Why the Dollar won't be allowed to recover.
jmski52
Posts: 22,822 ✭✭✭✭✭
So, I'm adding up all the factors, like I usually do that gold & silver will continue to appreciate (or in reality the dollar will continue to depreciate), and I made an obvious observation that explains it conclusively.
The national, state & local debt loads are increasing faster and spending is increasing right along with it.
There's over a quad or so of financial derivatives that nobody knows what they are worth or when they'll be called due. (And gold has no counterparty risk.)
Our government's unfunded liabilities are way over the top beyond anyone's ability to pay it all out without "creating" all the money to do it.
But none of those reasons are it.
I was reading an article that explains the Austrian Model in simple terms and also that money creation has exceeded productivity to the extent that the money supply curve is simply running away from the productivity curve, and all this money creation does nothing to increase productivity. At some point, the money curve will collapse as $1,000,000 won't buy the same loaf of bread that $1 used to buy.
Make no mistake, the big banks are complicit. They make huge gobs of money by creating money and it generally ends up back in the Treasury as debt so that taxpayers are ultimately on the hook, and not the bankers (even when they fail through corrupt practices or their own ineptitude).
But that's not it, either.
Here's what I've observed. Last week I posted a link about the "inflation tax" on gold, i.e. - no matter if you made the best call possible on gold, the higher price of gold and escalating tax rates will simply wipe out all of your real gain in purchasing power after taxes anyway. Even if you win BIG, you won't win.
Here's what I conclude. The opposite of constant money creation cannot be allowed to happen. All assets - stocks, gold, land, collectibles, silver and anything else - cannot be allowed to decrease in dollar terms, because the tax system is based on dollars and a progressive tax scale. If we have a collapse in asset values (and salaries) - the Tax Code will collapse as well. And along with the Tax Code, all government financing will collapse too. If all government financing collapses, even J6P will understand the problem.
If my income is halved and my assets are halved, my tax bracket drops and my tax payments drop quickly. A collapse in tax revenues will expose the whole system's inequities and result in major chaos. Especially when the hypothetical 49% continues getting their checks while the hypothetical 51% gets creamed.
At the current rates of welfare payments, the hypothetical 49% would have more coming in for doing zero than the 51% would have coming in for working their butts off & getting taxed. The crash in government revenues would require major tax rate increases on those 51%ers as well. How do you think that's gonna go over?
I suspect that it's always been about the Tax Code. It's their endless piggy bank.
The national, state & local debt loads are increasing faster and spending is increasing right along with it.
There's over a quad or so of financial derivatives that nobody knows what they are worth or when they'll be called due. (And gold has no counterparty risk.)
Our government's unfunded liabilities are way over the top beyond anyone's ability to pay it all out without "creating" all the money to do it.
But none of those reasons are it.
I was reading an article that explains the Austrian Model in simple terms and also that money creation has exceeded productivity to the extent that the money supply curve is simply running away from the productivity curve, and all this money creation does nothing to increase productivity. At some point, the money curve will collapse as $1,000,000 won't buy the same loaf of bread that $1 used to buy.
Make no mistake, the big banks are complicit. They make huge gobs of money by creating money and it generally ends up back in the Treasury as debt so that taxpayers are ultimately on the hook, and not the bankers (even when they fail through corrupt practices or their own ineptitude).
But that's not it, either.
Here's what I've observed. Last week I posted a link about the "inflation tax" on gold, i.e. - no matter if you made the best call possible on gold, the higher price of gold and escalating tax rates will simply wipe out all of your real gain in purchasing power after taxes anyway. Even if you win BIG, you won't win.
Here's what I conclude. The opposite of constant money creation cannot be allowed to happen. All assets - stocks, gold, land, collectibles, silver and anything else - cannot be allowed to decrease in dollar terms, because the tax system is based on dollars and a progressive tax scale. If we have a collapse in asset values (and salaries) - the Tax Code will collapse as well. And along with the Tax Code, all government financing will collapse too. If all government financing collapses, even J6P will understand the problem.
