Obama adviser knows this. This is a fight for the remaining 5%. And what’s more, politics is business in another form. It is about giving and getting. Political parties represent interests, not ideas.  But oh, how precious is American political culture! We must not hear these things. We must never be permitted to hear what is true. Instead we have a Victorian sensibility about our civic religion. We sing the national anthem, say the pledge and reflect on 19th-century mythologies about our revered Founders, because, after all, we have the greatest system of government ever conceived, one so wonderful that it should be exported and imposed all over the world.  Or so we tell our youngsters. As adults, we should know the truth. Politics is a means of wealth redistribution. Electoral strategy is a race to the bottom. After all, it is emphatically not the case that Romney’s chosen constituents are free of dependency. Note that he is ramping up his imperial warmonger talk in recent days.  Every day, there is a new enemy that he accuses Obama of not slaying. And it’s not only about the military. It is about our trading partners. He has blasted the Obama administration for being soft on China.  What’s this about? It’s about reassuring his supportive pressure groups that he supports their interests. He will protect the American corporate class against foreign enemies who attempt to bypass the corporate oligarchs by selling cheap stuff to you and me. No, he won’t let that happen. And it is about reassuring the military-industrial complex that its subsidies will continue.  In fact, Romney represents a different class of dependents. Large banks. Financial institutions on the dole. Monied elites who live off cheap credit and infinite liquidity courtesy of the central bank.  Either way, the rest of us get looted. The election is about who controls that margin of loot that remains after the autopilot spending administered by the permanent class of bureaucrats is finished doling out its entitlements left and right.  In a way, I feel sorry for the bourgeoisie gathered in that small room to hear Romney’s talk. He wanted their money — a payment in exchange for his promise to protect their wealth from the grasping hoards. But he still wanted their money. Whether he will actually do this is another matter. And why should they have to pay at all?  There once was this idea called freedom. You keep what you earn. You don’t live off others. You mind your own business. Society works out its own problems without politicians, police, bureaucrats, and power elites running their lives.  Is what both Romney and Obama are doing a corruption of the idea of the political party? Ludwig von Mises, whose book Liberalism (a Laissez Faire Club selection) explains everything you need to know about democracy, says that this is precisely why political parties were founded. “All modern political parties and all modern party ideologies originated as a reaction on the part of special group interests fighting for a privileged status against liberalism.” The best statement on this topic was framed by Frederic Bastiat: “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.” In his book, The Law, Bastiat explains that the purpose of law is precisely to prevent the mutual looting that goes by the name democracy. But once property rights are no longer secure, political elites can plunder with impunity.  That’s why no truly independent minded person can depend on any political machine to protect his or her interests. To keep our liberty and property from their clutches is our job. Regards, Jeffrey Tucker for The Daily Reckoning No one thought this could ever happen in America... Argentina did it in 2008. France and Ireland did it in 2010. And Portugal did it just last year. All told, more than $88 BILLION worth of personal retirement funds were confiscated to pay off government debts.  But that can’t happen in America, right? Guess what — it already has. And if Congress has its way, it could happen again... See what they’re planning in this alarming new video. ALSO THIS WEEK in The Daily Reckoning... Downside: After the Returns Stop Diminishing By Bill Bonner The downside for Nazi Germany began almost as soon as it started. The regime shifted national resources towards armaments as soon as the Enabling Law of March 1933 gave him the power to rule by decree. More spending on the military left fewer resources for the consumer economy. Downside: After the Returns Stop Diminishing, Part II By Bill Bonner “You can’t be too safe,” is an expression you hear from time to time. The government takes it upon itself to protect its citizens. It suggests that you can’t spend too much on military preparedness and that defense is too important to be left to popular preference.  Crisis Replay... Soon Argentina Will Be on Sale Again By Ronan McMahon Just over a decade ago Argentina spectacularly unraveled with the biggest default in history — $100 billion. Dollar deposits were converted to pesos. Then, overnight, the peg of one-to-one with the dollar was broken. The unpegged currency immediately devalued. Savings were wiped out. Banks were set alight and locals took to the streets in protest... Curing Diabetes with “Self Cell Therapy” By Patrick Cox My publisher tells me that I should focus on writing dramatic headlines. Is “Curing Diabetes” dramatic enough? If you’ve studied diabetes, you have almost certainly “learned” that there is no cure for the disease. Stem cell scientists, in fact, have encountered particular challenges trying to create the pancreatic beta cells that naturally produce insulin... Why “gold $2,000” is a joke... On April 24, 2007... one gold expert said “gold is on its way to $2,000 per ounce.” At the time, gold was trading around $688 and the mainstream figured he’d lost his mind. But anybody who listened had the chance to make up to 175% on the metal alone... and up to three times more on related metal plays, as I write you today.  