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Gold, Debt and the War on Cash

By Rich Checkan

Those of you who read my interview with gold analyst and fund manager for Incrementum AG, Ronald-Peter Stoeferle, are familiar with his yearly report, In Gold we Trust 2015.

Using the principles of the Austrian School of Economics, in which he is an author and thought leader, Mr. Stoeferle makes the bold conclusion that gold “is in a secular bull market close to making a comeback.” He sees a long term price target of $2,300 by 2018.

From time to time, ASI will summarize sections of this most significant report which includes dozens of original charts, economic analysis, summaries and conclusions.

And, at the end of today’s excerpt, we draw a few conclusions of our own as to what to do today to take advantage of what the current market is giving us…

--Rich Checkan

We begin with the very real possibility of stealth taxation and negative interest rates as a war on savings.

2015 is the first time since the early 1940’s that U.S. national debt exceeds economic output as measured by our GNP. Such massive over-indebtedness is leading to government strategies very dangerous to our economic health:

  • Increasing taxation as a payment resource
  • Keeping interest rates low to cheaply refinance massive debt
  • Moving to a cashless economy to eliminate privacy and to more easily monitor and access citizen wealth

A highly indebted country can stand at the abyss for years until circumstances push them into the depths of a crisis.

Government revenues come from one primary source, taxation of its people. A government can calculate the nexus between its debt service, tax base and interest rates to manipulate all three. This chart shows you the connection between government debt and tax revenues.


In Gold We Trust Chart F


Increasing Longevity Forces Governments to Increase National Debt and Taxation.

Governments struggle to fund old age entitlement programs as fewer workers pay in. A leading example is Japan, a country with an impressively aging demographic. The United Nations estimates Japan's dependency ratio (people paying into as compared to people collecting from a government pension system) as 80/100 by 2050. The dependency ratio in Germany is already 50/50. In the U.S., according the Census Bureau, the ratio is also near 50/50 and heading higher.*

Ironically, lower rates, designed to help governments borrow cheaply to fund retirement programs, particularly hurt an aging population who must drastically cut back on spending to make money last. Statistics show younger generations are likewise not using savings for investment, but rather acquiring debt to leverage acquisitions.

All of this portends greater taxation with economic slowdown as the resources required for capital formation contract. A self sustaining recovery seems unlikely.

Low Rates Create a War on Savings: 25 Central Banks Lowered Their Base Interest Rate in the Past Year.

Under a regime of ‘financial repression’ savers become the guarantors of the state through repressive wealth transfer policies. According to a Swiss RE study, U.S. savers lost $470 billion between 2008-2013 due to low rates, amounting to a virtual penalty of .8% on financial assets.

What’s worse, a low-rate Fed policy is only a band aid that makes it possible for the government to avoid urgently needed structural reforms which would permanently cure its over indebtedness.

Among the many unintended consequences of ‘financial repression’ is the potential for speculative bubbles, and most significantly, the disincentive to save. This makes further capital investing and future economic growth impossible.

Some leading economists agree with the war on savings. Their reasoning, if you penalize or abolish cash, you pave the way for investment stimulus. Harvard's Larry Summers, a former U.S. Secretary of the Treasury, argued before an International Money Fund Research Conference in favor of negative interest rates to dissuade savings.

The Handmaiden of the War on Savings is the War on Cash.

A cashless economy will increase the government’s power to easily monitor taxation and control our private assets. It is the last hurdle to negative interest rates. The war on cash and the war on savings are couched in terms of ‘infrastructure levy’, or a ‘millionaire’s tax,’ and other palatable euphemisms.

The great hidden danger here is banks with thin reserve margins will be rewarded as there would be no danger of collapse if cash withdrawals are massive. These and other objections are deemed ‘negligible’ by the cash abolitionists.

The Impact on Gold Prices

As his report’s title implies, gold is the asset you can trust. Gold is true wealth. It is the savior in times of deep economic crisis, which Mr. Stoeferle sees coming. That alone makes the case for rising gold prices. But, there is more. In our next monograph we will look at the issue of inflation and how it portends an increase in gold prices.

In the meantime, we see a fantastic opportunity shaping up here to acquire your much needed wealth insurance. We just recently wrote about the Gold / Silver Ratio (GSR). Take a look at what we said and why we believe you have an opportunity to buy some on the cheap right now.

Then, give strong consideration to using Perth Mint Certificates to make your acquisitions. In this environment, it is extremely difficult to find a better product to add gold, silver and platinum to your portfolio.

Call us today at 800-831-0007, or send us an email. We look forward to helping you Keep What’s Yours!

*Source: The World Bank

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