If my income is halved and my assets are halved, my tax bracket drops and my tax payments drop quickly. A collapse in tax revenues will expose the whole system's inequities and result in major chaos. Especially when the hypothetical 49% continues getting their checks while the hypothetical 51% gets creamed.
At the current rates of welfare payments, the hypothetical 49% would have more coming in for doing zero than the 51% would have coming in for working their butts off & getting taxed. The crash in government revenues would require major tax rate increases on those 51%ers as well. How do you think that's gonna go over?
I suspect that it's always been about the Tax Code. It's their endless piggy bank.
Q: Are You Printing Money? Bernanke: Not Literally
I knew it would happen.
I knew it would happen.
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Comments
This makes excellent sense to me, and explains why over the long term it is preferable to hold gold versus dollars or other fiat currency.
I like how it does not exclude the possiblility that certain investments in specific property, businesses, other commodities, other securities, etc, could outperform gold over certain periods of time
Liberty: Parent of Science & Industry
Tax revenues are heavily dependent on the velocity of money - how often it changes hands. One dollar can create a lot of taxes if it changes hands often. Dollars are only subject to income tax at the time they become income. Money that sits idle is not subject to income tax - another reason why economic policy tries to encourage more personal debt (spending).
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Box of 20
Also applies for a VAT Tax. Money idle also will not be taxed. I would think it may encourage more savings than spending for the joe comsumer.
Box of 20
Yes.... that is the problem with government. The government has taken all the risk out of owning Bonds. Bond holder(Large Banks) make bad bets buying Government Bonds....... no problem... the Government will bail you out with taxes dollars. It's a bad cycle... repeat......repeat.
For the market to function correctly...... bad decisions and risks MUST BE PUNISHED.
In today's world you make bad decisions/risks.... the government prints money to bails you out.
In God We Trust.... all others pay in Gold and Silver!
<< <i>For the market to function correctly...... bad decisions and risks MUST BE PUNISHED.
In today's world you make bad decisions/risks.... the government prints money to bails you out. >>
That's for sure. Although you only get bailed out for taking bad risks that went bad if you made them in such LARGE amounts that you're "too big to let fail". The banks were/are basically playing "heads they win, tails you lose". They make their risky investment/bets using other people's money. If they win, and so does Joe public whose money they used. If they lose, Joe loses his shirt and the bank gets bailed out only to do it all over again.
That is why holding cash is the most sincere form of protest...and you don't lose any money.
Sold a coin for five figures this year, about half went into PMs. The half that's not invested is taxed only, is that correct? Considered a rollover?
Thanks
The more qualities observed in a coin, the more desirable that coin becomes!
My Jefferson Nickel Collection
<< <i>Dollars are only subject to income tax at the time they become income. derryb
Sold a coin for five figures this year, about half went into PMs. The half that's not invested is taxed only, is that correct? Considered a rollover?
Thanks >>
Simple, how much of it was income at the time of sale. Tax free rollovers only apply to IRAs. I'd say you need some tax advice from a professional.
<< <i>That is why holding cash is the most sincere form of protest...and you don't lose any money. >>
Not true. That's why many of us here hold our money in PMs.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I'd consult a tax professional on that question, l'est you generate tax liabilities without understanding the ultimate outcome.
I knew it would happen.
<< <i>The half that's not invested is taxed only, is that correct? Considered a rollover?
I'd consult a tax professional on that question, l'est you generate tax liabilities without understanding the ultimate outcome. >>
The tax liability occured at the time of the sale. The advice (or an understanding of the tax implications) should have been sought before the sale. The seller's remaining question now is "how much do I owe the IRS." I'm afraid it is at least twice what he thinks.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
That is why I tried to gently suggest that he needs to consult a tax professional.
As I've been able to accumulate some assets, the tax question has begun to loom larger than I ever expected it would. Inflation plus a "progressive" tax structure is an absolute theft machine.
I knew it would happen.
<< <i>I'm afraid it is at least twice what he thinks.
