The rising likelihood of asset confiscation to fund government deficits

Manufactured inflation leads to QE’s failure, which ends in asset confiscation

The underpinnings of Quantitative Easing (QE) can only exist indefinitely in a low inflationary environment. I often think of the Bank of Japan’s ongoing 30-year experiment in this regard. But, with price inflation moving higher, I theorize that QE’s lifespan will be drastically shortened. If the monetary and fiscal authorities cannot, or refuse to, bring this manufactured price inflation under control, QE will fail by mid-decade as investors will begin to lose confidence in the central banks’ (CBs) abilities to continue maintaining the large gap between interest rates/ bond yields and price inflation.

I submit that the process that resulted in this inflationary mess was not from mismanagement or chance, but rather part of a well-calculated plan. Thus, if and when QE fails, the nations-states will resort to other means (e.g. de facto asset confiscations or heavy taxation) to fund their budget deficits. Let me explain.

The step-by-step process to deliberately destroy QE
The economy grew, but at what price?

But before we discuss asset confiscation, we need to analyze how the current inflationary dilemma was engineered using  COVID as a cover.

1) The COVID stimulus and deficit spending packages differed from all other previous forms of deficit spending as the money was deliberately handed out directly to the end user. The money was not “sterilized” and offshored like in previous instances, but designed to cause a large uptick in aggregate demand, referred to as “demand-pull.”

2) Concurrently, the aggregate supply chain was intentionally constricted via the engineered COVID supply shock.  Via QE as a wealth consolidation mechanism, the globalists now control all the primary factors of global production and distribution. I also observe how these truck convoy protests must be part of the plan as they only help to create the current supply-side pressures.

3) The Fed has been totally behind the curve with regards to mounting any true response to the massive runaway inflation. The longer it delays, the more difficult the inflationary problem becomes to solve without blowing up the markets and bankrupting the governments in the process.

4) There has been a conscious effort by the monetary authorities to relax the proper treatment of distressed debt, thus hiding the true rot in the debt markets.

5) Coincidently timed war and military pressures are threatening the supply chain further. War is often a great excuse for the monetary authorities.

Six months ago, I placed the odds of QEs failure at about 10-15%. Three months ago, I raised that to about 20%. Today, I say there is a solid 30-35% chance that QE will fail by mid-decade. Why? In order to tame this global inflation dilemma, we could see a scenario that may mirror the actions of the Paul Volcker-led Fed of the late 1970s-early 80s. In that situation, the Fed raised its overnight rate to as high as 20%. Volcker did tame inflation, but the world was much less indebted back then.

Also, how much longer can the 10-year UST be yielding five percentage points less than the rolling 12-month CPI? The longer this persists, the greater the odds of bond investors throwing in the towel.

The assets that will most likely be confiscated first

If QE dies, how will governments fund their fiscal deficits and stay in business? The most likely outcome will be some sort of asset confiscation and punishing ad valorem taxation scheme.

Recall the environment in 2008-2010. There were serious conversations in the political realm regarding the effective confiscation of pension money, as well as bank “bail-in’s.”

Except in a few circumstances, none of this ever came to fruition, because QE was promulgated, which made all of those conversations a moot point. In essence, there was no need to confiscate retirement money or bank deposits in exchange for sovereign debt securities or bank equity. QE solved the dilemma of fiscal deficit spending.

Fast forward to today, and it seems that QE is being set up for a planned demise. If that’s the case, how will the sovereign states continue to stay in business?

Based on prior political discussion, the asset confiscations will begin with the most liquid, marketable, or easily attachable assets (e.g. checking and savings deposits as well as pooled pension funds), and work its way down to IRAs and 401ks accounts. After that, the governments could heavily tax the assessed value of brokerage accounts. All these types of monies are the easiest to quantify and thus will be used first. With regards to brokerage accounts or holdings of individual equities, the government could impose an annual ad valorem tax on the owner.

The next types of assets in the crosshairs will be the less liquid ones, such as real estate and businesses. Governments may also wish to nationalise the banking sector to retain its rich cash flow and asset base. The governments may choose to effectively nationalize many manufacturing industries and retain their profits and cash flows to help fund deficits.