So what’s this gold expert’s latest prediction? Click here to find out. The Weekly Endnote... And now, it’s over to our Fellow Reckoners for their thoughts on what to do with gold, both in and out of various investment vehicles. The suggestions come in response to the letter from Husker Fan that we mentioned above. (BTW, we know “Husker Fan” is not a reference to the Alaskan sled race. It has something to do with removing that leafy outer covering on an ear of corn...no?) First up, a few thoughts from Reckoner Mark, writing in from Pittsburgh, PA... First, stop adding to your retirement plans. Even if you manage to turn them into fortunes, the government will be there to change the rules and confiscate parts of them. Although the FED/Govt is trying to keep stocks up, they must realize that they probably won’t be able to keep them up forever. When stocks eventually get decimated, then the FED/Govt will shift to its two-step Plan B: ** Step 1 — Force you to accept some percentage of government bonds in your IRAs, 401(k)s, pensions, etc. They will even make you sell some of the precious metals in there if necessary. Wouldn’t that add insult to injury? ** Step 2 — Bailout its equity favorites using that money it just took from your official retirement accounts in an egregious display of favoritism. I’m guessing the usual suspects: GE, JP Morgan, Goldman Sachs, solar energy companies and other political contributors. Of course, they’ll say they’re good Samaritans saving you from you. In reality, they’re farmers. It’s harvest time. You’re the crop. Second, put all the pre-tax money back into your pay and then into savings vehicles that are more removed from the banking system. Precious metals, like 90% silver coins, come to mind. Think savings, not investments. It hurts, but also forget the 401(k) match by your employer. I’ll bet that government will change the rules and say that because you didn’t “earn” the match, it will have to be taxed. Of course, anyone with a 401(k) match must be rich. Anyone lucky enough to still have a pension must be part of the evil rich. Third, don’t get rid of all these IRA and 401(k) retirement investments just yet, but use them to hedge the savings vehicles that are more removed from the financial system. I don’t know husker’s age and how far off retirement is, but let’s assume it’s 20+ years away. A lot can happen in 20+ years. I keep thinking of Harry Dent’s thesis that deflation could suddenly blindside us, so maybe having some cash is a good idea. I’m unsure about his thesis, but we’re in uncharted territory. We have such fragile, complex, chaotic, interconnected, rigged systems — financial, political, regulatory, military, ethnic/religious, industrial (just in time), etc. — who knows what could actually happen. If today’s world had an official bird, it would be the black swan. Make that a mutant, fire- breathing black swan. With fangs. And laser eyes. Fourth and finally, remember that it’s not what you earned and put in these accounts that matters. It’s what you’ll have left compared to others when we reach “the end of the world as we know it.” To oversimplify a bit, there are just two possible outcomes waiting for us just over the horizon. One is a crash where the distortions, debt and (we hope) financial criminals disappear so we can start fresh again. The other is totalitarianism. If we have the former, then whatever you have left matters a lot. If we have the latter, then nothing matters at all. And here’s Reckoner HC from California, chiming in... I had 401ks, a 528 deferred comp plan and IRAs and turned it ALL into a self-directed IRA which I then turned into gold and some silver.  I have since closed out the account and hold my own assets. I don’t trust the government, especially once they proffered the idea of confiscating it all and “giving” us T bills instead. Oh yeah, that sounds like a plan — to rip us off! Reckoner FI concurs. Writes FI... If it were me I’d cash in ALL of my 401(K), Roth IRA, AND regular IRA. In fact, I did just that in 2005 and have been ecstatic that I did so. The penalties and taxes I paid were very small compared to where my gold and silver are now. As long as your money is in these accounts, it is NOT in YOUR hands and under your direct control. Therefore, you are at the “mercy” of a custodian to not go bankrupt and take your money with them, as well as having to depend on them to make distributions to you. In addition to all of the above, how many investments can you think of that have done better since 2005? To me, this decision seems to be a no-brainer. From Maryland, here’s what Reckoner Eric K. says... Don’t be silly. You don’t have to pay that tax and you can multiply your gains in gold bullion by buying gold stocks that are quite cheap right now. Eventually you will have to pay some tax on the non-Roth but your gains can be huge. Of course, there were other suggestions too...though their efficacy/relevance would depend on the nature of the individual accounts... HuskerDu writes: In response to Husker, why not hold the gold in your 401K? You could engineer a foreign property purchase, then a gold swap as a mortgage holding. Glover says: Sounds like a good idea taking funds from the 401k account to invest in gold bullion but to avoid the early withdrawal just take a loan against the account and set up a 12-month or 24- month repayment. Only a small processing fee and low interest on the loan.  And Reckoner Ron writes: Here’s a suggestion for your 401k for gold. Just open an account with an IRA firm that deals with gold bullion brokers (I know several), have them transfer the amount you want to move to gold or silver or the full amount. These firms deal with all types of assets not just metals and purchase your metals. No need to pay taxes now. The taxes will stay deferred under 401k rules. Hope this helps. And finally, one anonymous, cheery Reckoner writes in to say... My first question to you is “how much do you (really) want to protect what is yours (and the family)?” In other words; how long do you think fiat money will “protect what is yours”?  Food prices are up 150% since 2008 and in general energy prices have doubled. How long before all durable goods are effected in the same manner? In 1966 I almost bought a car for $3,500. Last year the same comparable car would have cost over 40K. Cigarettes were 0.20 cents a pack and now you’re lucky if you can buy the “same name brand” for $5 a pack. A few years back I purchased a Perth Mint Certificate and purchased silver at just under $18 an ounce. After paying the penalty (IRA) and my capital gains, I had to gain back an approximate 40% loss just to break even. If you do the math you will see I’m ahead now and the rest is “icing-on-the-cake”. Bite the bullet and pay the piper! A few years down the road you will realize it was the best thing you ever did to protect what is yours and your families. Hmmm...let’s see now. If you bought silver now at $33 an ounce and it reached $54 (40% to break even) you may not have to wait as long as I did to make up your loss.  One word of caution: can you stomach the roller coaster ride during the waiting game. Good luck in you decision — not if — but when! --- Thanks to everyone who wrote in with suggestions. We’ll have some more during the week to come. In Bernanke’s War-on-Savers world, we freedom-minded folk do well to stick together. Enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning ---------------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com