That is why I tried to gently suggest that he needs to consult a tax professional. >>
And soon. IRS expect taxes to be paid at least quarterly if there were no taxes withheld on the income. Otherwise an additional penalty when 1040 is filed if amount due exceeds what IRS thinks it should. They don't like people to hold "their" money throughout the year.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>That is why holding cash is the most sincere form of protest...and you don't lose any money. >>
Not true. That's why many of us here hold our money in PMs.
Huh. How about that. Most of the damage to the Dollar was done before most of us were born. Looks like it's actually been a (relatively) stable (predictable) decline for the past 30 years?
Maybe having that graph in a linear, rather than a log scale, distorts the story? How come the graph ends several years ago?
Liberty: Parent of Science & Industry
The more qualities observed in a coin, the more desirable that coin becomes!
My Jefferson Nickel Collection
<< <i>Huh. How about that. Most of the damage to the Dollar was done before most of us were born. Looks like it's actually been a (relatively) stable (predictable) decline for the past 30 years? >>
That's only when viewing it from a 1913 point of reference. In the 18 years of 1984 to 2002 it fell 35%. From 2002 to 2007 it fell 40%. Stable? far from it.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>I've talked with 3 of them, all IRS. They didn't ask if had invested any of the money, I didn't ask them either. 28% is all I heard. >>
there's a reason they call it "income" tax and not "money left over after I reinvest" tax. Read online IRS instructions for filing Schedule D. Then get professional advice if you feel you still need it. Getting advice from the IRS is not the same as getting professional tax advice. IRS is good at telling you what the requirements are. Tax professionals interpret those requirements for you if you are not able to do it yourself.
On the bright side you get to reduce your taxable sales amount by the cost of the coin and the selling expenses, hopefully you have good records that document your "profit." The 28% rate applies if you held it more than a year before selling (coins are considered collectibles). If held less than a year, gain (profit) is taxed at your personal rate which is determined when you complete the 1040 forms for the applicable year.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
the value of the Federal Reserve Note fell 40% in terms of 1913 dollars from 2002 to 2007?
that's not what the chart shows. Or are we mixing metrics?
Liberty: Parent of Science & Industry
I thought about the dollar the other day, what it's worth here, 80 cents? But no, I didn't catch anything from listening to the Fed Bernanke the other day for an hour, on the US dollar, a plan to get it's value up. 2% inflation is likely keeping it in check. But keeping it down favors PMs so it goes.
The more qualities observed in a coin, the more desirable that coin becomes!
My Jefferson Nickel Collection
<< <i>From 2002 to 2007 it fell 40%
the value of the Federal Reserve Note fell 40% in terms of 1913 dollars from 2002 to 2007?
that's not what the chart shows. Or are we mixing metrics? >>
falling 40% from 2002 to 2007 means that it was worth 40% less in 2007 than it was in 2002. this fact was presented to differ with your comment that there has been a "stable (predictable) decline for the past 30 years?"
While most of the overall decline since the FED took control, per the chart shown, appears to be from 1913-1981, a close look at declines in recent years, in terms of recent year dollar values, shows that the dollar continues to take a serious beating.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
In other words, if Silver rises to $35 an ounce, what does that really mean if the dollar goes down by an equivalent amount?
Shouldn't Silver and Gold be valued in a more stable currency?
The name is LEE!
<< <i>Are Gold and Silver "really" appreciating? Especially since their "relative" value is equated to "dollars" which are depreciating? >>
The answer lies in what an oz. of gold will buy over time. If it buys the same goods, then it is holding value, if it buys more of the same goods then it is appreciating more than inflation (or devaluation) is.
<< <i>In other words, if Silver rises to $35 an ounce, what does that really mean if the dollar goes down by an equivalent amount? >>
that silver is a store of value
<< <i>Shouldn't Silver and Gold be valued in a more stable currency? >>
They have proven to be THE stable form of money. Fiat currencies have not. The real question is "why?" The answer is lack of counterparty risk with gold and silver.
