Cyprus 2.0 – Hidden In The Chaos – Bail Ins Continue – Poland Confiscates Half Of Private Pension Funds To Cut Sovereign Debt Load!
Announcing the long-awaited overhaul of state-guaranteed pensions, Prime Minister Donald Tusk said private funds within the state-guaranteed system would have their bond holdings transferred to a state pension vehicle, but keep their equity holdings.
He said that what remained in citizens’ pension pots in the private funds will be gradually transferred into the state vehicle over the last 10 years before savers hit retirement age.
The reform is “a decimation of the …(private pension fund) system to open up fiscal space for an easier life now for the government,” said Peter Attard Montalto of Nomura. “The government has an odd definition of private property given it claims this is not nationalisation.”
Poland Confiscates Half Of Private Pension Funds To Cut Sovereign Debt Load
While the world was glued to the developments in the Mediterranean in the past week, Poland took a page straight out of Rahm Emanuel’s playbook and in order to not let a crisis go to waste, announced quietly that it would transfer to the state – i.e., confiscate – the bulk of assets owned by the country’s private pension funds (many of them owned by such foreign firms as PIMCO parent Allianz, AXA, Generali, ING and Aviva), without offering any compensation. In effect, the state just nationalized roughly half of the private sector pension fund assets, although it had a more politically correct name for it: pension overhaul.
By way of background, Poland has a hybrid pension system: as Reuters explains, mandatory contributions are made into both the state pension vehicle, known as ZUS, and the private funds, which are collectively known by the Polish acronym OFE. Bonds make up roughly half the private funds’ portfolios, with the rest company stocks.
And while a change to state-pension funds was long awaited – an overhaul if you will – nobody expected that this would entail a literal pillage of private sector assets.
On Wednesday, Prime Minister Donald Tusk said private funds within the state-guaranteed system would have their bond holdings transferred to a state pension vehicle, but keep their equity holdings. The funds would effectively be left with only the equities portions of their assets, even this would be depleted, and there will be uncertainty about the number of new savers joining.
But why is Poland engaging in behavior that will ultimately be disastrous to future capital allocation in non-public pension funds (the type that can at least on paper generate some returns as opposed to “public” funds which are guaranteed to lose)? After all,this is a last ditch step which no rational person would engage in unless there were no other option. Simple: there were no other option, and the driver is the same reason the world everywhere else is broke too – too much debt.
By shifting some assets from the private funds into ZUS, the government can book those assets on the state balance sheet to offset public debt, giving it more scope to borrow and spend. Finance Minister Jacek Rostowski said the changes will reduce public debt by about eight percent of GDP. This in turn, he said, would allow the lowering of two thresholds that deter the government from allowing debt to raise over 50 percent, and then 55 percent, of GDP. Public debt last year stood at 52.7 percent of GDP, according to the government’s own calculations.
- Government has too much debt to issue more debt
- Government nationalizes private pension funds making their debt holdings an “asset” and commingles with other public assets
- New confiscated assets net out sovereign debt liability, lowering the debt/GDP ratio
- Debt/GDP drops below threshold, government can issue more sovereign debt
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Europe Make Cyprus “Bail-In” Regime Continental Template
Turns out that for Europe, Cyprus was a “bail-in” template after all, and following an agreement reached early this morning, Europe now has a joint failed-bank resolution mechanism. Several hours ago, EU finance ministers announced that they had reached agreement on the principles governing the imposition of losses on creditors in bank ‘bail ins’. Having already agreed to establish “depositor preference” in the pecking order of creditors at risk, the stumbling block to agreement was the availability of flexibility at the national level to complement the bail in with injections of funds from other sources. Under the compromise achieved overnight, once a bail in equivalent to 8% of total liabilities has been implemented, support from other sources can be used (up to 5% of total liabilities) with approval from Brussels.
Jim Sinclair’s advise on preparing for this event:
For your reference, here is my GOTS (Get Out of The System) check list:
1. Your equities are held in certificate form.
2. You have no Federal income tax favored retirement funds.
3. You have no CDs and investments in bonds.
4. You have modest money deposited among selected BRICs countries.
5. You store your own precious metals.
6. You have no mortgage obligations.
7. You keep cash on hand for 6 months expenses.
8. You have no consumer debt at all.
9. You have a small hobby farm for protein and veggies outside of where you are living with no mortgage debt, set up green.
10. You have a gas, diesel or electric car with high fuel mileage for the farm.
11. You have a generator with large fuel capacity for the farm.
Note the reference to all retirement accounts. Those accounts are going to be targeted and your hard earned assets will be replaced with a special issue of sovereign paper that will have no real value whatsoever. Whilst the penalty and taxes may seem onerous they will seem insignificant after the nationalization occurs. Quite simply there is no time left and I advise that you must act now to secure what you have.
WORLD BANKER MAKES STUNNING CONFESSION