Inflation as the only tax

[Yootwopia]

Of course it shouldn't have a fixed price, the market is the only force qualified to apply value to objects. The purpose of the Gold (and Silver) standard is to limit inflation to a steady rate based upon how much the economy grows through acquisition rather then artificial injecting of falsified funds to the detriment of all.

Right but what happens when the price of gold falls for any reason? Does the government go around setting fire to everyone's cash until things are balanced out or?

[Geilinor]

Inflation doesn't really work that way. Nevertheless, at 12% inflation prices would double every six years.

Meh, we dealt with in the 70s.

That's because the inflation in the 70s ended. Relying only on printing money for government revenue would cause high inflation that doesn't end until other revenue sources are created, which I believe wouldn't happen in Peppersmak's scenario.

[Meryuma]

That's a fucking horrible idea.

[Cosmopoles]

Assuming the unlikely occasion where an absolutely massive vein of gold is discovered and mined out at such a rate that it destabilises the value of all gold in existence, then the people will just have to contend with inflation and spend more. State interference is unnecessary.

You don't need to find any massive veins of gold. You just need a bubble to form then pop to seriously screw up your gold linked money. Like the gold bubble from 1980 or the one right now.

[Sarkhaan]

No. A) Inflation is difficult to control. See Weimar Germany and Zimbabwe. B) It is a flat tax on everything and everyone, without regard to things like poverty.

[Sufforia]

There's a story about a man trying to purchase a loaf of bread with a wheel barrel full of money, and as he received the bread, the seller dumped the cash, and ran off with the wheel barrel.I'd say, when you're dealing with hyperinflation, invest in precious metals, and land.

[Sibirsky]

A very bad idea, unless your plan is to stay within a very safe range of printing, with which probably couldn't fund a streamlined version of a night watchman state. So, not that I would generally be against that but, it is hardly feasible.

The Adrian Empire? What happened to your nation?

[Sibirsky]

Assuming the unlikely occasion where an absolutely massive vein of gold is discovered and mined out at such a rate that it destabilises the value of all gold in existence, then the people will just have to contend with inflation and spend more. State interference is unnecessary.

You don't need to find any massive veins of gold. You just need a bubble to form then pop to seriously screw up your gold linked money. Like the gold bubble from 1980 or the one right now.

We're not in a gold bubble. Yet.

[Cosmopoles]

We're not in a gold bubble. Yet.

Are you suggesting the current rapid increase in the gold price reflects the actual long term value of gold rather than the result of increased inflation hedging and speculative buying?

[Sibirsky]

We're not in a gold bubble. Yet.

Are you suggesting the current rapid increase in the gold price reflects the actual long term value of gold rather than the result of increased inflation hedging and speculative buying?

It's a result int he decline of value of fiat currencies, with a bit of inflation hedging and speculative buying thrown in. Like I said, it's not a bubble, yet. There will be one. When I don't know. At what price level, I don't know. After all, adjusted for inflation, gold is still below it's 1980 peak.

[The Adrian Empire]

A very bad idea, unless your plan is to stay within a very safe range of printing, with which probably couldn't fund a streamlined version of a night watchman state. So, not that I would generally be against that but, it is hardly feasible.

The Adrian Empire? What happened to your nation?

Nothing, I had been planning the change for a while, I still check in on it (as you would obviously see from me posting this). I just got tired of being an Empire, I wanted to get closer to my ideal nation.

[Meryuma]

Yeah, I was kinda wondering how a minarchist empire would work.

[Sibirsky]

The Adrian Empire? What happened to your nation?

Nothing, I had been planning the change for a while, I still check in on it (as you would obviously see from me posting this). I just got tired of being an Empire, I wanted to get closer to my ideal nation.

Right on

[Eireann Fae]

It's a result int he decline of value of fiat currencies, with a bit of inflation hedging and speculative buying thrown in. Like I said, it's not a bubble, yet. There will be one. When I don't know. At what price level, I don't know. After all, adjusted for inflation, gold is still below it's 1980 peak.

