Finish the scenario
Cladiator
Posts: 18,050 ✭✭✭✭✭
It's pretty well accepted here that PM's are a good hedge against inflation. I've never lived through a time of rampant inflation so I really don't know what it's real life ramafications are.
How do the PM's in our posession help in day to day life once the paper dollar is worth 1/10th of today's value?
Do you sell the PM's and use the cash to buy what you need?
Do you use the PM's to buy what you need?
How do the PM's in our posession help in day to day life once the paper dollar is worth 1/10th of today's value?
Do you sell the PM's and use the cash to buy what you need?
Do you use the PM's to buy what you need?
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I gather that post 9-11 bullion transactions are more reportable than ever.
Many members on this forum that now it cannot fit in my signature. Please ask for entire list.
<< <i>What I wonder is if you buy $100K worth of PMs today and if the dollar drops to 1/10 of it's value and you sell your PM's for $1M. Will Uncle Sam come to collect taxes on the $900,000 gain? >>
Most excellent question.
So:
If I had 1 ounce of gold pre-inflation worth $1000
And I had $1000 cash pre-inflation in a savings account
Inflation happens...
Now my 1 ounce of gold post-inflation is worth $10,000 but has the cash purchasing power of post-inflation $1000
And my $1000 cash post-inflation in savings has it's purchasing power cut to that of $100 pre-inflation
Economy stabilizes...
My 1 ounce of gold is still worth $1000 in numerical value and purchasing power?
My $1000 pre-inflation in savings that had $100 of purchasing power during inflation is now back to being worth the pre-inflation purchasing power of $1000?
Yes.
What I wonder is if you buy $100K worth of PMs today and if the dollar drops to 1/10 of it's value and you sell your PM's for $1M. Will Uncle Sam come to collect taxes on the $900,000 gain?
Sure he will. Why wouldn't he? As soon as you sell and realize a gain, it's reportable and taxable. In essence, you will be taxed on an asset even though the purchasing power hasn't changed. About half of your asset will go up in smoke through taxation. What a classy way for our government to behave, eh?
My 1 ounce of gold is still worth $1000 in numerical value and purchasing power?
My $1000 pre-inflation in savings that had $100 of purchasing power during inflation is now back to being worth the pre-inflation purchasing power of $1000?
What you just described is an inflation, followed by an exactly equal deflation. If you hadn't bought or sold anything in the interim, then your holdings would indeed be worth exactly what they were worth when you started.
Just remember that your gold might be worth $10,000 after inflation but the purchasing power hasn't really changed. And likewise, your $1,000 is still $1,000 but it's purchasing power has been cut to 10% after the inflation. A deflation simply reverses the process.
When you said, "economy stabilizes" you really meant, "deflation occurs".
I knew it would happen.
<< <i>If I have PM's and they hold their value while the paper dollar crashes, ok. But when the paper dollar recovers will not the value of the PM's equalize?
So:
If I had 1 ounce of gold pre-inflation worth $1000
And I had $1000 cash pre-inflation in a savings account
Inflation happens...
Now my 1 ounce of gold post-inflation is worth $10,000 but has the cash purchasing power of post-inflation $1000
And my $1000 cash post-inflation in savings has it's purchasing power cut to that of $100 pre-inflation
Economy stabilizes...
My 1 ounce of gold is still worth $1000 in numerical value and purchasing power?
My $1000 pre-inflation in savings that had $100 of purchasing power during inflation is now back to being worth the pre-inflation purchasing power of $1000? >>
You're damned if you do & damned if you don't. Invest in Family & Friends. At least they can't tax that.
<< <i>If I have PM's and they hold their value while the paper dollar crashes, ok. But when the paper dollar recovers will not the value of the PM's equalize?
So:
If I had 1 ounce of gold pre-inflation worth $1000
And I had $1000 cash pre-inflation in a savings account
Inflation happens...
Now my 1 ounce of gold post-inflation is worth $10,000 but has the cash purchasing power of post-inflation $1000
And my $1000 cash post-inflation in savings has it's purchasing power cut to that of $100 pre-inflation
Economy stabilizes...
My 1 ounce of gold is still worth $1000 in numerical value and purchasing power?
My $1000 pre-inflation in savings that had $100 of purchasing power during inflation is now back to being worth the pre-inflation purchasing power of $1000? >>
The dollar constantly loses value over time. It does not gain value over time. Day to day, and even month to month there will be upticks, but year after year after year, the dollar loses its value. Your scenario of a 90% drop in the value of the dollar followed by a full recovery cannot happen.
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<< <i>It's pretty well accepted here that PM's are a good hedge against inflation. I've never lived through a time of rampant inflation so I really don't know what it's real life ramafications are.
How do the PM's in our posession help in day to day life once the paper dollar is worth 1/10th of today's value?
Do you sell the PM's and use the cash to buy what you need?
Do you use the PM's to buy what you need? >>
By "rampant" inflation you are probably referring to a 1920's Weimar Germany type scenario, however inflation doesn't have to be rampant to be insidious, in my lifetime(60 years) the dollars buying power has diminished almost 90%.
<< <i>Just remember that gold is a "non producing asset," it is like owning raw land, it doesn't do anything, (pay dividends) until you sell it(although unlike land you probably don't pay any taxes on it). >>
On the contrary, I've owned over 400 acres of raw farmland for 10 years and not only has it nearly quadrupled in price but since I farm it pays me roughly 40-50% a year in profits.