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raja
10-11-12, 06:49 PM
What's in store for gold?
Confiscation through purchase? Exorbitant windfall taxation? Big profits?

The PAST:

Jim Rickards writes in Currency Wars, "A prohibition on the hoarding or possession of gold was integral to the plan to devalue the dollar against gold and get people spending again."
"It is difficult to imagine such a scenario playing out today, although the legal authority of the president to seize gold still exists. The difficulty in imagining this happening lies not in the impossibility of a similar crisis, but rather in the political backlash that would ensue in an age of pervasive talk radio, social media, outspoken cable channel anchors and greatly diminished trust by U.S. citizens in their government."

When confiscation occured under FDR, "People were desperate and trusted FDR to do the right things to fix the economy."

"It is not difficult to imagine some future dollar collapse necessitating gold seizures by the government. It is difficult to imagine that U.S. citizens would willingly go along as they did in 1933."




The FUTURE:

Rickards does not predict confiscation of all private gold, but only that stored in depositories in New York . . . . .


"Among other actions, should the dollar crash, "All private and foreign-owned gold held in custody at the Federal Reserve Bank of New York or depositories such as the HSBC and Scotiabank vaults in New York will be converted to the ownership of the U.S. Treasury and transferred to the U.S. gold depository at West Point. Former owners will received suitable compensation, to be determined at a later time."
"All exports of gold from the United States are prohibited."



The government's purpose in these actions:


"By confiscating foreign official and most private gold on U.S. soil, the Treasury would now possess over 17,000 tons of gold, equal to 57% of all official gold reserves in the world. This would put the United States in about the same relative position it held in 1945 just after Brenton Woods . . . . Such a hoard would enable the United States to do what it did at Bretton Woods -- dictate the shape of the new global financial system."

A "new" dollar will be created at 10 times the value of the old dollar, after which, Rickards believes, "A windfall profits tax of 90% would be imposed on all private gains from the upward revaluation of gold."






My Comments:

According to Rickards, the government wants to obtain a lot of gold to back the new dollar and be top dog in the new world economic order. That makes sense, given the way the government has behaved in past financial dealings . . . .

He says that the US government will confiscate private and foreign gold held in New York depositories. That would not be surprising, considering past US actions toward foreigners, such as Nixon closing the gold window in 1971. Politicians won't want to hurt their Financial Elite buddies, who would be tipped off in advanced to remove their gold from New York depositories.

Confiscation-buying of gold by government from private parties all over the U.S. would be cumbersome, and generate a lot of resistance, unlike in the time of FDR when the public was willing to go along with it. Rickards implies that the U.S. would have enough gold to achieve world financial dominance simply by looting the NY stashes, without resorting to widespread private confiscation.

But then Rickards says that a 90% windfall profit tax would be inflicted upon anyone who sold gold after the devaluation, which seems to be a contradiction to what he said about confication. If there would be sufficient resistance to stop confiscation-buying of gold by the government, why wouldn't that same level of resistance rise up against a windfall tax on gold profits?

Whether it's confiscation or taxation, the government will attempt to get it's hands on the profits.
It really comes down to politics, and gold owners are in the minority. The majority, who do not have gold, would want gold owners also to suffer from the devaluation losses. After all, the People's old dollar is now worth only 1/10th of the new dollar, so why should gold owners escape the hit. Given that sentiment by the majority, politicians could easily pass either a gold confiscation law as FDR did . . . or a windfall profit tax on gold.


IS THERE A WINNING STRATEGY?

It would appear that all those who think they are saving themselves by owning gold will not, in fact, be saved.
According to Rickards, the crash will come suddenly, and without warning. It's like the last snowflake on a mountain that tips the balance and causes the avalanche. He says that it could only be a matter of a hours after the crisis began before the government bans gold export, and a matter of a day before the new dollar is instituted. A gold owner will have mere hours to gather their gold and hop on a plane out of the country. But . . . where would they go? If there is a dollar crash, there will be a world financial crash, and not many places will be safe financially, because all governments will be in the same predicament.

Anyone who sells their gold before the devaluation will not profit from the spectacular gains produced by devaluation, and likewise, anyone who is left with gold after the devaluation will not profit from the dollar devaluation, because their profit will be lost to tax.

So, what to do?
Here are some possibilities, none particularly appealing:

1) Hold gold for several years after the devaluation, hoping that the profits tax is reduced or abolished.
2) Hope that the profits tax has a threshold below which the tax will not take effect. That would allow gold owners to sell a small amount of gold each year under the threshhold, slowly cashing in their stash tax free over a period of years.
3) Have an open ticket to a "safe" country, and hop on a plane with the gold at the first inkling that the crash is immanent. Hope you won't get stopped at any borders and your gold confiscated. Hope that the government where you are moving to does not institute a windfall profit tax on gold.
4) Forego dreams of cashing in big on the crash of the dollar. Hold your gold for awhile as it continues to go up, but hope that you can sell your gold well before the crash and convert it into real items that will not devalue. Of course, you will have to take the hit from the current 28% collectibles tax on gold.
5) Keep you gold and hide it, assuming that there will be a black market in which you can sell your gold. Hope that the government does not offer rewards for reporting gold-tax evaders, and hope that whomever you sell your gold to is not a government informant. Accept that you may not get a very good price for gold, since it is illegal to sell it to avoid tax, so anyone buying from you will charge for that risk you are passing on.
6) Hope that the government will successfully "muddle through", and there won't be a crash.
7) Hope that the government will, for some unknown reason, let you get away with making obscene profits on gold. (Fat chance!)



I would like to hear what others think about all this.
Please amend, append, and/or criticize . . . . .

doom&gloom
10-11-12, 10:21 PM
There is no "gather your gold and hop on a plane" anymore, unless it is a charter you buy.

The system is set up to confiscate your metals at the border. You MUST declare them for export thru Treasury AND Census, and have an electronic number from Census to present to get them out. And finding the place to declare export on the web is purposefully obfuscated in an attempt to make sure you lose your metals as you try to leave.

Reference:

http://www.financialsense.com/contributors/mark-nestmann/understand-rules-before-you-transport-precious-metals-overseas-part-ii

http://www.financialsense.com/contributors/mark-nestmann/understand-rules-before-you-transport-precious-metals-overseas-part-i

Raz
10-12-12, 12:50 AM
raja, my question for you is: why then does Rickards own gold? :o

vt
10-12-12, 01:21 AM
I've been told that the Gold ETF (GLD) assets are held at HSBC bank in London. So if they are not in the United States, does this prevent confiscation by the U.S. Government?

jk
10-12-12, 06:08 AM
think about holdings in cef, gtu, phys- all closed end funds, not a direct holding of gold [or silver also in the case of cef], with their metals stored in canada. then there is sgol, stored in switzerland. what do they do about bullion vault? what about holdings of a closed end held within a tax sheltered account like an ira? there are a lot of wrinkles to be addressed.

vinoveri
10-12-12, 11:32 AM
think about holdings in cef, gtu, phys- all closed end funds, not a direct holding of gold [or silver also in the case of cef], with their metals stored in canada. then there is sgol, stored in switzerland. what do they do about bullion vault? what about holdings of a closed end held within a tax sheltered account like an ira? there are a lot of wrinkles to be addressed.

If recent experience is any evidence (e.g., little investigations, no prosecution, foreclosuregate, liborgate, all done in the open w/o accountability), TPTB have damn effective irons for removing wrinkles.

aaron
10-12-12, 12:05 PM
If the government wants gold, they should encourage its sale to the treasury. This means paying full price and not over-taxing gains. Otherwise, ALL 'their' gold goes into hiding.

One option is to own silver as the insurance on your insurance. If the government takes your gold away, you will still have your silver stash and that ought to at least keep up with inflation. I got a little platinum and palladium as well.

There are probably 3 kinds of people who buy gold right now. Super rich people, informed people, and ditto heads. The ditto heads have guns and gold and bibles. I would not want to piss them off if I were in the government. The super-rich write the rules and will make sure that large gold holders are well-compensated. That leaves the iTulip crowd (and others) left to pillage. It is not worth the trouble unless it is for political showmanship.

raja
10-13-12, 11:35 AM
raja, my question for you is: why then does Rickards own gold? :o


Possible reasons why Rickards owns gold:


1) He realizes his predictions might be wrong, and he's hedging his bets by diversification.

2) He is planning to let his gold appreciate, then sell sometime before the crash occurs. He'll miss the final manic buying price rise and the upward revalution created by the New Dollar, but he will avoid the 90% windfall tax.

3) He is hoping that sometime, perhaps many years in the future, the windfall tax will abolished, at which time he'll cash in his gold. Until then, he will live on other investments or businesses.

4) He owns gold held in a foreign country that he believes will not confiscate it or tax away the profits.

5) He expects that there is a good chance of social chaos, and gold will be helpful for survival in the more lawless society. Taxes won't be a concern.




Actually, I would like to ask Rickards your question, and also ask why the same potential political reaction that would prevent confiscation would allow a 90% windfall tax. Unfortunately, I have been unable to find his email address, or any kind forum through which I could address him . . . .

raja
10-13-12, 11:36 AM
I've been told that the Gold ETF (GLD) assets are held at HSBC bank in London. So if they are not in the United States, does this prevent confiscation by the U.S. Government?
It may prevent confiscation by the US government, but it wouldn't prevent confiscation by the British government . . . or by any government in a country where the gold is held.

raja
10-13-12, 11:41 AM
think about holdings in cef, gtu, phys- all closed end funds, not a direct holding of gold [or silver also in the case of cef], with their metals stored in canada. then there is sgol, stored in switzerland. what do they do about bullion vault? what about holdings of a closed end held within a tax sheltered account like an ira? there are a lot of wrinkles to be addressed.

