Best of the Week
Most Popular
1. Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - Nadeem_Walayat
2.Gold Price Forecast 2018 - February Update - Nadeem_Walayat
3.Bitcoin Crypto Currencies Crash 2018, Are We Near the Bottom? - Nadeem_Walayat
4.Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis - Nadeem_Walayat
5.Gold Corrects, Bitcoin Markets Crash, Whilst Stocks Plunge - Nadeem_Walayat
6.US Treasury Bonds: Fuse to Light the Bonfire - Jim_Willie_CB
7.Dow Falls 666 Points As Cryptocurrencies Crash And Krugman Emerges From His Van - Jeff_Berwick
8.Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - Nadeem_Walayat
9.Trading the Shadows - Oil, Dollar, Stocks, Gold Trend Analysis - B.R. Hollister
10.Stock Market Analysis: Baying for Blood - Abalgorithm
Last 7 days
The Latest US Debt Blow - 22nd Feb 18
6 Tips For Seamless Business Foreign Exchange - 22nd Feb 18
How to Anticipate Stock Market Trend Changes - 21st Feb 18
Gold Miners’ Rally? What Rally? Watch Out for More Fake Moves! - 21st Feb 18
5 Big Drivers of Higher Inflation Rates Ahead - 21st Feb 18
Goofy Indictments Divert Attention from Criminal Abuses at the FBI and DOJ - 21st Feb 18
Bitcoin or British Pound ‘Pretty Much Failed’ As Currency? - 21st Feb 18
Stock Market Waiting for the Fed - 21st Feb 18
National Identity Demands Restrictive Immigration - 21st Feb 18
Best Opportunities for Freelance Technical Writing Jobs - 21st Feb 18
4% US 10-year Treasury Note Yield Will Be a Floor Not a Ceiling - 20th Feb 18
Governments Are LYING about Their Gold Activities while Mining Companies Cower - 20th Feb 18
No Silver Lining Here - 20th Feb 18
Semi Conductor Stocks SEMI Bearish? - 20th Feb 18
The Prisoner Promised Land - 20th Feb 18
Best Car Dash Cam Review: Z-Edge S3 Dual Dash Cam - UNBOXING (1) - 20th Feb 18
How Inflation Reduces The Real Value Of Social Security Net Of Medicare Premiums - 19th Feb 18
Could Stellar Lumens be a Challenger to Bitcoin for International Payments? - 19th Feb 18
US-China Trade War Escalates As Further Measures Are Taken - 19th Feb 18
How To Trade Gold Stocks with Momentum - 19th Feb 18
Is a New Gold Bull Market on the Horizon? - 19th Feb 18
Stock Market Decision Point! - 19th Feb 18
An Inflation Indicator to Watch, Part 1 - 18th Feb 18
Get on Top Of Debt Before It Gets on Top of You - 18th Feb 18
Will the Stock Market Make a Double Bottom? - 18th Feb 18
5 Reasons Why Commodities Are the Investment Place to be in 2018 - 18th Feb 18
1 Week Later, Stock, Bond Market Risk Remains ‘On’ as 2 of 3 Amigos Ride On - 17th Feb 18
Crude Oil Prices: A Case of Dueling Narratives? - 17th Feb 18
Free 1000 Youtube Subscribers Services - YTpals, Subpals, SubmeNow Test - 17th Feb 18
How to Trade as We Near March Stock Market Top - 16th Feb 18
Bitcoin as Poison - 16th Feb 18
GDX Gold ETF Weathers Stock Market Selloff - 16th Feb 18
Casino Statistics and Demographics - 16th Feb 18
IS Today Thee Stock Market Turn Day? - 16th Feb 18
Huge SMIGGLE Shopping HAUL, Pencil Cases, Drinks Bottles, Back Packs, Toys.... - 16th Feb 18
Tesla Cash Keeps Burning at $320 a Share - 15th Feb 18
Big Conflict Ahead in the Financial Markets - 15th Feb 18
Stocks Extend Rally Off Friday's Low, But Short-Term Exhaustion Near - 15th Feb 18
Stock Market Out on a Limb... - 15th Feb 18
Things Only a True Friend Would Say About Gold - 14th Feb 18
Global Debt Crisis II Cometh - 14th Feb 18
Understanding Crude Oil Behavior - 14th Feb 18
Stock Market is Getting Scary... - 14th Feb 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

Seized Pensions & Quantitative Easing

Politics / Pensions & Retirement Apr 20, 2011 - 01:40 PM GMT

By: Adrian_Ash

Politics

Best Financial Markets Analysis ArticleA government-run pension fund manager – hardly fills you with confidence, does it...?