These question are at the heart of why we hold our money in PMs.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
The damage has continued. It was softened somewhat in the 1980's and 1990's by exporting our manufacturing base oversea as well as utilizing cheap foreign labor to keep
our imports cheap. As Asia is expanding those one time benefits are rapidly shrinking away. Eventually, all that price inflation that was dodged back then will be exported back
to us. The other reason for the curve appearing to flatten out in the 1980's to date are the numerous changes made to the CPI-U. It stopped being a constant cost of living index
and became the cheaper cost of living index. The CPI index became so skewed in the 80's and 90's that gold was assigned a relative value of $350/oz. This was all part of the
Rubin/Summers 1990's strong dollar policy which was another "operation twist," though this time on the CPI. If one wants to see the real damage done to the dollar
from 1999-2012, just look at the price of gold....it's currency alter ego. If one looks just at the CPI-U or the USDollar Index the results will be skewed.
Sold a coin for five figures this year, about half went into PMs. The half that's not invested is taxed only, is that correct? Considered a rollover?
Bullion per the IRS is considered both cash and a collectible....at the same time. So there can be no trade or rollover when bullion is involved. It was no different than if you sold
your 5 figure coin for cash. There are allowances for trading rare coins for rare coins and effectively delaying a taxable (like kind exchange). If your 5 figure coin happened to be
a rare gold coin, you probably could have set something up where you traded half of the value for say common date MS63-65 Saints. Your tax professionalism can tell you more on this.
<< <i>
<< <i>From 2002 to 2007 it fell 40%
the value of the Federal Reserve Note fell 40% in terms of 1913 dollars from 2002 to 2007?
that's not what the chart shows. Or are we mixing metrics? >>
falling 40% from 2002 to 2007 means that it was worth 40% less in 2007 than it was in 2002. this fact was presented to differ with your comment that there has been a "stable (predictable) decline for the past 30 years?"
While most of the overall decline since the FED took control, per the chart shown, appears to be from 1913-1981, a close look at declines in recent years, in terms of recent year dollar values, shows that the dollar continues to take a serious beating. >>
Alright, if you'll entertain one more question,
why does the present analysis go only through 2007, the height of asset values for most everything except dollars?
for example, if the "worth" of dollars for purchasing a house went down 40% from 2002 to 2007, didn't the Worth of those same FRNs just about double back again from 2007 through the present time??
Liberty: Parent of Science & Industry
<< <i>why does the present analysis go only through 2007, the height of asset values for most everything except dollars? >>
because it was the years i got doing a search. Want different years, search away.
<< <i>for example, if the "worth" of dollars for purchasing a house went down 40% from 2002 to 2007, didn't the Worth of those same FRNs just about double back again from 2007 through the present time?? >>
Maybe, if buying a house at new, deflated prices. Don't forget, the dollar hasn't gained value since 2007, far from it. As RR pointed the price of gold points this out.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Sure it has! for buying a house, a smartphone, a plasma TV, dollars go way farther now than they did in 2007. May even be, for anything you can name that want up in cost or value in the past 6 years, there was another thing that went down.
Measured against Gold, the dollar went down since '07, no doubt about it. In fact, Gold went up vs the dollar A LOT more than almost anything else did.
Of course, ETFs and Central Bank Buying, as well as foreign New Money with few options, contributed to much of that rise, as did the Media in the form of Newsletter writers and Bloggers.
Liberty: Parent of Science & Industry
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
That's a chart I'd like to see extended back a few decades, to see what it looks like for previous generations
Liberty: Parent of Science & Industry
<< <i>A regression line through that remarkable bubble and pop period could be nearly flat; the downward slope might be, oh, I dunno.. about a 2% grade?
That's a chart I'd like to see extended back a few decades, to see what it looks like for previous generations >>
The USDX is valued against other falling currencies that are being printed to infinity. The USDX can sit right here at .79 for years as the dollar (and Euro, Yen, Cando, Swiss franc, etc.) all drop at the same rate. This is why gold continued to rise despite a steady or rising USDX. The USDX is a more a promotional chart for sheeple compliance. Tastes great.......but it's definitely less filling. The FED could care less what the dollar actually buys. They are more concerned with what it buys relative to other fiat currencies. The sovereign currencies that all make up the USDX are in competition to stay with the next guy. No one wants to be the 1st guy to drop out the bottom or be worth a lot more than the next. Consider it like a sky diving club where each member wants to hit the ground at the same time. It's no secret they are all headed to zero. But going to zero at the same rate is the goal. This gives the big banks maximum opportunities to keep looting the economies and shearing the sheep.
