With Joe Biden the presumptive President-Elect, the work to select his administration’s officials is well underway. Biden has already announced some of his key appointments, and analysts are working overtime to figure out what this will mean for the economy. While there’s allegedly some infighting among the various factions of the Democratic Party, and especially between mainstream liberals and radical progressives, so far his economic policy picks seem to be pretty much in line with mainstream expectations. But that doesn’t mean that your investments will be safe.
The two key appointments to look at are Treasury Secretary and Federal Reserve Chairman. Fed Chairman Jay Powell has just over a year left in his term as Chairman, but that doesn’t necessarily mean that he won’t step down or be pressured out by Biden.
For Treasury Secretary, Biden has announced that he intends to nominate former Fed Chairman Janet Yellen. That doesn’t bode well for investors for a number of reasons. Here are four of the top ones.
1. More Tax Hikes for You
Yellen previously announced her opposition to the Trump tax cuts, finding it incomprehensible that Trump would try to cut taxes at a time when the economy was seeing full employment. That’s a worrying sign for US taxpayers. Never mind that your money should be yours, Yellen seems to think that your money is the government’s plaything, to be taken or given back as it suits the government and its policy ends.
The Trump tax cuts are supposed to expire in a few years, but that doesn’t mean Biden won’t speed that up. After all, student loan forgiveness, free college, and his various other plans won’t pay for themselves. And if your income taxes end up getting hiked, that’s going to reduce the amount of money you’re able to put away for retirement.
2. Corporate Tax Hikes
Until President Trump took office, the United States had one of the highest corporate tax rates in the world. While many corporations lobbied for and exploited loopholes to reduce their tax burdens, those high nominal rates served as a disincentive for competition in markets, not to mention an extra burden to many corporations.
Trump permanently cut the corporate tax rate from 35% to 21%, making America competitive once again on the world stage. But Biden could reverse that cut, subjecting US corporations to yet more taxation. Those higher taxes will reduce the amount of money companies can pay in dividends to investors and depress corporate profits, negatively impacting stock performance. And if you’re invested in US corporate stocks, that could significantly slow the growth of your retirement assets.
3. More Debt Issuance
In the age of COVID we’ve seen the US government taking on more debt than we ever thought possible. The official budget deficit for FY2020 will likely far surpass $3 trillion, and could even exceed the total amount of government revenue. That required issuing trillions more dollars in Treasury debt, which threatened to saturate world bond markets.
The Federal Reserve stepped in to soak up that debt, but that’s not a viable long-term strategy. Once central banks get in the habit of monetizing government debt issuance, that’s normally a one-way street to hyperinflation and economic collapse. And right now the trend isn’t looking too good.
Foreigners are reducing their holdings of Treasury securities, no doubt worried by the possibility of future debt increases. And with grandiose plans for more government spending, not to mention the possibility of trillions more dollars of COVID relief, the federal government could very well be on the path to permanently higher budget deficits.
4. Loose Monetary Policy
All of those deficits will require more debt issuance, and much of that debt will likely end up being monetized by the Fed. Expect not only significantly looser monetary policy, but also closer cooperation between the Treasury and the Fed, as the Treasury seeks to use the Fed’s powers of money creation to realize the administration’s agenda.
Powell and Yellen are no strangers to each other, having worked together at the Federal Reserve for years. Don’t expect the Fed to assert its vaunted “independence” either. Powell capitulated to Trump, dropping any pretense of monetary tightening once Trump ramped up pressure on the Fed to ease. And don’t expect Powell to stand up to Yellen or Biden either. He has already stated that the Fed will “do anything it takes” to keep the economy from falling into recession. So consider that a warning that the Fed will run the presses well into any future recession.
The devaluation of the dollar that will result will stealthily dispossess investors of the value of their investments. And many won’t realize that their dollars don’t go as far until after they’re retired. By that time it will be too late to continue growing their savings, and they’ll learn the hard way that they should have taken more steps to protect their retirement savings.
Defend Your Investments
So how can you protect yourself against a coming wave of debt and taxes destroying the value of your retirement savings? The same way investors have been protecting themselves for hundreds of years – by investing in gold.
Gold has protected investors against inflation, currency devaluation, and financial turmoil for centuries. And it will continue to play that role for centuries in the future. Its performance against the dollar has been nothing short of phenomenal, gaining over 5,000% since 1971, versus the dollar losing over 85%.
Gold has even outperformed stock markets over that time period too, and has nearly doubled the performance of stock markets since 2001. Are you beginning to think that maybe it’s time to start thinking about investing in gold?
If you want to protect your retirement savings with a gold investment, you can even roll over or transfer assets from existing retirement accounts such as a 401(k), IRA, TSP, or similar account into a gold IRA, without tax consequences. A gold IRA offers you the ability to invest in physical gold coins or bars, while still giving you the same tax advantages as your current retirement accounts.
So what are you waiting for? Don’t let January roll around before you start to protect yourself. Call Goldco today to find out how to protect your IRA or 401(k) from the effects of Biden’s economic policies.