Claudio Grass

Claudio Grass is an independent precious metals consultant from Switzerland serving clients around the world. He is also an ambassador of the Mises Institute, Auburn (AL), USA.

Source: shutterstock Pension insurance for coming uncertain times: golden jewelry

German pension system:Private Insurance for Uncertain Times

Precious metals and diversification

Claudio Grass (CG): How do you assess the steps taken so far to fend off the collapse of the pension system, like increasing the retirement age? Do you believe such measures will suffice and how do you evaluate their impact on the citizens’ lives?

Carlos A. Gebauer (CAG): Frankly speaking, measures like increasing the retirement age to extend the period of cash-inflow and abbreviate the time of outpayments or, as an alternative at the other end of a person’s lifetime, shortening the mandatory school period from 13 to 12 years, amount to nothing more than a cosmetic repair and mere window dressing. Mathematics functions adamantly and the numbers continue to paint a very stern picture. Quite simply, once the proportions between the young and the old are thrown off balance in a society, it takes decades for the system to adapt and readjust. Hence, the journey through life for all participants of this system and those who live in its periphery and under the state’s jurisdiction will inescapably be affected during that period. For quite a while now, we see some German politicians trying to establish a mass immigration flow of young people from abroad as a compensation measure to absorb the demographic imbalance. I’m afraid they are hoping for a miracle.

CG: At this stage, do you believe that there is a solution or drastic measures that can effectively ensure the sustainability of the pension system, or do you think the entire structure is past saving?

CAG: A couple of years ago, I advised representatives of Seniors in the Liberal Party of Germany (FDP) to pursue a change in tax policy. My idea was to establish a complete exemption from income taxation for all persons older than 58, as long as they would furnish proof of saving the unpaid taxes as reserves for their own old age funds. I speculated that a massive part of democratic voters would agree to such a model of taxation. Through that, we would have been able to see a way out of our systematic problems by decompressing young contributors to the pension coffers and enriching pensioners, all driven by a reliable self-interest of the elderly. Unfortunately, those who received my proposal preferred to let state servants rake in more money, as they always did in the past.

CG: Apart from the obvious economic deficiencies and faults built in the system, do you also believe there is a political aspect that has exacerbated the problem?

CAG: Over the course of the last decades, policy-makers in the so-called modern states have made it their business to offer a kind of all-inclusive package deal to citizens. Voters, on the other hand, appeared to enjoy being seemingly unburdened from the effort to think economically for themselves. Consequently, politicians established public funds not only for the elderly, but also for the sick, the disabled, the unemployed and so forth. Since established politicians who lose their seats in parliament can then easily be provided with leading positions within these funds by their political friends, a shuffling of funds between the many coffers has begun that effectively conceals the real status of each of them and makes it virtually invisible to the public.

Politicians yield to the temptation of handling big money on the one side, while voters on the other side are happy to let them do so, as they succumb to the convenience of being ruled and having their finances “taken care of”. This misguided trade-off had fatal consequences, particularly because, according to present German law, politicians who force citizens to participate in these systems are not personally liable for the debts and losses of the funds. I have been advocating to change this and to establish personal liability of politicians for their administrative decisions.

CG: After hearing and reading so much about Germany’s leading role in EU and its economic prowess, do you see its ailing pension system as an indication or a warning sign of deterioration from the inside?

CAG: It goes deeper than that. It is not only the pension system that is ailing in Germany these days. The long-term care insurance that was established in the late 1990’s and the National Health System teeter on the brink of disaster as well. The circle of citizens that were forced to be compulsorily insured was enlarged repeatedly, every time the system needed more money. But enlarging the system always had a rebound-effect as well: The more people you oblige to pay in, the more people acquire a claim to receive benefits out of it shortly after. This created a vicious circle and it’s unlikely that we can get out of it without a collapse. In fact, my concern is that we will even have to face another enlargement of these systems, this time throughout all member states of the European Union, because scaling up the funds and magnifying them can once again help mask the real over-indebtedness and postpone the inevitable for one more legislative period.

CG: Do you believe German citizens have understood that they can no longer count on state pensions and this is the reason why private individuals in Germany hold a record of 8.918 tons of precious metals, with 4.925 tons in bars and coins, and approx. 4,000 tons of gold in the form of jewelry?

CAG: Wealthy people might have shifted their reserves into precious metals to these extents because they know that investing in zero-interest Central Bank money is no longer a good idea. But I doubt that there are already noteworthy groups of people who have begun to stockpile metals in order to replace their at-risk pensions. Maybe the wisdom of the crowds has envisioned already that the day of the collapse of the German pension system will anyway be the eve of an unprecedented deprivation of private reserves, so that it makes no difference if you hold assets or not. The day after, you will find yourself dispossessed either way.

CG: Overall, what would be your advice for a currently working and contributing citizen to ensure that their retirement years will be comfortable and to protect himself against these risks?

CAG: As far as I can see (and as far as I have understood the history of mankind), the outlook of our future as individuals and as part of a society has never been as uncertain and confusing as it is today. Since the dawn of our species, human beings collected the best information they could get and adjusted their actions according to that knowledge. However, digitalized information systems have increased the speed of information and made it accessible to everyone, everywhere and at all times, to an extent never seen before. That makes it virtually impossible to make immovable, long-lasting decisions usefully. Even if you decide for yourself to stay the course that you have chosen, you have no guarantee that your partners or fellow citizens will see things the same way. The more insecure and uncertain a situation is, the more flexible and adaptable one has to be. Diversified portfolios may never have been so useful and essential as today and thus, a far-sighted and prudent investor does not have to fear inconsistencies.

CG: Do you believe gold and silver will once again prove their worth as a store of value over the coming years and in particular during a harsh crisis scenario, when our debt-based monetary system needs to adjust?

CAG: As I said: Times are confusing and puzzling and the future is more unpredictable than ever. In the short term, I believe, the price of gold and silver is subordinated under the market control of our established central banks and their cooperating institutions. In the long term, I expect that the state powers that will establish their rule after the coming crash will not be willing to accept the distribution of metals, as seen since 1971, as a fundament of a new general world-monetary system. Only in the medium term, in between the outbreak and the overcoming of the collapse, I could imagine that these metals will become important as an auxiliary to push economies into new life.

CG: What is your outlook and your expectations for the next couple of years, not just for German pensions, but for the economy as a whole?

CAG: Blooming decades of a relaxed and unwound economic growth will come to an end. The widespread misconception of economies that can sustainably be run on the grounds of debt will painfully be restored and traced back to a fundamental natural rule. And that rule will not only mandate that “you can’t have a cake and eat it“. That rule will teach mankind even more, by saying: “You can’t eat a cake that has not even been baked yet!”.

Original article here. Reprinted with permission.

Part 1 of this interview is here.

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