Long term capital gain on physical gold is unconstitutional

I'd like to bring up a point where the premises is based on the Constitution stating that the states shall not accept anything other than gold and silver as payment of debt.

So, if I purchased physical gold with my fiat paper dollar say in 2003 at say $300/oz and want to resell them in 2011 and I get $4,502.23/oz for it, the claim I'm making is that capital gain should not apply since I would only convert that gold into paper just so I could purchase a house, food or anything. In fact, I would have not gone through the trouble of converting if it wasn't for this electronic world. So, the fact that this paper money is losing value is not my fault and is not a gain. In fact, it is not my gain but the loss of those who hold dollars.
Those holding dollars should be the one getting a capital loss deduction rather than a capital gain extracted on the gold holder.

They are ready to handle supreme court decision on gun control or a myriad of subject which some are not explicit in the constitution. As for Gold and silver as money, the constitution is clear as crystal. How would the IRS and the government react to a citizen ready to claim the capital gain on gold is not taxable? I wonder...

deflation is not bad! As long as you didn't had a debt driven economy

Under a gold standard where you don't have a fractional reserve lending on steroids like we have with central banks, debt is really a 4 letter word that everyone tries to limit.
This means that a house could lose slightly its value in gold over a 10 year span (depending on neighborhood changes, etc) This means, you better pay off your debt and you better not take a huge mortgage initially. In such case paying either cash or with a minimum of 30% down payment would be the norm.

So, to say it's bad is wrong. It's good for the savers. Because we have built this system of inflation where it is bad to save, the concept of taking debt became dominant which reinforce the believe that deflation is bad. Yes of course deflation doesn't look good in such case.
Another reason to start clean and plan to go on a gold standard.

We got a huge tax under President Bush

He might say he is against taxes, that John Kerry was a tax and spend guy but the Bush administration did spend very well and did tax very well with the hidden tax of inflation.

But of course, anyone protecting themselves with any assets such as real estate, that is benefitting from this got it well while it was going. But commodity inflation is another thing...

hot potato dollars

One of the primary purpose of money is to facilitate exchange of goods and services by placing a value on them using that money as a unit of value. True money, like gold and silver, is also a store of value in addition to being a measurement unit. Currency is only used as a measurement unit - within a respectable time frame where its length is based on the actual inflation rate.

So, this last statement brings the point of the hot potato dollar. As long as we have debasement of a currency, either slowly (say 2% per year) or strong, any individual must find a way to sell those dollars and buying any other form of asset (stocks, bonds which brings interest, CD, real estate) otherwise this person will see the purchasing power vanishing at that rate.
When the inflation becomes high, you've hit a condition that can be described as a hot potato that nobody wants to keep long in their hands. Seeing it as a hot potato actually describes well an hyper inflation environment but if you put it on slow motion, it describes any fiat money condition.

Economic Barometer is saying: A bit of deflation followed by a very huge inflation...

On article on CNN talks about the danger of deflation with no mention of the inflation we should expect within the next 24 months:

http://money.cnn.com/2008/10/17/news/economy/deflation/index.htm?postversion=2008101705

With all the money they have printed electronically (that means so much faster than what the German government has done in the 1920s where they had to actually print it - see:
http://en.wikipedia.org/wiki/Inflation_in_the_Weimar_Republic)

What in reality is in the forecast is a some deflation followed by a lot of inflation. Depending on how long it takes the governments to realize that paper money in the 21st century is the same as paper money in
- The Weimar Republic of Germany in the 1920s
- John Law in France in the 18th century http://en.wikipedia.org/wiki/John_Law_(economist)
- In Persia in the 13th Century http://en.wikipedia.org/wiki/Gaykhatu
- Multiple times in the Chinese history
- Roman empire
- Greece

well, if they wait too long, we might hit the point of no returns where people rush to get rid of their dollars because they collectively realize those dollars are melting like a snowman would in Arizona in July. If that happens, the rush to purchase anything of tangible value will kick in hyperinflation.

When is the next flight to Planet Gold?

