Government Theft, Gold, Silver & A Chart That Will Shock You
On the heels of continued volatility in key global markets, today 40-year veteran, Robert Fitzwilson, put together another tremendous piece. Fitzwilson, who is founder of The Portola Group, sent an absolutely stunning chart to KWN that will shock readers around the world. Below is Fitzwilson’s outstanding and exclusive piece.
“Government Theft & A Chart That Will Shock You”
The news about the Polish government effectively nationalizing a large part of their citizen's retirement assets triggered a renewed interest in the topic of confiscation. In truth, confiscation of wealth has been around ever since humans started creating surpluses from their labor and their intellectual efforts.
Let’s focus on labor. Very few people have had the genius to create wealth from their minds. Much of the wealth throughout history has been created by labor.
The moment labor is performed, it has a determinable value in terms of whatever real property, goods and services other people might trade for that effort. For obvious reasons, the assumption is a free market for the labor and holders of real property, goods and services is available to exchange. Slavery, of course, is the ultimate form of confiscation.
The problem arises when the laborer wishes to defer converting payments for that labor into valuable items. Paper currency was invented for just such a purpose. It was safer and less burdensome to carry around, and allowed the value of the labor to be carried forward in time. In a world where the amount of paper is roughly equivalent to the amount of real assets, the deferral entails little cost to the laborer.
With the creation of the Federal Reserve 100 years ago, the ability to confiscate property was set in place once again in history. It was subtle in the beginning, but became overt with the printing of money for President Johnson’s “Guns and Butter” policy of the 1960s, and the termination of gold convertibility by President Nixon in the early 1970s.
Those entering the workforce in the 1970s had been raised by a generally thrifty generation. Hard work and saving was a way of life for most people, and that ethic was instilled in many young people beginning their careers and families.
Young people experienced something for which most had no understanding. It was called inflation. Prices rose, but so did incomes. Being relatively early in their careers, incomes were not high enough to encounter the 70% marginal Federal bracket, so the inflation seemed of passing interest, but it was not a topic generally being discussed. Tax brackets were even higher in some other countries.
When inflation did become of interest was during the Arab Oil embargo and the dramatic rise in the price of gasoline. Even if you could afford the gas, it was very difficult to find. Many hours were wasted in gas lines. It was beginning to sink in that something was different, and it was not good.
The other indication that something was amiss came when the so-called “Baby Boomers” started forming families and buying houses. There was a shortage of houses, so prices rose dramatically. There was an older generation that was willing to sell their homes to put the proceeds into fixed income which seemed more than adequate for their retirement.
It was a terrible mistake as inflation began a secular rise to 12-14%, impoverishing many of them through high prices and devastating capital losses for holders of fixed income as interest rates rose.
Borrowing was subsidized. It was possible to make investments that left more cash in your pocket than you invested, and you still owned the investment. The tax code encouraged borrowing and penalized labor.
Because of general inflation, the household goods needed to complete the homes were rising in price on an accelerating basis. The saver’s ethic quickly went by the wayside. The new mantra was buy now, buy big, and use the most financial leverage available to you.
Those who were positioned in real estate, gold, certain ‘hard’ currencies, high-growth equities and energy, minimized the damage from the runaway printing. Many became quite wealthy. Those who stored their accumulated labor in paper assets saw their wealth confiscated by uncontrolled currency debasement. Even the winners were devastated before the cycle was finished in the early 1980s.
It is important to see clearly that the common thread was confiscation through the uncontrolled printing of money. Confiscation took many forms. Another came through taxes. Inflation caused nominal incomes to rise, pushing workers into higher tax brackets. Rising real estate meant substantially higher property taxes. Social Security benefits became taxable forcing people to pay a double tax on their earnings. An excise tax was created for those who had saved 'too much' in their IRAs. An airtight system of confiscation emerged and continues to this day.
The news from Poland signals that we are now entering a more ominous phase of confiscation. The genteel veneer of the past 40 years is giving way to “we need it, so we will take it.” For the people that wishes to realize value received, the net after taxes has to be exchanged immediately for a desired good or service. Until real rates are restored to fixed income, it is also important to reduce expenses wherever possible.
Savings for later use must be quickly converted to some form of real asset that history has shown retains value such as energy, precious metals and miners, un-leveraged real estate, and pre-paid expenses. Just look at the extraordinary chart below, which illustrates the performance of key financial assets over the past month, and you will see that the stunning move out of paper assets and into hard assets has already begun at lightning speed.