AS EVERY BRITISH ADULT well knows, the UK government long since forgot to save a penny of his or her lifetime's National Insurance contributions.


That makes British State pensions an unfunded government liability, with today's "investors" simply paying the "profit" on yesteryear's savings. Anyone else running this scam would be busted as a chain-letter Ponzi. But just as central bank money printers always evade forgery charges, so the government won't arrest itself for spending what they vowed to put by. And they have now decided it's time to get you to make up the difference by funding your retirement all over again.

Starting in 2012 your employer will take further deductions from your salary – a full 8% by 2017 – and dump the money into the National Employment Savings Trust (NEST – y'know, just like the egg, all fragile shell and gooey inside). Your employer will stump up a further 3% or more of your wages, also passing the cash straight to this new government-run pension fund manager. (That's hardly a phrase to fill you with confidence, is it?)

In the new scheme your money will apparently be saved and invested, rather than disappearing (as your National Insurance contributions have) into the bottomless pit of government expenditure. Oh yes, really.

Now, the trustees of NEST are all – no doubt – jolly nice people, and I think we can be fairly sure they won't run away with your cash. They will take every care not to do anything too silly or controversial. Such as, say, plugging 13% of your wealth into physical gold like the Dutch glassblowers union did. Perhaps the least controversial thing NEST can do is hold government bonds; then no one will slap their wrists, because such reckless caution is endemic in the pensions-fund business, and doing no better than the next guy is never a crime.

Besides, with the tsunamis of money bearing down on them month after month...a full 11% of gross UK wages...NEST are not going to have much choice. There simply isn't enough of anything else for them to invest in. And luckily there are plenty of government bonds. Last year the British government issued something like £160 billion of the things. That's about £3,000 for every man, woman and child in the country...a hell of a lot of bonds, and sadly there were nothing like enough natural buyers.

Despite what Brad DeLong might think, the free market of professional fund managers doesn't want all the gilts on offer. Because there's a very considerable risk that this huge and ongoing rate of bond issue will cause the bonds to inflate away to worthlessness. At least, that's the guess of history whenever a sovereign state has got close to the national debt levels reached by the UK – and if you won't listen to history, then just what will you heed instead?

With gilt prices thus threatening to weaken, in 2008 the UK authorities dreamt up a fantastic wheeze to create a false market in their own bonds in a way which would – again – land the rest of us in jail. Make the nationalized, notionally independent Bank of England print new money to buy ever more of these bonds, thereby artificially holding up their price!

This, as a reminder, is called Quantitative Easing. And it's why the Bank of England is now, with £198 billion worth, the world's No.1 holder of British government gilts. Trouble is, the Bank would rather retain that veneer of independence...and hasn't actually bought any more gilts since January. Reversing QE would mean selling those gilts – but with a further £169bn of new gilts also coming to market this financial year to fund the coalition government's newly "austere" spending plans, where in the hell would the Bank of England find a buyer...?

We'll ask again: Where would the Bank find a buyer for its pile of government debt?

Look, it's not malicious, it's just lazily convenient. The Bank of England is looking for an "exit strategy" for its vast pile of gilts at just the same time as the government is forcing wage-earners to pay yet again for their State-mandated pension. NEST could very happily play the part of buyer in this chucklesome skit. Hell, it would clearly obey its own "Lower Risk Fund" mandate by taking "very little investment risk" in a way which "may not protect against inflation over the long term" by filling its boots with UK government bonds.

But for you? £1,000 in today, £1,000 out in 2035. Never mind that all it might buy you by then is a sandwich.

Okay, sure – employees will be free to opt out of NEST. But the trust's own research shows that most people won't. More comically still, British employers are forbidden by law from encouraging their staff to opt out, even though it is the worker's legal right to do so.

Never mind though. Handing the State yet more of your earnings to set aside for your pension cannot really end badly, can it? Because if it does hit any hiccups – such as, say, the part or whole seizure recently seen in Hungary, Poland, Bulgaria and France – you can always get tapped for a third scheme, just to keep things ticking over.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Francis Bart Bertholic Jr.
21 Apr 11, 06:26
This is Scary

I really hate it when the entities set up to protect don't do so


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules