LI: Unsafe Government Bonds Vs. New EU Pensions

Libertarians state that, contrary to official propaganda, Government Bonds are inherently unsafe and unstable when coercively imposed due to:

  1. Inflation often spurred by coercive bank monopolies that creates systematic yearly lossess coupled with illusory gains
  2. Economic drain: They’re generally backed by coercive and legally immune taxing powers and so destabilize freer markets, and private instruments
  3. Legally mandated losses: Coerced use of bonds to hide these effects forces additional losses on workers, pensioners and others; these may provide an excuse to also seize the pensions or coercively regulate them in new ways.

…among other problems. Unlike well-organized voluntary and transparent private ventures that are re-insured or where loss potential is spelled out, government bonds are marketed as ‘safe’ but have various staute immunities from responsibility and so statistically default via either slow inflation (US bonds –considered very safe among government bonds–lose about 1/3rd of their value each decade with current inflation) , or outright default or quasi-default via calls for additional tax support.

A current example are proposed new EU rules that force pensions and individual retirement arrangements to take a large amount of “safe ” government bonds in the wake of vast official irresponsibility causing entire economies as in Greece to totter. The cure for this strychnine is–more strycnine. The rules will unsurprisingly force pensioners to absorb continued inflation,  subsidize past mistakes while continuing to misdirect investment to unstable government entities, and get less nominal return.

Libertarians such as MG and Harry Browne have advocated study of voluntary e.g. ‘Fail safe’ stable portfolios that re-adjust periodically in several investment areas such as gold, stocks, real estate, and cash with periodic equalization. Bonds may be useful if voluntarily used, but bonds themselves should be supported by actual returns, not more coerced taxation. Such portfolios also can drive economic re-stav bilization as discontented users press for freer markets to become better educated in personal finance, protect their investments from seizure and economic  instability from official actions.


As the bonds – called gilts – have such low rates of return it will drive down the returns on retirement fund annuities, which are used to pension income.

The reforms are designed to make pension funds safer and reduce the risk of them going bust.

Annuities, which set retirement income for life, have already fallen to historic lows because of the impact of quantitative easing.

At present, a pension annuity fund may invest 20 per cent in low-yield gilts and the rest in riskier corporate bonds which have a higher rate of return.



But under the new EU rules, annuity funds will be forced to hold a higher percentage of gilts.

New research by Deloitte suggests annuity rates will plunge by between five and 20 per cent when the directive comes into force in January 2014.

A £100,000 pension pot currently gives an income of £5,837, but once the regulations come into effect they will be between £292 and £1,167 a year worse off.

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