5-10-09

Confiscating the Wealth of America

This week there's been a lot of government rhetoric about the evils of tax havens and banking secrecy.

The government themselves (through the CIA) uses such places. Furthermore, the government themselves employ banking secrecy on a huge scale currently. The Fed chairman actually told the Bank of America chairman to keep his mouth shut about the state of their finances and the truth behind these so-called stress tests is absolutely off limits.

It doesn't end there. Depending on the situation, did you know America is a tax haven?? A foreigner can live here on a visa or temporary green card (a residency program of the type which the government is criticizing other governments for offering) and pay ZERO tax on the money they make here. How is this different to somewhere like Switzerland or Panama? It isn't.

So the governments are either hypocrites or terribly ignorant. Maybe both. There should be absolutely no surprises there to long time readers, but let's take a look at what's going on here between the lines...

Since the birth of organized government, the task of those who wish to get into, and stay in power is to gain and keep the popularity of the people.

And this is the problem. It's a problem because the majority of people are and always have been child-like. Slavery to a government is convenient for the masses because it gives them the abdication of responsibility, but the key factor is what it takes to earn this popularity a government seeks.

So what is it the masses cry out for?

Free money. Or at least, a guarantee of work. In short, prosperity.

The Roman politicians found a way to get what they wanted. For the first 3 centuries of the Empire, the Roman currency was real precious metal coins (gold, silver, copper). Think of this as the first ever Gold Standard.

But this restricted their ability to give the masses free money. So, they changed the composition of the coins; they reduced the precious metal content and added more worthless metal (and hence came off the Gold Standard). The value of the coin stayed the same though under guarantee from the government. This was the first ever 'fiat' currency; a currency of value only by decree and trust of government.

It worked for a while. But this, and all fiat currencies since, failed (in the American Civil War it was the 'greenback').

Okay, fast forward to 1971. Up until here, America was on a Gold Standard. The value of the Dollar was linked to an exact amount of gold. Nixon came off the standard and printed all the money he wanted.

And so began a big experiment, an experiment history had already done for us several times...

Since 1971, we have seen massive inflation and unsustainable government deficits, each administration passing the problem onto the next. In an effort to gain popularity, Western governments have spent all they have, and then borrowed some more, lots more, a debt they can never pay back.

The US (and UK and Euro) governments are flat broke now. They are facing obsolescence and they know it. Without free money for bail-outs, make-work programs, increasing benefit handouts and everything else they need to stay popular, they are finished. They are also facing blame for the financial crisis which at the end of the day, THEY CAUSED with loose monetary policy and lack of oversight.

So what to do?

First, deflect blame. "It was the fault of tax havens and all the rich people who use them!"

"Yeah! Kill all the rich people!" cries the mob.

The government spent all their money and didn't save. They, and the population, cannot balance a check book. But the people who can- the wealthy- have money. Confiscation of wealth from the "rich", whether it be corporations or individuals, helps government finances and it's popular with the not-rich.

It's a win-win, baby!

"And hey, if you rich people don't like it, LEAVE!"

Are you so sure you want that? 50% of the tax comes from 1% of the population. You want that 1% to leave? Where will your free money come from then? Printing press??

Guess you didn't think that one through, doofus.

But that's a problem for the next administration. Of course, you could just round up all the wealthy people and steal their money. Then the government would spend all that away and you'd be back to square one (what, you think the government would hand it out to everyone equally? HaHaHa). And even then, what entity in their right mind would invest money in such a banana republic?? Even so, many would wish this.

And yet, despite all this anger successfully deflected at the rich, the average American wants to become rich themselves. Take a read of this from the New York Times...

"Although the nation has plunged into its deepest recession since the Great Depression, 72 percent of Americans in this nationwide survey said they believed it is possible to start out poor in the United States, work hard and become rich - a classic definition of the American dream.

And yet only 44 percent said they had actually achieved the American dream, although 31 percent said they expect to attain it within their lifetime. Only 20 percent have given up on ever reaching it. Those 44 percent might not sound like much, but it is an increase over the 32 percent who said they had achieved the American dream four years ago, when the economy was in much better shape.

Compared with four years ago, fewer people now say they are better off than their parents were at their age or that their children will be better off than they are.

So even though their economic outlook is worse, more people are saying they have either achieved the dream or expect to do so."

So keep on striving to be rich, all the while wanting to punish the rich. Yeah, that makes sense. Ah, so now we reveal the dark heart of Socialism: jealousy.

I guess we will now have to find all this out the hard way.

Short term...

As expected, the rally continues for now as I said it would when it broke through 8131. Keep those trailing stop losses tight! This IS still a bear market. As I've said many times, this rally will go on until everyone believes it is a new bull market.

Oil, gold, TBT, everything I've commented on here is well in the money now, but keep trailing stop losses tight.

Best regards,

Mark Patricks

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