Thursday, November 18, 2010

Government Stealing our Kupuna's wealth


Our government has the ability to steal from each citizen without the usual technique of taxing goods and services. They simply manipulate the currency. And they have been doing this for decades when they created the Federal Reserve and de-coupled the dollar from gold. If you look at your currency, it no longer says "SILVER CERTIFICATE" which means they have to pay you in silver upon demand. Instead, it says, "Federal Reserve Note" which means it's an IOU issued by the government.

Money has certain functions. First, is that it stores value. If you have a car, but have no use for it, you can sell it, thus converting it into cash which stores the value of the car you no longer own. The second function is that it is a medium of exchange. If you have watermelons and want oranges, but the person who has oranges doesn't want watermelons, then you can sell your goods (convert into money) and you can exchange your money for the desired oranges. The third function is that it serves as a measurement or unit of account or value. If you have something that's worth $10 and someone else has something that's worth $20, the monetary value can measure who has more wealth.

When the government issues more money to pay for its debt, they have increased the supply of money in the system. This means that the dollar is no longer as valuable as it was because the measuring tool has changed. Like a yardstick that is no longer 3 feet in length. That's why interest rates go down when the government floods the system with money. Money is no longer as desirable so the cost (interest rates) of the money goes down. It's not your real estate that goes up in value, it's the dollar that has been manipulated downward.

Here are the rules of investing. If you expect inflation (more money into system), you invest in real estate, commodities and oil. Because the dollar is plentiful, it is worth less than these items. Some would argue that the hard assets liked commodities, rare coins, art, etc. represent real wealth against an unstable currency that's manipulated by politicians. One can transfer $2 million in value in a rolled up painting from one country to another, which can't be done with real estate.

If you expect deflation (falling prices) then you invest your money in monetary vehicles like bonds. This allows you to loan your money to someone who has to repay you with dollars that will be worth more than the dollars you loan them, even at 0% interest rates.

If, on the other hand, you have a healthy economy with growth, then equities (stocks) would be where your money would earn the most.

The problem is that our government has manipulated our money supply and debt and that no one trusts the dollar. When that happens, the currency will collapse. The Roman Empire was faced with such a large government bureaucracy that they had to punch holes in their gold coins to be able to make and circulate more coins. Once that bubble burst, the Empire fell.

Right now, Congress is contemplating extending the Bush tax cuts. If they don't extend it for everyone, then people with unrealized gains will sell their stocks, properties, etc. to realize their gains in 2010 at a lower tax rate. This may cause the market to crash. Further, because they've extended unemployment compensation and installed a huge healthcare plan, businesses won't be hiring new employees, thus stunting economic growth. A further extension of unemployment benefits increases the unemployment taxes businesses have to pay for future employees.

Investors need to find places for their wealth. Many have stored their wealth in gold. If you believe that the Hawaii retirement system and health plans for the public employees are heading for bankruptcy, you need to anticipate rising taxes because the voters overwhelmingly voted for the very politicians who caused this problem. You need to stop becoming a Hawaii taxpayer. If you have investments in Hawaii real estate, the government will raise the excise taxes and the property taxes to try to make up for the shortfalls in the public employee retirement and healthcare system.

If you have business income from other states, incorporate your company in a state like Nevada where there are no income taxes. And develop and place as many employees there as you reasonably can. Stay away from states with a confiscatory attitude towards the private sector. You may even wish to explore stable countries like Australia where capitalism is still revered.

Where does this leave our kupunas? Most kupunas are on fixed income like Social Security and a fixed pension from their employment. With the issuance of another $600 billion of debt the other week, that fixed dollar income will be worth less. It will buy fewer goods and services. Prices of food and drugs will go up. And they will have to get by with less. They cannot go back to work to make up for the shortages.

While the politicians and the political operatives manipulate us and our economy, we, the people at the ground level have to step up our volunteering to help these kupunas live their final days with some dignity.

1 comment:

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