Letter to Jason Hommel of Silver Stock Report

Hi Jason

Hope all is well for you. Glad your father listened to you. My mother is, so I'm happy too.

I was thinking regarding the constitution. You know, we have all those big debates about abortion (Roe vs Wade) and gun control (city of Washington recently) that went all the way to the Supreme court. Obviously, one that has much much more bigger impact on every body's life is the gold standard (well, the lack of).

How come nobody is forcing the issue to go all the way to the supreme court?
I mean, say I start a new bank that store's people gold and silver and allow people to pay using those - as if they were 2 other new currencies (gold and silver) with the respective exchange rate between themselves and between all the currencies in the world.
I'm sure, in no time, the govt will come up and file a lawsuit or something... which goes all the way to the supreme court...

I mean, this is the same kind of strategy that some folks did with the Monkey trial (John Scopes) in the 20s. They forced a lawsuit. http://en.wikipedia.org/wiki/Scopes_Trial

I know we are pretty late and would have been much better for the country if such action had been done in the 1970s or early 80s, but today, we will certainly have more people behind such cause.

Thanks
Regards
Phil

Letter to Mr. Obama

Hi Mr. Obama et al.

I would like to congratulate you on your campaign.
I'd like to bring up a concern and suggest and action when you will be president. The amount of money that has been "printed" by the Fed+Treasury is quite enormous and will generate an inflation spike in the next 24 months. If the American people is not warned about some side effect (I suspect you will not be incline into saying we will have inflation to avert more problem) from all the bailouts, they will blame your administration about it. If they are warned in advance, right next February, they will more easily register that this was a result of what has been done some months earlier.

Another thing, the way the trade and budget deficit are going, the dollar will get hit. There is the serious danger that when the Asian economies get back on track before we do, they will realize they can survive without this huge consumer nation for their exports and will no longer be thirsty for US dollars and seek an alternative. Perhaps a return to the Gold standard they will do.

You know, if we were on the Gold standard, there is no way this huge trade deficit could have happened simply because, once the US runs out of gold, they can only export to get it back. It would have been the best trade "balancer" (and it was).

Finally, I know this sounds Ron Paul (but I agree with him, I'm a Ron Paul democrat :-) -- although between you and McCain, I much prefer you win. How about abolishing also the Federal Reserve. Because of fractional reserve banking, this inflate the amount of money supply which contracts when the economy re-balance itself. When there was no Federal Reserve, these were small reversed pyramids, one for each bank. Now, with the Federal Reserve, we are talking about a huge reverse pyramid. With Bretton Woods on top of it and with the fact we do not have the gold standard, this makes it possible to have the kind of mess we got it.

Best of luck
Phil


Note: I'm afraid that the republican will more likely get into a war if issues starts to pop up against the USA.

Letter to Mr. Greenspan

Dear Mr. Greenspan

Before blaming the bad banks for giving easy loans and inflating the real estate bubble, let's look at the origin of all this. Well, the origin of course goes back to December 1913 but that is for another article. Let's focus on the most recent event, in 2002 when interest rate started going down all the way to 1%.

For others reading this and that don't know how the government "adjust" this interest rate, well, it is the same as how would you "adjust" the monthly rents for houses in a given city to a lower value? Simple: you build more houses that you put up for rent. The more houses for rent, the lower the rent. So, the more dollars printed, the lower the rent (in this case the interest rate)

If the interest rate have not been lowered, yes we would have faced a recession. Yes, that crazy bin laden would have been happy. And yes, Bush might have not been reelected.
So, the goal of lowering the interest rate was to kick start the economy by re-activating its consumer spending side. Indeed, it could not have been by re-activating the manufacturing side because that is moving abroad - again another problem of money printing, and another later discussion. So, the goal was to kick start this consumer driven economy. If consumers are not making more money, we need to facilitate them going into debt so they can spend. And that was done at the national level. Everyone could afford bigger houses, meaning new loans, meaning new money out of those loans to buy more stuff at Home Depot and to feed the Realtors etc.
That led to banks easing lending.... which led to where we are now.