The governments will find confiscating illiquid assets like real estate more challenging and less practical. However, I predict the governments could levy all sorts of special national ad valorem taxes on many of these types of assets in lieu of outright confiscation. Ad valorem taxes are typically levied on real or personal property by local governments, but the Feds could get involved. Ad valorem means a tax on goods or property expressed as a percentage of the sales price or assessed value.

In other words, you can keep your house, but the taxes could become exorbitant.

We need to wrap our minds around the grim new reality of what the world was like back in 2008. Boring is profitable. I still like gold bullion and gemstones; for others, they will swear by bitcoin. I leave that up to you to determine.

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25 thoughts on “The rising likelihood of asset confiscation to fund government deficits

  1. The Feds and every State in the USA could introduce a Trader transaction tax. They could use a tiered system where a dime is charged on $2-$10 shares, a quarter on $10-$25 shares, and a dollar for anything over $25 for any buy/sell orders.

    They needed that WSB/GME/AMC/doge pump event to lure more people in.
    All those single mothers sitting in their section 8/HUD housing homes, getting on their free plan cellphones trading stocks while collecting SNAP and unemployment benefits. Then posting their trade ideas on stocktwits and twitter. Just what the doctor ordered for an upcoming trader transaction tax.

    They haven’t introduced a breathing tax or fee yet, or it’s buried in the fine print somewhere. Maybe that’s why they are getting rid of the mask mandates, they are going introduce climate change policies and demand payment from people to breath.

  2. The Federal Government ran a budget surplus last month?……do you really believe that?

    With all of the chicanery that goes on and the fake numbers like CPI I don’t trust it. I go to shadow stats and his calculation shows inflation closer to 15% which seems much more accurate.

    I remember Dr. Mark Skidmore at Michigan State did an audit of the Federal Governments books and found a few things:
    1. The government had misplaced 21 Trillion dollars from year 1996-2019.
    2. The social security administration had rolled over 400 billion dollars to 44 trillion dollars.

    Once Dr. Skidmore released his findings, the government took its books dark and declared them national security under FASB 56.

    I would seriously question anyone who takes the official government numbers as fact.

    1. I have no reason to doubt it. There are four months out of the year in which the government used to normally run surpluses. They were January, April, June, and September. Those were the estimated income tax collection months.

      The feds have really pulled back on their spending. They use Senator Manckin to claim that he torpedoed all the spending initiatives, but I have to believe that the establishment is only using him as cover, because it knows the federal government cannot continue spending on the scale that it had been. It seems the federal government, even with the Democrats in charge, have gotten religion regarding fiscal spending.

      This is why I’ve asked myself why the Federal Reserve has stretched out its Bond buying even after fiscal spending has dropped anywhere from 60 to 70% year over year.

      1. Plus, in the article it states that the federal government raised about $70 billion in one time bandwidth auction proceeds. If it weren’t for that, the surplus would be much smaller.

      2. Cos they need this as collateral for their NWO scheme, and want the nonfinancial sector to hold as little of it as possible.

    2. The 21 trillion was just from hud and dod. Add in all the other departments and its over 100 trillion. This is what was revealed on usawatchdog.com .

  3. I was thinking about my teachers pension plan – they had just adjusted my payments because of inflation – a whopping extra $30 a month! I looked at how it was adjusted and there were different rates according to which years I was teaching. It was probably due contractual agreements. Teachers never notice these things when negotiating contracts. They typically turn to the salary grid page and ignore the rest. Over the years, our benefits were whittled down, became provincial and then a taxable benefit. I raised a fuss about this years ago, saying they aren’t giving us anything -we’re paying it back in taxes! Blank stares. Of late, there has been hiring frenzies and declaration of teacher shortages. Now, they are allowing non-certified teachers and parent volunteers into the system. 2 years ago it was hard to land a good teaching job! You needed so many credentials, experience and now they’ll take anyone off the street. Perhaps, they might continue whittle away the pension of regular teachers, looking benevolent with one hand in terms of salary, but taking with the other. Make the job onerous with hybrid learning or vaccine mandates to push out the dinosaurs, then hire immigrants to replace them without the expensive perks. It would be so easy to pull the wool over their eyes.