Didn't Gold, Platinum, and Silver all set records for their respective values a few weeks (months?) back? Or was that highest dollar value, like $1600/oz, which while a higher number would be worth less than 1980's $1400/oz?

(Totally made up numbers, I've no idea what they're actually worth.)

[Yootwopia]

Assuming the unlikely occasion where an absolutely massive vein of gold is discovered and mined out at such a rate that it destabilises the value of all gold in existence

Or someone just sells a load of it because it isn't particularly useful in an age of fiat currencies with floating interest rates, see what happened when Brown sold a fair amount of the British gold stock...

then the people will just have to contend with inflation and spend more. State interference is unnecessary.

Sounds like a pretty shitty situation for everyone, not gonna lie.

[The Merchant Republics]

Assuming the unlikely occasion where an absolutely massive vein of gold is discovered and mined out at such a rate that it destabilises the value of all gold in existence

Or someone just sells a load of it because it isn't particularly useful in an age of fiat currencies with floating interest rates, see what happened when Brown sold a fair amount of the British gold stock...

then the people will just have to contend with inflation and spend more. State interference is unnecessary.

Sounds like a pretty shitty situation for everyone, not gonna lie.

Though generally most inflation from Gold would not be nearly as destructive as inflation from fiscal mismanagement of fiat currency. Particularly, gold would be very stable then unstable for a period, instead of always unstable fiat.

[Sarkhaan]

It's a result int he decline of value of fiat currencies, with a bit of inflation hedging and speculative buying thrown in. Like I said, it's not a bubble, yet. There will be one. When I don't know. At what price level, I don't know. After all, adjusted for inflation, gold is still below it's 1980 peak.

Didn't Gold, Platinum, and Silver all set records for their respective values a few weeks (months?) back? Or was that highest dollar value, like $1600/oz, which while a higher number would be worth less than 1980's $1400/oz?

(Totally made up numbers, I've no idea what they're actually worth.)

I think (and Sibirsky can correct me on this) that the records were set in nominal numbers, and not real value.

That is to say yes, it was the highest dollar value, but when adjusted for inflation, it was still less than the 80s.

[Sibirsky]

It's a result int he decline of value of fiat currencies, with a bit of inflation hedging and speculative buying thrown in. Like I said, it's not a bubble, yet. There will be one. When I don't know. At what price level, I don't know. After all, adjusted for inflation, gold is still below it's 1980 peak.

Didn't Gold, Platinum, and Silver all set records for their respective values a few weeks (months?) back? Or was that highest dollar value, like $1600/oz, which while a higher number would be worth less than 1980's $1400/oz?

(Totally made up numbers, I've no idea what they're actually worth.)

Not sure about platinum, tiny market, I don't follow it. Silver is well below it's peak any way you cut it, due to a bubble created by the Hunt brothers back in the late 70s/80. Gold set a high of $850 in 1980. Adjusted for inflation that is about $2250 in today's dollars. Gold set a record at $1393.40 earlier today. I'd say we have at least another $850 to go before we start thinking about a gold bubble bursting. It will have selloffs on the way there, and gold selloffs are vicious. But it'll get there. Unless central banks, starting with the Fed raise real short term interest rates to a positive rate. Considering they are doing everything they can to keep them as low as possible, that's not even an issue.

[Sibirsky]

Didn't Gold, Platinum, and Silver all set records for their respective values a few weeks (months?) back? Or was that highest dollar value, like $1600/oz, which while a higher number would be worth less than 1980's $1400/oz?

(Totally made up numbers, I've no idea what they're actually worth.)

I think (and Sibirsky can correct me on this) that the records were set in nominal numbers, and not real value.

That is to say yes, it was the highest dollar value, but when adjusted for inflation, it was still less than the 80s.

Nothing to correct.

[Eireann Fae]

I think (and Sibirsky can correct me on this) that the records were set in nominal numbers, and not real value.

That is to say yes, it was the highest dollar value, but when adjusted for inflation, it was still less than the 80s.

Ah, thanks. I didn't know the terms.