So what happens to the banks when the people are sheared and the world is in a Depression?
Knowledge is the enemy of fear
<< <i>
<< <i>Are Gold and Silver "really" appreciating? Especially since their "relative" value is equated to "dollars" which are depreciating? >>
The answer lies in what an oz. of gold will buy over time. If it buys the same goods, then it is holding value, if it buys more of the same goods then it is appreciating more than inflation (or devaluation) is.
<< <i>In other words, if Silver rises to $35 an ounce, what does that really mean if the dollar goes down by an equivalent amount? >>
that silver is a store of value
<< <i>Shouldn't Silver and Gold be valued in a more stable currency? >>
They have proven to be THE stable form of money. Fiat currencies have not. The real question is "why?" The answer is lack of counterparty risk with gold and silver.
These question are at the heart of why we hold our money in PMs. >>
Hmmm. I wonder what I can buy with my 1oz SR-71 Silver Round?
The name is LEE!
Sometimes it is, sometimes it isnt.
It is bulky though, and usually needs to be converted into dollars to be exchanged for goods or services. And there can be an "exchange fee" that will vary during different times and scenerios.
Knowledge is the enemy of fear
I'm still not sure I get all the continued vitriol for the banks, have some bankers gamed the system in the past?.. yes and when they break the law or regs they should be punished.
But, let's be real, banks have lent the money that has given way to farms, products, jobs, houses, cars and a number of other things that made the US a wealthy nation. Personally the barter system or some middle eastern banking system does not appeal to me. what type of banking do most of the gold bugs want?
It is interesting that the term banksters is now the favored acronym of some unusual alliances, namely occutards, gold bugs, teapartier's, anarchists and doomsday preppers. maybe Bernanke is a unifying force after all
Maybe cut out the middleman and lets have a Federal Nationalized Bank owned by the taxpayers. Essentially, taxpayers are getting hosed unnecessary for the privilege of doing business with the banks. Let the Federal government(taxpayers) make the profit. Or is this a flawed concept? Pro or Cons please. When and if the Federal Reserve crumbles along with the banking system, could a National Bank be adopted?
Box of 20
Nope, the banks are good and we're all on board.
<< <i>"what type of banking do most of the gold bugs want?" >>
Banking that was regulated by the Glass-Stegal Act, repealled during the Clinton administration at the direction of Greenspan, Rubin, and Summers (and the banks they represented). These regulations, put in place after the great depression, separated banks from investment houses. Without it banks are allowed to gamble with up to 30 times the deposits they hold. Banks are also allowed to sell investments to its customers and at the same time bet against those investments with derivatives. This is why congress cannot let them fail. Had congress listened to the warning from Brooksly Born, CTFC chairman, and not instead run her out of office for doing her job, the crisis would not have occurred. Another person smart on economics is Elizabeth Warren. If I were a presidential candidate I'd pick her for a running mate even if she is with the opposite political party (might give him an advantage).
Anyone who wants to know why the 2008 crisis occurred should watch this:
PBS's "The Warning"
The committee to save the world, screwed the world:
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>This gives the big banks maximum opportunities to keep looting the economies and shearing the sheep
So what happens to the banks when the people are sheared and the world is in a Depression? >>
I'm sure the owners and higher ups in the banking system have protected themselves well enough for the eventual final shakeout in the financial system. What do they care
if the average guy goes down with the bank as long as they have their families provided for? The same for the gang of 535. The system will continue to be milked for
all its worth. Do you think the bankers and politicians behind the 1920's/30's boom bust cycle really cared what happened to anyone else as long as they were safe?