  4. Looking at the spoos beat down below the 200 day again. Nasdaq futures beat down and commodity prices soaring again.

    Is the world losing confidence in the Federal Reserve’s ability to manage the monetary system? It is starting to look like it.

    The loss of confidence can build, but the results can manifest suddenly.

    There’s no way this can persist. The Fed has to raise rates immediately. Today. Now. Big hikes are needed. It will crush my balance sheet, but it needs to happen.

  5. Interesting comments and brings me to another observation.

    Along with insane CA real estate prices there has been a massive migration of CA residents to MT, AZ, TX or other places. Conversations on this topic are on a personal level but it’s also very main stream to the point that this is a trend not unlike fashion or the latest electronic whiz-bang device. Is all that “move out of CA thinking” met with a purpose?

    To clarify my point, CA has proposition 13, which keeps the property taxes at a moderate level of increase. The yearly cap is 2%. I have lived in my condo for about 25 years and my taxes are no where near what some poor sap just paid for an identical unit. You can say I’m a prop 13 prisoner as my cost to live in a nice area is practically nothing. I can’t stomach just the taxes on an $800K simple house. CA enjoys some of the highest real estate prices in the country so the loss of property tax by me is made up by many others. The turn over rate is also high. States like NY, OR and I’m sure many others don’t have any existing protection from raising property taxes (so I’m told). I keep this in mind as I hear so many people bad mouth CA and give the Golden State the finger as they head for OR or TX. I have to wonder if this is another massive set up.

    Raising property taxes in a state that has no such protection is much easier (I think) than in a state that has this protection on the books since 1978. Yes, CA politicians are chipping away at good ‘ol 13 but so far it’s still alive and kickin’.

    What you theorize about property taxes could turn over the apple cart for all those who are getting acclimated to their new environment. I have no plans to leave CA despite all the commie politicians because moving to another state with promises of no income tax and cheap gas is essentially taking the bait. It’s the devil you know, right?

    Will the Fed take the low hanging fruit in regards to making up the monetary hole caused by their own shenanigans? Is there any fine print in the real estate contract in TX – for example – that essentially says we can do whatever we want to your property taxes? Just sign here to say goodbye to $1.4m 1/4 acre lot homes is all former CA residents need to hear.

    1. Property taxes in TX are a problem especially for landlords. Everyone challenges every year. I have one rental property in TX and the rest in TN. The property tax total for 4 properties in TN is half of the one property in TX. This is why I don’t own any more in TX. The rent is more in TX but not enough to make up the escalating cost of PT and insurance

      1. property taxes are high for landlords, but the purchase prices are lower. I ran some numbers for a few people over the years in TX, and overall, the capitalized values of investment real estate is similar to elsewhere, perhaps still superior. the demographics in many areas of TX are better than elsewhere.

        I would assume that those who live in TX can take advantage of the lower income taxes. This is why the price to income multiples in TX are lower. It all equals out somewhere. The property values in MD are generally lower than in VA, because the property taxes in MD are higher. It all comes down to monthly outlays for homeowners.

  6. I think – I could be wrong – that there would be a split in the US if confiscation became a real threat. Should we consider putting our checking and savings in a credit union that operates solely in a red state ? And only owning real estate in a red state ? The one blessing of covid is that it has awakened a critical mass of people.

    1. I note that several years ago the media flipped the implication of colors. Red used to mean communist. Now red is “conservative.” Media is always flipping the poles on us. I don’t use their terms. Gay means light-hearted. A homosexual in an IBM gray suit with a marine haircut is a homosexual.

  7. Hi Chris –
    I’m curious, do you think QE can’t continue in an inflationary environment simply because investor confidence will deteriorate? Or is there a more fundamental error?

    Now this is going to sound counterintuitive, but would it be possible to fight inflation by pumping QE even more? Thought is the additional debt at higher rates would stifle all GDP growth

    1. Investor confidence can remain as long as yields remain close to intermediate to long term inflation numbers. We have never seen the spread between yields and CPI this wide for as long until now.