So who's at fault Mr Greenspan for creating this monster? If all the protection was in place to prevent a buildup in real estate bubble, the economy would have not kept growing and we would have gone into a recession. Since interest rate were lowered to 1%, I can only assume that if that didn't work, they would have been lowered all the way towards 0% until they did kick start the spending. I mean, if avoiding a recession was the goal of lowering the rates, and that this recession was only avoided by this consumer driven economy to keep going...

So, please don't write books to try to go in history as an agent of peace who is blaming the lenders and all the others for this mess. You took care of the egg that brought up this monster.

Phil who wish was on Planet Gold.

Gold and Silver manipulation of futures...

Ted Butler and Gata.org has some serious information that shows some manipulation by government of the metal. Good for late comers!

Now, the questions are:
1) How long will this last? Could it be forever?

2) If not forever, how will it end?


Regarding question [1], my take is, it won't be forever, and that's even if they change the rule of the futures market like - well you can only get cash settlement only, no more precious metal delivered. If they do that, the price will probably be totally dysfunctional with the "black market" and also, likely another market will evolve around it. Either another futures exchange in Dubai will take over with more appropriate rules. Ooops, now they shot themselves in the foot, they (futures exchange in the USA) are loosing their standing in the world as the financial center for futures et al. Ebay and probably new website that will provide some equivalent bidding to ebay will be the place to go to buy and sell your silver at the real price.
So, for those reasons, I don't expect them to go that far and if they do, hello Dubai.

Regarding [2], probably with a bang!
http://news.silverseek.com/TedButler/1223353403.php

What kind of dollar do you want?

Like I said, money (or at least an ideal currency) is to be a measuring cup of the value of the goods and services exchanged between people and organization. That's the benefit of them over barter - their simplicity to carry and their use as the measuring cup.

With a constant inflation varying between 2% and 5%, we got used to this slightly modified measuring cup year after year. More so when it doesn't translate *yet* into inflation in commodities.
But when we print a lot of money, this inflation cranks up and this mean, the measuring cup changes in size fast enough from year over year that
- it gets more difficult for people to use it to compare prices
- that then dollars starts to burn in your pocket and you want to spend it before that measuring cup goes smaller.

Why those wild swings in the price of Gold

On Planet Gold, prices are always very stable. There might be some variation depending on weather affecting harvest but the price swings are low.

On earth, we see gold having big swings. One major reason, mostly since we are not on a gold standard, is that the true value of things measured in Gold has a barrier. There is a barrier between Gold and other things like Real Estate - that barrier is the fiat currency, the printed dollar back by nothing. People see prices of real estate and other things in dollars, people will see the price of gold in dollars but people do not see the price of things measured in gold which would actually be a much better static measurement unit than the dollar.
Because they don't realize that barrier, things can get out of whack severely and gives wide adjustment that will have a huge velocity (big swing) overshooting the value on the other side.
Oops, suddenly, you could see real estate or oil or other commodities under priced in value compared to Gold (gold bubble), but that's just because the market is trying to catch up.

Now, if we must talk about the recent downward pressure on the price of gold, silver and other commodities lately, that's a local minimum which some say has been orchestrated by the Feds and treasury to limit the impact on the market of the take over of Fannie Mae and Freddie Mac.
That's a different subject and out of scope of the harmony on Planet Gold!

Planning for retirement is piece of cake on Planet Gold

When you plan for retirement on planet earth, the money you put aside loses its value from one year to the other so it is imperative to get a good interest rate or another form of investment that will be sufficient to compensate for both the inflation (translation: lost of value of the dollar) and the taxes you will pay on this earning.

On planet Gold, the money you put aside (which is in effect Gold and/or Silver) is put aside year after year, growing in amount and not losing any value. In addition to that, the money can find good returns when put into a loan. Hence, after a few years, that money has doubled in overall value. Since taxes are minimal on Planet Gold, you gain on that too.

Think about it, in an environment where inflation eat your dollars at a rate of say 3%, you need an interest rate of at least 3% just to get even - not counting the taxes you will have to pay on that 3% of interest you will earn. So in reality, you need 4 or 5% depending on the tax rate, just to match inflation.