Besides the kind of banking derryb wants, I also want to include banks that don't need to carry $50 TRILL each in otc derivatives. A much more reasonable number might
be one tenth or less of that. Why do our big banks need to have $250 TRILL in interest rate bets on their books? I also don't want investment/commercial bankers whose proprietary trading has netted them 64 winning days in a row while using HFTC's. I also want banks that don't feel a need to hedge commodities in much larger quantities than the actual producers whom the price-discovery market was really meant. Why does JPM routinely need to carry a Comex silver short position of from 4-19 yrs times annual world silver production? Last I looked they were a bank and not the world's largest silver miner. And even the sum of all world's silver miners probably hedge only a fraction of 1 yr's world production. Rather than doing all this stuff, why aren't the big banks instead making more loans to businesses and consumers? The simple answer is that they make a lot more money doing these other things. And the other half of it is that they need every cent in their reserves to cover their butts on those $50 TRILL in derivs if the balloon goes pop.
I feel that 95-99% of US banks are doing what they should be doing. My real concern is with the top 5 or 6 that are doing "God's work." The committee that "saved the world" allowed
the system to fleece the world for more than another decade. What they did was save their own butts to keep the game going, but on a 10X larger scale. Rather than banking, the term bucket shop seems more applicable. And as long as regulators refuse to regulate, not much will change.
<< <i>
<< <i>"what type of banking do most of the gold bugs want?" >>
Banking that was regulated by the Glass-Stegal Act, repealled during the Clinton administration at the direction of Greenspan and Rubin (and the banks they represented). These regulations, put in place after the great depression, separated banks from investment houses. Without it banks are allowed to gamble with up to 30 times the deposits they hold. Banks are also allowed to sell investments to its customers and at the same time bet against those investments with derivatives. This is why congress cannot let them fail.
I remember the days that my local bank held my mortgage and stood to lose if they did not make sure I qualified for it. I want accountability to return to banking. >>
derryb, on this we can certainly agree. I definitely think banks should be separated from "investment banks" plus, I actually think big banks should be broken up in some way. Too big to fail IS to big. All that said, the banking system need to be healthy for a capitalistic economy to thrive, and it's become far too simplistic, imho, to keep railing against them. Now, the biggest mistake the banks made, specific to the mortgage crisis, appears to be lending people the money in the first place and something's wrong if that's the case.
They leant the money knowing they had offsetting short bets against those mortgages via mortgage backed derivatives. When the mortgages failed, the big banks on the right side of that bet collected their winnings. Apparently Lehman, Bear Stearns and others like them were on the wrong side. Dodd-Frank was supposed to help curb this abuse but the International Swaps and Derivative's Association along with the big banks have been making it all but impossible for congress to get anywhere on new legislation that would change the current game. The financial fallout from failed derivatives is now into the 6th year....with no meaningful changes made. In fact the big banks carry a larger and more concentrated otc derivative's position today than they ever have.
It's malfeasance to give Chris Dodd a sweetheart deal, when he sat on the banking committee.
It's malfeasance for Hank Paulson to solicit Congress for $800 Billion with a single page document so that AIG can be made whole in order to enable AIG to make good on the bad debt they owed to Goldman Sachs, which incidently was Paulson's alma mater.
It's malfeasance for Timmy Geithner as head of the New York Fed to auction off T-Bills for the US Treasury through Goldman Sachs who not only got a commission for the service but also front-ran the auctions for their clients.
Fractional Reserve Banking is financial malfeasance and a fleecing of the taxpayers from the very start. Who annointed the bankers to be recipients of the windfalls from leverage in a game that only they can play? Why aren't Treasuries sold directly, anyway?
Why are taxpayers legally on the hook for highly-leveraged private party transactions made between the bankers at all? What's that called? It's not malfeasance. It's rotten, stinking corruption to the absolute core.
If you think the banks shouldn't be completely overhauled and reamed out from top to bottom, then we disagree.
It is interesting that the term banksters is now the favored acronym of some unusual alliances, namely occutards, gold bugs, teapartier's, anarchists and doomsday preppers. maybe Bernanke is a unifying force after all
I know of no "alliance". To lump these groups as one is an attempt to discredit any legitimate complaints, regardless of the source. Typical tactic, I suppose.
I knew it would happen.