[Greed and Death]

Lets think of it like this there is 829 billion dollars in circulation.
http://www.ny.frb.org/aboutthefed/fedpoint/fed01.html

The Federal budget is 3 trillion dollars.
http://upload.wikimedia.org/wikipedia/e ... Y_2007.png

This means we would need upwards of a 300% inflation rate to pay the entire countries expenses. That is a bad idea.

[New Manvir]

Why do people try and fix a concept that isn't broken?

[Consortina]

In this little scenario, who would have an incentive to loan money or invest in something with less-than-stellar returns? After all, when I get my money back it will be worth a lot less than when I gave it away - guaranteed by state policy. The finance sector would collapse - and with it you would lose much of the new enterprises that depend on venture capital.

Maybe it would be possible. But it would hurt your economy more than normal taxes do.

[Sibirsky]

We're not in a gold bubble. Yet.

Are you suggesting the current rapid increase in the gold price reflects the actual long term value of gold rather than the result of increased inflation hedging and speculative buying?

It's not rapid when you think about it. Found an e-mail, and comparison chart for you, with real gold bubbles.

putting a real gold bubble from 1979-1980 up on the same chart with the more recent moves seemed like an interesting exercise. The result is shown below.

For convenience, the chart above is also shown below without the green curve where the blue, red, and black lines look much more menacing with a 75 percent reduction in scale.

Welcome to the Mania
By Jeff Clark, Senior Editor, Casey's Gold & Resource Report

With gold punching the $1,300 mark, thoughts of what a gold mania will be like crossed my mind. If we're right about the future of precious metals, a gold rush of historic proportions lies ahead of us. Have you thought about how a mania might affect you? Not like this, you haven't…

You log on to your brokerage account for the third time that day and see your precious metal portfolio has doubled from last week. Gold and silver stocks have been screaming upward for weeks. Everyone around you is panicking from runaway inflation and desperate to get their hands on any form of gold or silver. It's exhilarating and frightening in the same breath. Welcome to the mania.

Daily gains of 20% in gold and silver producers become common, even expected. Valuations have been thrown out the window – this is no time for models and charts and analysis. It's not greed; it's survival. Get what you can, while you can. Investors clamor to buy any stock with the word “gold” in its title. Fear of being left behind is palpable.

The shares of junior exploration companies have gone ballistic. They double and triple in days, then double and triple again. Many have already risen ten-fold. You have several up 10,000%. No end is in sight. Your portfolio swells bigger every day. Your life is changing right in front of you at warp speed.

Every business program touts the latest hot gold or silver stock. It's all they can talk about. Headlines blare anything about precious metals, no matter how trivial. Weekly news magazines and talk-radio hosts dispense free stock picks. CNBC and Bloomberg battle to be first with the latest news. Each tick in the price of gold and silver flashes on screen, and interruptions offering the latest prediction seem to happen every fifteen minutes. Breathy reporters yell above the noise on the trade floor about insane volume, and computers that can't keep up. Entire programs are devoted to predicting the next winner. You watch to see if some of your stocks are named. You can't help it.

The only thing growing faster than your portfolio is the number of new “gold experts.” It’s a bull market in bull.

You can feel the crazed mass psychology all around you. Your co-workers know you bought gold some time ago and pepper you with questions seemingly every hour, interrupting your work. They ask if you heard about the latest pick from Fox Business. They want to know where you buy gold, who has the best price, and, by the way, how do I know if my gold is real? They all look at you differently now. Women smile at you in the hallway. You worry someone may follow you home.

Your relatives once teased you but now hound you with questions at family get-togethers – what stocks do you own? What's that gold newsletter telling you? Where can I keep my bullion? You don't want to be the life of the party, but they force it – it's all anyone wants to talk about. Your brother tells you he dumped his broker and is trading full-time. Another relative shoves his account statement in front of you and wants advice. You sense someone will ask for a loan. You don't know what to tell people. The attention is discomforting, and you feel the urge to escape.