Bob on Planet Gold saves the equivalent of $20,000/year in gold/silver money on Planet Gold and earns 6% on his money. In 10 years, Bob has: $263,615.90

Don't forget 10 years later that $263,615.90 has the same purchase power has $263,615.90 would have when he started saving.

Mark on Planet Earth (say USA for example), saves also $20,000/year in US dollar and saves them in CD or equivalent, bringing also 6% per year (I'm being generous). Imagine inflation at 3% and taxes eating 0.5% of this 6% earning.

So, because of the taxes, Mark earns only 5.5% interest

At the end of the 10 year, Mark has $257,507.08 in savings. Not too far away... but we need now to account for inflation... Subtracting 3% per year out of the 5.5%, this gives 2.5% interest rate. We also need to account the lost of value of the $20,000 per year. This means $1 at year 10 is worth $0.7374 of the dollar at year 1, when he started saving. So, that's 26% of hidden Tax (So much for Bush tax cut)

So, this gives Mark $197,331.06 of saving in "year 1" dollars, effectively losing almost $3,000. See table



Unfortunately, more than often for many people on planet earth, the interest rate are below the rate of inflation. Adding taxes on top of that and they are losing money!

Mark, you need to find a space ship and move to Planet Gold. Another option is to talk to your politicians about Planet Gold and how earth could do the same :-)


Regards

Phil

Government Counterfeiting vs Gold Standard

Counterfeiting...
When there is X amount of a currency chasing Y amount of commodities (real estate, food, metals, and any products made out of those), a price is established based on the amount of X there is in circulation. If suddenly, someone adds:Q (new quantity) = X + 1 which is obviously still chasing Y amount of things... the person who printed that +1 and started using it benefits from the fact that the market prices have not *yet* adjusted to the new amount of currency. It's like a long water reservoir where water is added at the beginning of the reservoir. Eventually, the level adjust to a new high and everyone pays a new higher price. But gosh, the counterfeiter got it for free at the expense of everybody else.
So, when the government creates money (or a central bank), who gets the benefit? The first spender! And the central bank happens to charge interest on money it just created.
When President Bush claims he is cutting taxes while at the same time spending like crazy - requiring the Federal Reserve to create new currency, he is actually taxing in a way that the media does not currently report. And that happens in all country in the world today. When people are happy that their house has just increase in value by say 20%, overall, did they actually increase in value? When inflation kicks in the rest of the commodities (when that water in the reservoir spreads to all the corner of the reservoir, raising all prices), the gain is mitigated. Of course, homeowners are gaining with the fact they owed a mortgage that has now decreased in value, that's the benefit. The folks most affected are the renters.
That's the reason why the democrats - who are claiming to be the protectors of the poor and middle class - are the first one who should declare we should go back to the Gold standard!
But this "inflation" which is a disguised tax that is like dust sent under the carpet makes it so much easier to get reelected.
A lot of homeowners and real estate investors are happy with this system since they see their mortgage going down in value - literally (since they are in fixed dollar, not adjusted for inflation while rents are). But they dont' realize that they too would benefit.
More on real estate on Planet Gold on a future post...

