Is the Confiscation Risk Real?

By Kevin Freeman
April 17, 2013Apr 17, 2013

Many are worried about the possibility that governments will confiscate wealth as they face a deepening financial crisis. This fear was heightened recently with the actions in Cyprus. Technically, the Cypriot banking grab was described as a means of bringing solvency to banks in trouble. This can be seen in the way things concluded, seemingly in line with what our own FDIC would do in the case of a failed bank. Deposits up to a set threshold were protected and those above that level were forcibly exchanged into bank shares. The problem is that early discussions suggested a much more direct approach, simply taking a percentage of all deposits.

The Italians are also considering confiscation as suggested by the CEO of Italy's largest bank. Portugal is considering paying workers in Treasury Bills rather than cash. On the heels of all of that, some of Germany's top economists are boldly pushing for further wealth confiscation. According to an article in UK's Telegraph:

German ‘Wise Men' push for wealth seizure to fund EMU bail-outs

Two top advisers to German Chancellor Angela Merkel have called for a tax on private wealth and property in eurozone debtor states to force the rich to fund rescue costs, marking a radical new departure for EMU crisis strategy.

By   14 Apr 2013

Professors Lars Feld and Peter Bofinger said states in trouble must pay more for their own salvation, arguing that there is enough wealth in homes and private assets across the Mediterranean to cover bail-out costs. "The rich must give up part of their wealth over the next ten years," said Prof Bofinger. The two economist are members of Germany's Council of Economic Experts or "Five Wise Men", a body that advises the Chancellor on major issues. There is no formal plan to launch a wealth tax but the council is often used to fly kites for new policies. TO CONTINUE READING….

Now, Germany and the EU are not alone in these discussions. Here are some comments regarding Australia:

The next domino: Australia doubles tax on retirement savings

by SIMON BLACK on APRIL 8, 2013

Though Australia's national balance sheet is comparatively quite strong, the government has been running at a net deficit for years… and they're under intense pressure to balance the budget.

The good news is that Australia now has a goodly number of investor-friendly immigration programs designed to bring productive foreigners into the country, similar to the trend we're seeing across Europe.

On the flip side, though, the Australian government has just announced new rules which penalize citizens who have responsibly set aside savings for their own retirement.

Any income over A$100,000 drawn from a superannuation fund (the equivalent of an IRA in the United States) will now be taxed at 15%. Previously, all such income was tax-free.

The really offensive part about this is that the government is going to tax people's savings ‘on both ends,' meaning that people are taxed on money they move INTO the retirement fund, and now they can be taxed again when they pull money out.

The Cyprus debacle drew a line in the sand– fleecing people with assets, or income, in excess of 100,000 dollars, euros, etc. is now acceptable. This is the definition of ‘rich' in the sole discretion of governments.

And make no mistake– if it can happen in Australia, which still has reasonable debt levels despite years of deficit spending, it can happen in bankrupt, insolvent nations like the US. TO CONTINUE READING . . .

But could that really happen in the United States? The fear of confiscation was heightened recently with the announcement of President Obama's budget that included consideration of taxing IRA account holdings above a certain level. The argument behind this approach is that IRA's beyond something like $3 million are excessive. They would result in more than $200,000 per year of benefits. For some reason, the $200,000 level seems to be the definition of wealthy for this administration. The very mention has sent shivers through the spine of the investment community. It has been considered sacred to not touch IRA accounts. This is viewed as a first salvo in a new war on wealth. Here is the story from CNN:

Obama: Limit retirement tax breaks for the rich

By Blake Ellis @CNNMoney April 10, 2013


President Obama on Wednesday announced a plan that would prohibit individuals from reaping tax advantages on IRAs and other tax-preferred retirement accounts when funds exceed a certain threshold.

By proposing this cap as part of his 2014 budget, Obama is taking aim at those who stash many millions of dollars in tax-advantaged retirement accounts — which he argues is more than enough to retire comfortably. The limit would be based on the amount needed to finance an annuity of $205,000 per year in retirement. It would fluctuate based on inflation and interest rates, but this year's account balance cap would amount to $3.4 million for a 62-year-old and $3 million for a 65-year-old.  TO CONTINUE READING . . .

Some fear that retirement accounts may not be the subject of taxation but rather forcible investment in Treasury securities. The idea here is that government would consider investments in anything else "too risky." This might be an easier sell to the public. Of course, cynics believe that this move would not be about safety but rather to provide another large stash of wealth that could fund the continuing expansion of government despite a rapidly growing Federal debt. If the Chinese stop buying our government bonds, we will have to sell them to the pension plans. While this thought may be foreign to Americans, it has been used (albeit miserably) in Latin America. And, if you think about it, this is the basis of our own Social Security system, forcible retirement savings placed only in Government debt. So far, the idea of forcing private retirement plans into government bonds  is simply a rumor with denials by Fact Check sites. But, as we saw in Cyprus, things change and sometimes taxes turn into confiscation. And, even the Financial Times, a highly respected international newspaper discussed the possibility of forced investment as recently as last October:

"Pension funds will be forced to buy chunks of the trillions of US, UK and EU long-dated sovereign bonds to be issued over the next few years – but with disastrous consequences, experts say."

Hopefully, all of this is simply fear in a difficult economic time as many suggest. However, the actions in Cyprus, endorsed by the EU, Germany, and the IMF give one pause. And, the Obama trial balloon of taxing big IRAs adds to the concern as do the recent proposals in Europe and the history of Latin America. Legendary investor and former Soros partner Jim Rogers is certainly concerned:

Speaking towards the frightening implications of the Cyprus banking collapse, Jim said that, "It's been condoned [now] by the IMF, the European union, and everybody else in sight; that a government in need, can take assets. We all knew they could tax us…but this is the first time that I'm aware of, that they've gone in and taken bank accounts. They took gold from people in the U.S. in the 1930′s…but I've never heard of them taking bank accounts. [Now] they're doing it. So be careful [because], now they can take your bank account under this precedent."

When asked if bank account confiscation will be going worldwide, Jim said, "Well, it's now in their bag of tricks, but yes, they can do anything they want too now. I for one am worried and I'm taking preparations. Who knows if I'm right or not, but I'd rather be safe than sorry as all of those people who had money in Cyprus have learned. They thought they had a normal bank account…but now it's been [taken] with the sanctions of many governments and institutions."

This is something to watch closely and is happening quite quickly. It is a response to the Global Economic War that is underway.