      With inflation this high and yields so low on a relative basis, the amount of recklessness this engenders only grows. I see it first hand in real estate. Rents skyrocketing and investor loans with rates about half of rent percent increases. Never seen this before.

      In the long run, as long as investors don’t lose confidence, QE is deflationary by function. The debt service is a lead blanket over the economy and sucks demand potential out. Only those with the income generating assets are guaranteed to win.

      My concern is this. Is the inflation we’re seeing a sign of lost confidence? The inflation is on a global scale. Inflationary conditions can be caused by increases in money stock measures as well as economic participants losing confidence in the currencies themselves.

      Could it really be that the rising death rates are what’s behind some of the supply side stuff?

      Time will tell.

  8. Article from 3 days ago.

    U.S. posts $119 billion budget surplus in January; first in over 2 years – Reuters

    https://www.reuters.com/world/us/us-posts-119-billion-budget-surplus-january-first-over-2-years-2022-02-10/

    So, why is the Fed buying anything? It should have dumped from its balance sheet, or at least hiked rates already.

    This is unbelievable…. All those proposed multi trillion dollar spending packages were thrown in the trash bin. The government stopped all the spending they promised. Yet inflation running rampant and the Fed just sitting around.

  9. The Fed is planning an unscheduled closed door meeting Monday February 14 at 11:00AM. I wonder if they are going to make a move. The Ukraine invasion is being hyped up. Seems like something is going down but I won’t know until it happens. Take it to the Lord in prayer for anyone who is concerned about these events. The Fed may hike rates on Monday

    1. The feds are running budget surpluses. The Fed needs to stop the bond buying immediately and raise rates. They may let the markets deflate just to assuage growing concerns regarding its competency in managing the monetary and banking system.

      The Fed totally missed this outcome. Everyone else saw it coming, but somehow the Fed got it wrong. Hmmm.

  10. https://youtu.be/lyJdU_81hYA

    Phenomenal times! We are living in special times right now. On other developments prophetically to the Bible, the so called allies and uncles of Manasseh and Ephraim are steadily departing from the them, just like Ezekiel states.

  11. Chris, why would the CBs reduce buying government debt and force them to desperation? Governments are their collection and enforcement arms.

    1. I don’t know, but the longer the wide gap between price inflation and bond yields persists, the worse the end result will be. Each month that passes by and this continues, the more likely bond investors will throw in the towel.

      The inflation was manufactured by design, so the outcome will be as well.

      We see the Fed lackey press criticizing Bullard for intimating a 50 bp rise. Why the constant harassment in the press to keep rates low?

      Something will explode. CPI now 7.5%, and still little more than a peep out of the Fed.

      Keep in mind that the Federal government ran a surplus last month. They have totally reined in spending recently, thus the diminished balance sheet additions is only diminishing in scope to the deficit spending. There are no real tightening actions yet going on.

      Yet CPI growth is massive.

  12. It’s hard to believe what you wrote anymore because you change your mind so often on things. Are you buying all your stocks back that you sold too?

    1. The dynamic changes every month and the trend only intensifies. The longer the wide gap between price inflation and bond yields persists, the worse the end result will be. Each month that passes by and this continues, the more likely bond investors will throw in the towel.

      The inflation was manufactured by design, so the outcome will be as well.

      We see the Fed lackey press criticizing Bullard for intimating a 50 bp rise. Why the constant harassment in the press to keep rates low?

      Something will explode. CPI now 7.5%, Which was in the 6% range a couple months ago and still little more than a peep out of the Fed.

      Keep in mind that the Federal government ran a surplus last month. They have totally reined in spending recently, thus the diminished balance sheet additions is only diminishing in scope to the deficit spending. There are no real tightening actions yet going on.

      The situation is very fluid, but the trend intensifies.

      As for stocks, I own GLD. You should leave the site and never return. You are clearly looking for a one string banjo who doesn’t adjust with the data flow and observations of the authorities.

  13. I really appreciate your updates on this terrifyingly precarious economy. What are your thoughts on silver? It’s a much more affordable option than gold. Thanks!

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