In our last issue of the Digger, we talked about the allure of Gold IRAs and their tax benefits, as well as how these “Individual Retirement Accounts” in the US allow individuals to invest in physical gold and precious metals with their retirement funds. However, we also shed light on the darker side of the industry, where unscrupulous Gold IRA providers are exploiting unsuspecting investors, particularly targeting vulnerable demographics such as the elderly.

In this issue we’ll dig a little deeper, exposing some of the most common red flags and looking at ways investors can protect themselves. Not only are clients being ripped off, but these kinds of practices give the entire industry a bad name. They are also not unique to the US Gold IRA business. A lot of these insidious techniques are being used against physical precious metals investors of all sorts, and not just in the US, so it is important for all of us to be aware of them and to guard against them.

The extent of the problem

A Washington Post report published last July exposed many of the deceptive marketing tactics employed, including endorsements from trusted media personalities and fear mongering about economic uncertainties. As the report highlighted, “Dedicated viewers of Fox News are probably familiar with Lear Capital, a Los Angeles company that sells gold and silver coins. In recent years, the company’s ads have been a constant presence on Fox airwaves, warning viewers to protect their retirement savings from a looming 'pension crisis' and 'dollar collapse'… The industry spends millions of dollars a year to reach viewers of Fox, Newsmax and other conservative outlets, according to a Washington Post analysis of ad data and financial records, as well as interviews with industry insiders. Former Fox News host Bill O’Reilly and former New York mayor Rudy Giuliani have promoted the coins, while ads for Lear’s competitors have appeared on a podcast hosted by Sen. Ted Cruz (R-Tex.) and Newsmax broadcasts of former president Donald Trump’s political rallies.”

However, it’s not just unsavory and predatory marketing and advertising strategies that are the issue here. Numerous bad actors in the US Gold IRA industry have been the subject of serious lawsuits — including allegations of fraud by federal and state regulators.

Just to name a handful of recent examples: In September 2020, Texas Attorney General Ken Paxton and the Texas Securities Board joined the Commodity Futures Trading Commission and 29 other states to prevent companies like Metals.com, Barrick Capital, and Chase Metal from repeatedly attempting to defraud mostly elderly Americans by convincing them to convert retirement savings to precious metals. In May 2023, the SEC charged California-based Red Rock Secured LLC, its CEO Sean Kelly, and two former senior account executives in connection with a scheme that convinced hundreds of investors to sell securities in their retirement accounts and buy gold and silver with premiums far higher than what they promised.

Finally, last October 2023, in a settlement for two different lawsuits brought by the SEC and the Commodity Futures Trading Commission, Safeguard Metals, along with their sole owner, Jeffrey Ikahn, allegedly defrauded some 450 retirement account holders into investing in coins they sold, directing many of them to silver collectibles they sold to them with markups of over 50%.

“Forewarned is forearmed”

Being in the metals business for decades now, at BFI Bullion we’ve heard our fair share of horror stories regarding IRAs. Below we’ll outline some of the most widely used tricks and ploys used by unscrupulous providers.

As we mentioned in our last article, one of the most common red flags are the absurd premiums that investors are asked to pay, resulting from the misguided advice they are given regarding the formats they should invest in: “Instead of recommending industry standard bullion bars and coins, many gold IRA providers will instead promote collectible or ‘numismatic’ coins. While those may be perfectly compliant gold IRA investments, they do come with ludicrously higher premiums that can range anywhere from 40% to 200% above the spot price. As a result, the amount of actual gold the client is buying pales in comparison to what they would get if they opted for more commonly circulated and traded formats.”

To avoid this, remember that especially for IRAs, it is best to stick with bullion coins and bars, unless you have a good knowledge of what you are getting into. In fact, collectibles might sometimes even be against the IRS regulations that govern what can be included in an IRA, so it’s important to know what you can buy. Providers offering to sell metals directly from mines should also be given a wide berth, as do those that promote “rare coins” with uncommon provenance, e.g. from an estate sale. Additionally, you should keep in mind, and this applies to all physical metals investors, that the smaller the format (i.e. quarter-ounce coins vs 1oz coins), the more in premium you’ll generally pay over spot. This could be a premium you wouldn’t get back in a sale of the same metal in the future.

Complex fee structures and hidden charges buried in the fine print are also favored by bad actors. Investors should insist on transparency and clarity. This applies not only to the IRA structure itself, but also to buying metals. Only transact with firms that provide a clear, upfront breakdown of fees.

