Bullion Bulls Canada

In Part I, I explained how our system of income taxation was a horrible mistake – nothing more than an unfortunate accident of history. I introduced readers to the concept of a “wealth tax”, and pointed out how that formed the basis of a much more equitable system of taxation, using the Islamic religion as an example.

Before I go on to explain the virtues of wealth taxation, in detail, I will spend some time demonstrating why it is impossible to ever have “fair” income taxation. More than that, I will demonstrate why no system of income taxation can be economically viable over the long-term.

To do this requires nothing more than some simple, numerical examples. For purposes of this analysis, I am going to assume that everyone’s assets (i.e.  their wealth) appreciate at an identical rate: 10%/year. Note that very few of these assets actually become “more valuable”, rather, this rate of “appreciation” is in fact nothing more than the rate at which bankers are diluting our purchasing-power through their excessive money-printing. While this may be a high estimate of asset-appreciation as of this moment, the unprecedented money-printing of Western bankers taking place today ensures that this will be a low estimate of future inflation.

Let’s begin with a hypothetical individual who is very wealthy. The individual has $1 billion in net wealth, and one of the highest salaries on the planet: $10 million/year. Indeed, the average billionaire has a smaller annual salary than this (meaning this analysis will be a slight understatement).

The first point to note here is that with total wealth of $1 billion, even the huge, $10 million/year salary of this individual only amounts to 1% of this person’s wealth – an insignificant amount. Meanwhile, the wealth of this individual increases by $100 million/year, just through the appreciation of assets (ten times the amount of incremental wealth generated from income). In other words, even if this individual was taxed (on income) at a 100% rate, his increase in net wealth would only decline by 10%.

Now let’s take an average person, who has an annual salary of $50,000 and net wealth of $500,000 (an above-average level of wealth for people in this income bracket). The first point to note is that this person’s income is equal to 10% of his/her total wealth. Put another way, income is ten times as important to this individual – meaning that taxing income has ten times the impact on this individual. Equally important, this person’s wealth increases incrementally by $50,000 per year, identical to the increased wealth from income.

What this means is that if we were to tax this average person at 100% on his income, we would reduce his incremental wealth by 50%, five times the impact of that rate of taxation on a very wealthy individual. We would have to reduce this individual’s tax rate to less than 20% in order for such taxation to have an equivalent wealth-effect on these two individuals.

Now let’s take an equally common example: a person in a low-wage, service sector job, which pays $30,000 per year. We’ll assume (for purposes of this example) that this individual has net assets totaling $100,000 (again, this estimate is on the “high” side). For this individual, annual income represents 30% of his total wealth, or thirty times the level of the billionaire, with the $10 million/year salary, and every dollar of income tax paid by the low-wage earner has thirty times the impact on this individual.

With little in the way of assets, his wealth only appreciates by $10,000 per year. Thus, if we were to tax 100% of this person’s wages, we would reduce his increase in wealth not by a mere 10% (like the billionaire) but by 75%. Of greater relevance, the appreciation of assets only represents 25% of this person’s increase in wealth, compared to 90% for the billionaire.

In short, in an income taxation system, even a 100% tax-rate has only a trivial impact on the very wealthy, while tax-rates far below that level have a very punitive impact on the average person. And in absolute terms, if we taxed the $30,000/year worker at 0%, his total wealth would only increase by $40,000/year, while if the billionaire was taxed at 100% (on his income) that person’s wealth would still increase by $100 million per year. Simply, it is mathematically impossible to have income taxation without giving the ultra-wealthy a “free ride” – and concentrating more and more wealth, in fewer and fewer hands, every year.

“One of the first things you know about intervention in the currency markets, and its true of central banks, but it's also true of private institutions is that it's much more effective if people don't know what you're doing. They only see the effects, you know, I mean there are reasons why people don't want the market to see them coming...”

•  Jeffrey Christian of The CPM Group, from “The Great Gold Debate"

Mr. Christian made that remark when he was explaining the intricacies of the manipulation of the precious metals market (the same manipulation which Christian claimed he “had never seen any evidence of”). However, the remarks are equally applicable to other markets – including debt markets.

When it comes to the manipulation of markets, the bankers are clearly “in a league of their own”, so I will defer to Christian's expertise: if you want to manipulate markets, whatever you do will work better if you lie about it/conceal it. Let's apply this principle to debt markets, and the appalling euphemism known as “quantitative easing”.

The starting point of all analysis is definition of terms, so let's begin with “quantitative easing”. This absurd, banker double-talk is a euphemism for “monetizing debt” which is itself a euphemism. “Monetizing debt” means printing new money (“out of thin air”), and then using this newly-created money simply to make payments on old debt.