- Phil

Trade between countries on Planet Gold brings less friction

One great thing that brought peace and prosperity on Planet Gold was the use of gold on the entire planet. Trades are easy, no tension, no issues of outsourcing etc since everything balances out. A bit like the United States right now where everyone uses the same currency but the economy of say San Francisco is drastically different then the economy of Birmingham, Alabama. Housing is cheap in Alabama compared to San Francisco, allowing for industry requiring lots of space to operate.
So, on Planet Gold, the difference between the 258 countries are based on their business laws, their customs, their habits and culture but they have one thing in common, everyone uses gold and silver as money, from any individuals on the planet to any other individuals, from one government to another, from one nation to another.
There are no trade deficit that can accumulate for very long time, always of short duration. Right now, here we have the United States of America that has one of those amazing credit card with, it seems no limits on spending... only paying the minimum on the balance every month. When will the credit card company call?
On planet Gold, if a country doesn't have good business laws protecting intellectual property or handling litigation of any kind, this country is one of the poor country. They know quickly they need to change this quickly. The country with the best infrastructure, the best brains, the best schools and good system of business law attracts a lot of company, even though it is expensive to live there. It might be even more when the climate is even nicer than everywhere else. It might not be perfect, it might not have the best business law but if it has everything else, it will attract businesses. That sounds like San Francisco... nice climate, great universities, lots of brains, attractive landscape and good infrastructure. Results- even if the business law are not the best in the country, they still attract businesses. This, on a planet base is what happen on Planet Gold.When one country has a lots of its citizen with lots of gold, other citizen in other countries will knock on their door for financing. Money (gold) can flow easily, no trade barrier - like from state to state in the USA. The only thing that might stop those investors would be the system of laws in this other country. The best wins.
The only thing that was added as a worldwide regulation is on the environment and labor standard. If a country was not threating either of them properly, it could have an advantage over other countries at the expense of a world wide air pollution or water pollution. With environmental and lable regulation/standard in place, you reduce those issues.

So fun to talk about Planet gold ;-)

What if population increase - not enough gold as money?

My wife was asking me the other day - If the amount of gold as money stays the same but the population on the planet increases, say by 20% over x years, wouldn't there be a lack of gold for all those new people?
That was a good question. To that, my first reply was:

- Well I hope there will also be an increase of 20% of food and other related commodities otherwise, some people will be starving :-)
But then, I added, assuming we have 20% more people as well as the matching increase in food with those people but still the same amount of gold...this means food is cheaper than it used to be - as measured in ounces of gold. if it took you, say 1 of ounces of silver for your grocery, then it will now take 20% less silver (or gold). (or maybe in grams of gold, or whatever units of gold or silver you want to use).

Does that mean deflation? Yes it does, but slowly, as the amount of food increases year over year. So, as a family, you don't need as much gold as you used to before to buy the same amount of goods - assuming any of those goods did increase as well.

As we said with the thermometer or the ruler, as long as the unit is fixed, it doesn't matter.Would this price deflation affect the farmer? No it won't because he/she too will need less gold to buy other commodities.

If on the other hand, another commodity (like say sugar) decreases because of a major natural disaster, it will go up in value compared to gold.

What is difficult on our planet is that we do not notice that our measurement unit of value (the dollar, pound, euro, yen...) changes every year

Take care
Phil

What Planet Gold learned 400 years ago: Can't trust the goverment

In school today, Mark learned that about 400 years ago, the banks on his planet - Planet Gold - decided to give paper money to represents the gold that people were storing in the bank. People started using this paper money rather than actual silver and gold coins for simplicity. Much lighter of course. But then, this changed. And Mark ask the question:

- Mrs Walt, why we are no longer using paper today?

- Well you see Mark, started Mrs Walt, the banks started to take advantage of this and they printed more paper money then they really had.

Mark replied "What?"

- It is a bit complicated but to put it simply, they considered that people will never want to get back their actual gold and settle with the paper. But then, there was so many paper in circulation that something that never happened started.

- What was that? replied Mark

- The price of about anything starting climbing, starting with real estate and stocks. At first, people were happy thinking their houses was really better than any others but then people started to realize it wasn't real. Eventually, the price of everything climbed up. On June 2nd of that year, everybody went to their banks asking to convert their paper certificate into their actual gold and silver deposits. The banks got bankrupted, lawsuits and so on. Lots of people lost their money. That's why since then, paper money is no longer accepted. But that is the reason, that we have their yearly celebration of "getting your gold out day" (GYGO) where people on every June 2nd, get their deposits in gold and silver coins (the one they haven't put up for lending). This way, we always make sure the bank since then, are not inflating with any other means - electronic or any other deception that could come up with new future technologies or tricks.

Another student, Margaret, replied:
- My parents take June 2nd very seriously. They tell me that paper is what cheaters use.

Yes, that saying "paper is what cheaters use" was invented a few days after that infamous June 2nd, 400 years ago. Replied Mrs Walt. What was the most surprising for everyone is that the government was persecuting everyone who counterfeited those papers but did nothing about the banks themselves that were too, issuing more of that paper then the suppose "wealth" or resources it was suppose to represent.