Another red flag is unsolicited contact, cold calls or emails suddenly giving you an offer that is “too good to be true”. Investors should be equally suspicious of high-pressure sales tactics. Scammers might use really alarming language about an imminent global financial meltdown, with the hopes of creating a false sense of urgency in the client. Just take your time. Do your own research, consult with your financial advisor, and compare offers from different providers.

Finally, there are also providers who offer home storage for your IRA. Home storage of metals in an IRA is not legal; home storage will be looked at as a distribution. You need to work with people that understand the rules and can tell you about them.

Even if your provider passes all these “tests”, you should still start out with a small investment, dip your toe in the water, and if you are content with how things go, roll over larger amounts.

Our own approach

At BFI Bullion, we’ve always taken a lot of pride in being transparent with all of our clients. It’s a reflection of our Group’s mission statement and the value system we have in place. This is why we find stories of fraudulent practices like this particularly vexing, as it is the unscrupulous actions of a few that impacts the hard-earned and established reputation of many in the precious metals business. We do, however, feel that actions speak much louder than words, which is why we let our approach and processes speak for us.

For instance, while we do often talk about and write about our concerns over the current economic and monetary system, we never try to scare our clients into buying gold by making absurd claims about imminent global collapse or government confiscation. We also never pressure our clients into making a decision they are not ready for - there is no “ticking clock”.

Similarly, we will not advise investors to get funds out of their IRAs. I’ve spoken to other precious metals dealers in the US that agree: if you really want to protect and fully make the decisions on your retirement funds, it’s probably best to take them out. However, that isn’t an easy decision to make. This is a choice only the individual can make if they feel their situation warrants it.

We have partners that we can refer our clients to in order to give them the chance of converting their IRA to one which gives them more control – a self-directed IRA just like the Gold IRA we’ve referenced - over their investments rather than the usual IRA custodian options. Nearly every kind of IRA can be converted to a self-directed IRA, thereby giving you more control of the investments you make.

We have heard that individuals with Solo 401k’s in particular, a retirement plan designed for a business owner with no employees – to benefit usually themselves and their spouse – are a “breed” of retirement account where their users have no idea there are other options for them.

BFI works with a group that has many years of experience in helping clients set up self-directed IRAs that are compliant with the IRA regulations and help you set up your retirement funds. They also take you through the steps of then setting up a client number at BFI Bullion to be able to invest into physical precious metals, stored in Switzerland.

If investing your regular funds into metals is important enough, why shouldn’t the same apply to your retirement accounts.
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The dangerous decline of the middle class

The shrinking of the middle class has been decades in the making, as economic, political, and systemic pressures have been dismantling this all-important rung in the ladder of socioeconomic mobility. Its terminal decline would leave behind an extremely dangerous vacuum separating the “haves” from the “have-nots”, the rulers from the ruled, and the wealthy elites from a permanent underclass, a powerless and hopeless majority.

The middle class is essential for sustainable economic growth, social stability, human progress, democratic governance, as well as law and order, which is why it is a crucial topic for voters and investors alike to consider, especially in this election year in the US and across Europe.

Under siege

This dangerous decline is not merely an unfortunate byproduct of modernity or mere chance, but a consequence of systemic distortions perpetuated by excessive government intervention, monetary and fiscal profligacy, and overall centralization of power. And while this middle-class squeeze has been going on for over 50 years, it has clearly accelerated over the last decade, arguably going into overdrive over the last 3 years.  

One of the most obvious forces at play have been the increasingly numerous, complicated, and burdensome regulations that have impeded economic progress, stifled the entrepreneurial spirit, and effectively punished small business owners — a cornerstone of middle-class prosperity. From occupational licensing requirements and environmental regulations to regular, and politically-motivated, minimum wage hikes, governmental interference in the free market has long been hindering the ascent of small businesses and limiting job opportunities for the middle class. Rather than safeguarding consumer interests, these regulations often serve as barriers to entry, tilting the playing field in favor of established interests.

Excessive taxation has also had brutal impact. The Tax Policy Center revealed that in 2022, 20-30% of middle-income households experienced an increase in their tax burden. Additionally, findings from the Tax Foundation indicate that workers shoulder an estimated 70% of the corporate income tax hikes. Apart from decimating disposable income that could help support small businesses, the now almost punitive levels of taxation discourage saving and investment among the middle class. Taxes on dividends and capital gains reduce the returns on savings and investments make it harder for middle-class individuals to build and accumulate wealth over time or prepare for retirement. It is also becoming much more challenging to afford quality education for their kids or to pass on wealth that would be essential for the next generation to remain in that same class.

