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.