It’s pretty obvious that magicking money out of thin air destroys its purchasing power - no PhD from Yale required to figure that out. If what you use as money is being diluted, a unit of it buys less stuff. What previously cost 1,000 now costs 100,000.
Unless you are a protected insider to the scam, you must sweat harder just to stand still... or get out of the system entirely via cryptos.. but more on that later..!
Since August 15, 1971 when Tricky Dicky kickstarted modern money printing people the world over have used two coping strategies:
- Earn ever higher amounts of government fiat through hard work
- Store fiat in real estate, equities, precious metals etc.
Up until lately this kinda worked. Most of us have been to fortunate to see our salaries, house values, and investments rise just enough to keep things afloat.
Until the so-called Great Recession of 2008-2009 that is.
(OK the chart is bit old now but the situation is now far worse. The source document is excellent).
No Soup for You!
Wealth inequality has been growing in the US/West since the early 80s. But the middle class got absolutely hammered by money printing circa 2009-2013.
The trillions in fresh new currency created by the US Federal Reserve and their cronies went first to their buddies (politicians, banks) then trickled down to those who already owned real estate, equities, and other tangible assets. These segments of society, the 90th and 95th percentile of households in the chart above, literally made out like bandits.
Joe and Josephine Six Pack got fuck all of course. Inflating the quantity of money has always been a tax on the ordinary person. The peasants are last in line to get the new money well after it has already caused prices to rise.
But I’m good right - I got gold and silver?
Maybe. You’ll have to pay Capital Gains tax (CGT) and this is where the inflation tax really starts to suck ass.
You see, tax rates and tax bands never adjust to align with the loss of purchasing power of the currency. The government doesn’t accept the new reality that 100,000 now buys what 1,000 used to buy.
Let’s say the Lone Ranger buys one 1oz gold coin for 1,000 currency units. Tonto his friend doesn’t. Instead he keeps his 1,000 in the bank. Then the Wild West Central Bank inflates and now it takes 100,000 currency units to buy 1oz of gold and 1,000 buys only 1/100th what it did before. The table below shows the Lone Ranger, despite being hedged in gold, has only preserved 50% of his original purchasing power (lost 50% to CGT).
OK you say, well preserving 50% is better than Tonto, who’s lost basically everything in the inflation (his original asset of 1,000 ends up with "real" value of only 10). But what if a 90% tax on gold investors is introduced in response to the economic crisis. To you know, bail out the latest too-big-to-fail insiders (hint: not you or me)
Well, here's what happens. The government ignores the loss of purchasing power and taxes most of the ‘gains’ the Lone Ranger made trying to protect himself.
OK smart ass, so now what?
The dirty little secret with gold (silver) is that they are NOT outside of the hermetically sealed world of big government, fiat money and taxes. You must report your profits in fiat and pay your taxes in fiat.. or else those nice men with guns come and put you in a cage.
The takeaway point here guys and gals is to avoid, within the bounds of the law (or not if you prefer to risk it) as much Capital Gains tax as you can. Fortunately it's not all that hard. And cryptocurrencies have just blown away most remaining barriers, making it even easier!!!!!
Later posts will cover this in greater detail :)
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