Ramping up the pressure

The middle class has been struggling against these headwinds for a long time. What’s relatively new, however, is the pressures stemming from monetary and fiscal policy excesses of the last decade. As economist Daniel Lacalle very eloquently put it, “Statism does not redistribute from the rich to the poor, but from the middle class to the government bureaucracy. Printing money and increasing government spending is not a social policy. It is anti-social, destroying the purchasing power of the currency and a massive transfer of wealth from real wages and deposit savings to indebted governments.”

The aggressive “print and spend” approach we have witnessed since the last recession has dealt the most severe blow to the members of this class so far and it brought them to the precipice of near extinction they stand on today. The post-2008 shift towards QE, NIRP, ZIRP and reckless government spending paved the way for the tsunami of inflation that has ravaged the world economy in recent years, while the covid crisis and its handling all but guaranteed it would be widespread, prolonged, and very difficult to bring under control.

The explosion of consumer prices has led to a decisive decline in the middle-class standard of living, with many struggling to afford even essential items such as food, housing, and healthcare. But it also wreaked havoc with fixed incomes from investments, savings, and pensions. To make matters worse, the central banks’ efforts to bring inflation to heel have made this bad situation infinitely worse. Middle-class families frequently rely on loans for major expenses such as home and car purchases, or education costs. They also often carry considerable credit card debt. Rate hikes have made these debt obligations insupportable for countless middle-class households.

Where we stand today

Credit card and auto loan delinquency rates have reached their highest levels in over ten years. Interest payments on these and other non-mortgage debts now pose a financial burden for US households equivalent to mortgage interest payments, marking a historic milestone. As pointed out in a recent Bloomberg article: “The figures suggest a difficult reality for the millions of consumers who are the engine of the US economy: The era of high borrowing costs — however necessary to slow price increases — has a sting of its own that many families may feel for years to come, especially the ones that haven’t locked in cheap home loans. And the Fed, which meets next week for a policy decision, doesn’t appear poised to cut rates until later in 2024.”

On the monetary policy front, there are even more reasons to be seriously concerned. The Fed, as well as thirty other major central banks are expected to cut rates once again in the second half of 2024. This might provide some temporary relief to heavily indebted households, but it will almost certainly come at a very high price, quite literally.  

Policymakers are making the same mistake they made in 2020, when they ignored the risk of inflation that came with their expansionist measures. Once again, they are “pivoting” too fast and way too prematurely, while consumer prices (especially in the real economy, as opposed to the CPI numbers) are still nowhere near the targets they set themselves. This return to monetary easing, coupled with the elevated spending that around seventy national governments have already started engaging in due to looming elections this year, is bound to fully resuscitate inflation and bring about a second, much more forceful, wave of price increases.

There are, of course, additional stressors coming from the wider slowdown in the real economy that have been overshadowed in the media by the record highs in the stock market. The latest jobs report, for example, contained some serious warning signs. Even though significantly more jobs were added than what was expected, virtually all of them were part-time jobs. Full-time jobs, the ones the middle class relies on, have actually been declining since last December. As Ryan McMaken of the Mises Institute noted: “The year-over-year measure of full-time jobs has fallen into recession territory.”

Finally, there are also threats that are unrelated to economic factors and monetary policies. On top of it all, middle class savers and investors now must worry about state overreach and power abuses affecting them directly. This was highlighted by a federal appeals court decision at the start of the year, which ruled on the matter of the 2021 FBI warrantless raid of hundreds of safe deposit boxes. Agents seized millions of dollars in cash, as well as jewelry, personal effects and legal documents, actions that the 9th U.S. Circuit Court of Appeals unanimously agreed were unconstitutional, highlighting that “it was those very abuses of power, after all, that led to adoption of the Fourth Amendment in the first place”.

What lies ahead

We seem to be in the grip of a vicious cycle, with no end in sight. The same misguided “cures” are being deployed against the problems that their side effects created in the first place. And every time this treatment course is repeated, the side effects get worse, so more of the same medicine is used next time, and so on and so forth. This loop seems likely to continue until the “patient” expires.