This practice is ultimately no different than “borrowing” from one's self in order to (pretend to) pay your bills. It is an obvious sham – and a fraud which is being perpetrated not only on all creditors, but all holders of that currency.

As the world's most-flagrant offender when it comes to monetizing debt, I'll use the U.S. as an example. Let's suppose (hypothetically) that it's national debt was 'only' $10 trillion. It needs to make a monthly payment of $100 billion, but it doesn't have any money. So it prints $100 billion (out of thin air), and uses those new “Bernanke bills” to make its payment.

In the greater scheme of things, this one incident is not a dramatic event, except that the U.S. government does that the next month, and the next, and the next, and every month. Let's also suppose that the U.S. “money supply” (in its narrowest sense) was also $10 trillion. This overstates money-supply but is useful for the purpose of this argument.

Every month, the U.S. government is expanding the money-supply by 1%, and thus diluting all of that currency by an equivalent amount. In other words, even at the end of one month the creditor has been repaid with “dollars” worth 1% less than what it lent to the U.S. Similarly, U.S. citizens and all other holders of U.S. currency (who are not even “parties” to this debt-repayment) have seen their purchasing power reduced by 1%.

Canadians used to take pride in being Canadian citizens. We relished being seen unequivocally as a positive influence in the world. It was part of our identity that our soldiers rarely used their weapons, as almost all of their service was devoted to official “peacekeeping” missions.

Having a vast nation, with large expanses of unspoiled wilderness, we appreciated that gift – and had traditionally adopted very “green” attitudes toward preserving environments and ecosystems. At the same time, Canada had generally not only been a generous donor of foreign aid, but very proactive as an advocate for developing nations, and a “bridge” in dialogues with other developed nations.

In all those areas, Canada's reputation has been greatly diminished. Our soldiers now have a new primary mission, which is supposedly parallel with our “peacekeeping”: “kill the enemy”. It requires no explanation that increasing the latter greatly diminishes our effectiveness in the former.

Meanwhile, Canada's “image” in the world, with regard to environmental issues and policies has gone from “green” to a skull-and-crossbones, with Canada recently being awarded a “trophy” of infamy: voted the world's least “green” nation as a result of two concurrent policies. Not only has the current government essentially reneged and renounced Canada's commitment from the “Kyoto Accord”, it has laid-waste to the province of Alberta – through the reckless expansion of the Canadian tar-sands, where maximizing output has meant totally abdicating responsible management and development with respect to the environment.

Lastly, Canada is rapidly losing its favorable reputation among developing countries. This comes in a number of forms, but starts with Canada allowing itself to be a “tool” in the U.S.'s “War For Drugs” in Afghanistan – where the partnership between the CIA and local warlords has turned Afghanistan into the largest heroin-factory in global history. Wall Street banks are able to launder such drug-profits with impunity, classified under “trading profits”.

While Canada's government still mouths worthy platitudes when it comes to aiding poor and developing countries, such statements are being increasingly seen as mere rhetoric. With Canada becoming less-generous in foreign aid and less vocal and assertive as a voice for developing countries, Canada's current government now seems much more interested in currying the favor of its cronies among the developed countries, and mostly the United States.

This attitude is on display for the entire world at the current G8/G20 gatherings, where Prime Minister Stephen Harper engaged in the most fascist display of force ever seen at one of these gatherings – relative to any legitimate threat. Over $1 billion (taxpayer) dollars has been squandered in turning the heart of Canada's largest city into an armed fortress, where legions of riot-police front massive barricades.

Regular readers know that I have a strong appetite for famous clichés, and other time-tested “pearls of wisdom”. Among such timeless pieces of wisdom is the old adage that “actions speak louder than words”. It is in that light that I listened with great interest to a BNN interview with Jason Toussaint.

He is the “Managing Director” of World Gold Trust Services. This subsidiary of the World Gold Council is the operator of the massive, “bullion-ETF”, the SPDR Gold Trust – more commonly known by its NYSE symbol: “GLD”. We would naturally expect this GLD executive to be an investor in the gold market, himself. Thus, he was asked at the end of his interview to disclose his own precious metals holdings.

After just a momentary hesitation, Toussaint replied that he held “physical bullion” and the equities of precious metals mining companies. Did anyone notice anything missing from his holdings? Perhaps the believers in GLD would have hoped/expected that the WGC executive directly in charge of GLD might actually hold some of the $50 billion in GLD units?

While I have provided readers with numerous reasons to shun these banker-shams (most recently in “The Seven Sins of GLD”), obviously none of these individual reasons could be as damning as the admission by the “Director” of this fund that (as a gold investor) he doesn’t hold his own market product.

For those readers who are used to much longer commentaries, my apologies for cutting this one short, but as I said in the beginning, “actions speak louder than words…”