Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

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.


© 2005-2019 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