“Print and spend” is simply too politically expedient and it certainly beats tackling any of the real, structural problems of our monetary and economic system. The demise of the middle class seems like a small price to pay from a populist perspective, while it is also such a slow and insidious process that it is barely noticeable. It took decades for us to reach this point, and while the pressure is now much more intense and the damage is very likely irreversible, it will still take a few more years before the middle class is completely crushed.

We don’t have to wait until then, however, to see how dire the consequences are. From a sociopolitical point of view, this collapse of the middle is clearly correlated to the collapse of the center in political ideologies and the rise of polarization. Social frictions have been brewing for years, as has the justifiable public anger over economic inequality, over the blatantly uneven playing field, and over the fact that democracy appears to be morphing into a contest of billionaires. All these grievances have their merits, but they also provide fertile ground for extreme ideas and unrealistic promises by political opportunists.

“That way madness lies”, as evidenced by the emergence of absurd concepts like Modern Monetary Theory and Universal Basic Income. A more recent example is the resurgence of the “degrowth” movement, based on a radical economic theory born in the 1970s, which promotes shrinking rather than growing economies and limiting human production, activity and even movement, in order to use less of the world’s natural resources.

Preposterous notions like this are only bound to proliferate, evoke and eventually be taken seriously as quality of life plunges and as anger, desperation and resentment rise.

Bidenomics: The story so far

The US election is still months away (it might as well be decades in political time), and a lot can change in the meantime. However, the economic shifts and trends of the last three and a half years cannot be realistically reversed before the polls open. It is thus a good time to sit back and take stock of the impact of Bidenomics and evaluate how its underlying theories and the predictions fared in the real world.

The economic agenda of President Biden, dubbed “Bidenomics” by the mainstream press and by his own administration, is centered on the pillars of public spending, empowering the middle and the working class, strengthening the social safety net, and engineering income equality, all funded by significant tax increases on “the wealthy” and on businesses. Other key goals include expanding access to affordable healthcare, raising the minimum wage, and student debt forgiveness. President Biden has directed efforts towards realizing the objectives of Bidenomics via significant legislative measures such as the American Rescue Plan Act of 2021, the Inflation Reduction Act of 2022, and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act of 2022, among additional initiatives.

By now, the results are in. President Biden remains optimistic, asserting that the economy is flourishing under his administration and that the majority of workers and taxpayers, and especially lower income ones, are much better off under his administration: “We’re growing an economy from the middle out and bottom up, instead of the top down…Bidenomics is just another way of saying ‘the American Dream.’”

When surveyed about their perceptions of the U.S. economy, Americans express widespread dissatisfaction. Concerns regarding family finances and fears of economic decline loom large among citizens. Many feel concerned about the stability of their hard-earned income and the purchasing power of their savings. According to Pew Research, only 28% of all Americans currently rate national economic conditions as excellent or good. This number, however, jumps to 60% when the pollsters asked upper-income Democrats for their take. By contrast, 32% of those with lower incomes view the economy positively. As Pew also highlights:  "White Democrats are more likely than Black, Hispanic and Asian Democrats to say the economy is excellent or good.”

The picture gets even gloomier if one looks at the Expectations Index, a component of the Consumer Confidence Index, which is published every month by the Conference Board: “the Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell to 73.8 (1985=100), down from 76.3 last month. An Expectations Index reading below 80 often signals a forthcoming recession.”

There are many good reasons for US voters and taxpayers to be worried about the future. For one thing, the inflationary wave they experienced (and still do), combined with the aggressive tightening and rate hikes by the Fed, has already brought countless households to the brink of financial ruin. More and more working families are struggling to afford housing and groceries at the same time, as both have been rising in price relentlessly.

While its inflationary effects are unquestionable at this point, Bidenomics also appears to have failed in its mission to fight income inequality. According to Statista: “In the third quarter of 2023, 66.9 percent of the total wealth in the United States was owned by the top 10 percent of earners. In comparison, the lowest 50 percent of earners only owned 2.5 percent of the total wealth.”

This is most likely due to the fact that the record levels of government spending under the Biden administration has been directed at programs, subsidies and welfare schemes that serve political, rather than economic, purposes. Those who benefited were political and corporate allies, as well as favored constituencies, instead of the actual “working man”.  

Overall, the US’s economy is set to play a very significant role in this year’s election. Uncertainty looms large and there are clear and justified reasons to be concerned about the future, so both candidates’ proposals will have to be carefully scrutinized by voters.