At first it was exciting, then breathtaking. Now it's scary. You're drowning in obscene profits but are becoming increasingly anxious about how long it can last. Worry replaces excitement. You don't know if you should sell or hold on. Nobody knows what to do. But the next day, your portfolio screams higher and you feel overwhelmed once again.

You grab the local paper and read the town's bullion shop had a break-in last night. They hired a security company and have posted several guards outside and inside the store. Premiums have skyrocketed, but lines still form every day. The proprietor hands out tickets when locals arrive: your number will be called when it's your turn… the wait will be long… please have your order ready… yesterday we ran out of stock at 11am.

You begin to worry about the security of your own stash of bullion – those clever hiding spots don't feel quite as secure as you first thought they'd be. Is the bank safe deposit box really secure? Shouldn't they hire a security guard? Should I move some of it elsewhere? Is there anywhere truly safe? You find yourself checking gun prices online.

And it's all happening because the dollar is crashing and inflation has scourged every part of life. You curse at those who said this couldn't happen and mock past assurances from government. Cash is a hot potato, and spending it before it loses more purchasing power is a daily priority. Everyone is clamoring to get something that can't lose value, but mostly gold and silver.

Your wife calls and says the $100 you gave her that morning isn't enough to buy groceries for dinner. Prices change often on everything. She urges you to get some bread and milk before the stores raises the price again. You suddenly remember you're low on gas and make plans to leave work early to beat others to the filling station. Restaurants and small businesses post prices on a chalkboard and update them throughout the day. Employers scramble to work out an "inflation adjustment" for salaries.

On your way home, the radio broadcaster reports the government has convened an emergency summit of all heads of state. They're working urgently on the problem, and all other agendas have been tabled. Outside experts have been called in. We're going to solve this rampant flood of inflation for the American people, they say. In your gut you know there's nothing they can do.

You change the channel and hear about the spike in arrests of U.S. citizens at the Canadian border. Scads of people are caught trying to sneak bullion and stock certificates out of the country – from airports to rail stations. Violence at borders has escalated, and stories of bloodshed are getting common. The White House ordered heightened security at all U.S. borders, with the media reporting it can take days to cross. Foreign governments offer meaningless help, others mock U.S. leaders for their shortsightedness. Their countries are suffering, too.

You think about the gains in your portfolio and wince at the taxes you'll pay when you sell. Nothing has been indexed to inflation, so everyone has been pushed into higher tax brackets. Citizens are furious with government. Agencies have been swarmed with bitter taxpayers and revolting benefit recipients. One government office was set on fire. A riot erupted in Washington, D.C. last week and martial law was temporarily declared. It's too dangerous to travel anywhere.

As crazy as things are, it's hard not to smile. You're in the middle of a mania. Your life has changed permanently. You're part of the new rich. You can quit work, live off your investments. Your wife is ecstatic, and you both feel as if it’s your second honeymoon. Your kids are amazed and gaze at you with the same awe they did when they were children.

You're thankful you bought gold and silver before the mania, along with precious metal stocks. You daydream of where you might go, what you might buy. New options open up daily. You realize you'll need to meet with your accountant, maybe hire a second one to protect your sudden wealth. You wonder what you'll invest in next. You ponder what charities are worthwhile. Better meet with the attorney to redraft the will.

As night settles and your house quiets, you log on to your brokerage account one last time. Even though you're ready for it, your mouth drops when you see your account balance. It is truly overwhelming. You think of others who own gold and silver stocks and wonder if any have sold yet. Has Doug Casey exited?

You stare at the blinking screen, hand on the mouse, the cursor hovering on the sell button…

[Ed. Note: We can't promise the gold mania will be exactly like Jeff outlines, but we're convinced one is coming for all things gold and silver. And to be prepared for the coming events, you’d do well to listen to those experts who have predicted the quagmire the financial system now finds itself in long before it happened. An all-star cast including John Hathaway of Tocqueville Gold Fund fame… Eric Sprott, Sprott Asset Management… Richard Russell of the Dow Theory Letters… and many more.

[Militsia]

Hey, we already got this but it is called quantitative easing, sounds better than printing lots of new money. So if this counts as a tax then we already got it.