Bill, another student asked
- What about credit cards and all that electronic money?

Mrs Walt replies:
- On June 2nd, all electronic bills must be paid out. Everything must be reset to zero. It is a way of verifying that we have no more money in the real world as we really have gold and silver coins and bullions. There could be manipulation during the year but it will not go unchecked beyond a year and the manipulators are prosecuted by the law. Anybody has heard of Bob Cantanro?

The class nod their head in negation.

- Bob Cantanro was head of Cantanro Bank and him and several other bankers tried to manipulated the market by trying to use a complex combination of electronic money and debt loan contracts to their advantage. They hope to their scheme would not be caught on the following June 2nd by using some delayed payment to go on June 3rd. Complex scheme but nevertheless, it didn't work and he and his friend went into prison for a decade for that.
This happened 30 years ago. It was a closed call and since then, they even added more restrictions. No forms of paper or electronic forms of money are accepted on that day. A complete inventory on a worldwide basis happens.

The bell rang.

- Ok class, time to go.

-------------------------
Wouldn't you love to live on such a planet ? :-)

Fahrenheits changing every year

- Mom, how much is our house worth?

- Well, we live in a good neighborhood and we made sure to keep the house in good shape like
anybody else in our neighborhood dear. So, we paid 100 ounces of gold for it 30 years ago and it is about the same value today.

Imagine living on this planet.
Unfortunately, on our planet, we live in a world where we use currencies to measure values and this currencies constantly change.
Imagine if thermometers changed every year so that next year 80 degrees Fahrenheit would actually be 82 degrees. The thermometer vendors would be happy about this system because they keep selling thermometers years after years.
And then, we people talk about measures of temperature through time, they have to mention the year. Imagine reading a scientific article about temperature reading of the water in some pacific island affected by a volcano:
<>
(or Celsius, ...)

Imagine going to the garage station to fill up your car and you verify if he uses the current gallons, not last years gallons since these have changed.

Sound silly? Well actually we are not far off from that when we talk about the US dollars, the yen, the euro, the pound, the Canadian dollar or any other fiat currency. They are suppose to be a measure of value but they keep changing every year!!!!

Who do you think will be the first to complain about changing this system to a fixed measurement system, one that doesn't change every year, like the gold standard?
Answer: anyone getting richer with this system. This means those hedge funds who are only working on betting on variations of currencies. This is something that started when Nixon officially disconnected the US dollar from the Gold standard, these firms started popping up that are basically day trading on the exchange rates.
If Canadian Celsius goes up against UK's Celsius etc... they would be betting on this.
I meant currency :-)

Don't expect those folks to talk nicely about the virtue of the Gold Standard. They will use the Great Depression as an example of the misery the gold standard can bring. Total lie, it was a side effect of the Fractional Reserve Banking combine with the gold surplus the US was getting from payments from UK, France and Germany for materials for WWI

To have a fixed measurement, the measurement must not change and for this, it means the same amount in circulation. To that, we hear:
What about if the population increases by 30%, where would they get the additional gold to fit?
Well, I hope the amount of commodities will also increase by 30% otherwise some people will be starving. So, if the amount of commodities increase but the amount of gold stays the same, then the commodities value in gold will decrease and hence, it will take less gold to buy a given amount of commodities.
- Less gold? That means prices decline!
Well that's normal, there is more commodities but there is as much demand as before so the seller won't be sad...

-Wouldn't that lead to deflation?
Not if it is gradual and beside, we see price deflation on electronics every year and nobody complains!

We will cover more in future post/Articles. Stay tuned!

Take care
Phil

Planet Gold - What this blog is about

What if this was our planet. Imagine that if the Bretton Woods treaty signed in Bretton Woods, NH in 1944 was based on Gold and not the US dollar.Imagine if Fractional Banking was not allowed.Imagine if banks were only allowed to lend the money that depositors had put into CD accounts or money market at a given rate for a given time...
We will discuss all those what if here.
What such a planet would look like - economically speaking - and what it means.
Hope to see you regularly...