The more difficult times get, the more governments will avidly seek out any possible sources of income.
I suspect that CEF and the like will lose it current capital gains tax status, and be taxed at whatever rate is applied to other types of gold, such as physical, GLD, etc.

raja
10-13-12, 12:47 PM
If the government wants gold, they should encourage its sale to the treasury. This means paying full price and not over-taxing gains. Otherwise, ALL 'their' gold goes into hiding.

According to Rickards scenario, the US gets the amount of gold it needs through confiscation from the gold depositories in NY. The remaining gold in private hands will not be needed.

However, lets say the government wants all the gold . . . .

Sure, you can hide your gold if the government tries to confiscate-buy it at pre-NewDollar prices. Or, you can refuse to sell it if the government invokes a 90% windfall tax. But what good does it do you if you can't eventually convert your gold to currency or use it to buy things?

Let's say you hide your gold . . . .
Someday, you will want to sell, and it will have to be on the black market. When you sell, you will be transferring your risk of owning and selling an illegal item to whomever buys it, and that risk premium will be deducted from your profits. You also have to hope that the person you are selling to is not planning to collect the "gold trafficker" reward money offered by the government.

So as a gold owner, you will have to choose between possible future imprisonment and taking a risk-premium loss when selling . . . or turning in your gold. I think the government will assume that most people will choose the latter, safer alternative.

Let's say gold is not confiscated, and only a tax is imposed. If you decide not to sell your gold to avoid the profits tax, then again, what good is it?
The whole reason you have gold is because you belive times will get hard, and you will need the money, so sooner rather than later you will have to sell it. Then, the government will get your profit.


One option is to own silver as the insurance on your insurance. If the government takes your gold away, you will still have your silver stash and that ought to at least keep up with inflation. I got a little platinum and palladium as well.
FDR confiscated silver . . . what's to stop it from happening again?


There are probably 3 kinds of people who buy gold right now. Super rich people, informed people, and ditto heads. The ditto heads have guns and gold and bibles. I would not want to piss them off if I were in the government. The super-rich write the rules and will make sure that large gold holders are well-compensated. That leaves the iTulip crowd (and others) left to pillage. It is not worth the trouble unless it is for political showmanship.
If that's true, it seems most likely that the least trouble would be for the government will impose a 90% profits tax. All gold dealers will be required to report transactions, so anyone trying to sell gold and avoid the tax will have to deal on the black market. See my comments above about that.

There is a lot of controversy about what will happen with gold, not only on this site, but all over the financial arena. Yet I haven't seen much discussion by EJ -- iTulip's very own gold expert -- dealing with these various controveries. Perhaps I missed the discussion, and if so, can someone please restate the iTulip position?

The iTulip recommendation is that everybody should invest in gold. In my mind, iTulip's credibility is suspect if it doesn't respond and counter some of the various scenarios that Rickards and others have put forward that cast a shadow on the wisdom of iTulip's recommendations. Again, if these issues have already been addressed, would someone mind sharing them? IIRC, EJ did try to whip up support for a repeal of the 28% collectibles tax, so I know gold profit tax is a concern for him, too.

BadJuju
10-13-12, 12:56 PM
I don't understand why they would tax gold, though. The least trouble would be to repeal any tax on it because they are going to revalue it anyway. What purpose would it serve to tax it and thus only discourage people from giving it up? Given all the hubub about lowering taxes in the US, especially with regards to investments, I think we'll see the same thing happen with gold. I am not saying it cannot happen because if governments acted rationally, we wouldn't be where we are now.

raja
10-13-12, 02:20 PM
I don't understand why they would tax gold, though. The least trouble would be to repeal any tax on it because they are going to revalue it anyway. What purpose would it serve to tax it and thus only discourage people from giving it up? Given all the hubub about lowering taxes in the US, especially with regards to investments, I think we'll see the same thing happen with gold.

The government will behave differently when the economic situation goes critical.
Read my posts in this thread in which I have laid out the rationale . . . .

jiimbergin
10-13-12, 07:44 PM
EJ had a post about this that indicated that perhaps a high tax on gold would not be coming. Here is a link

http://www.itulip.com/forums/showthread.php/23521-Election-as-Forcing-Function-Part-I-On-Track-for-a-Bond-Market-Panic-Eric-Janszen/page25 post 241


I've discovered at the various meetings I've had with Fed economists and others who attend meetings there that there is no faster way to clear the table after dessert than to bring up the topic of gold.

They really, really, really do not like to talk about gold.

But over the years some have learned that I'm not a journalist but an analyst; I'm not going to quote them on my web site to create controversy and traffic for me and headaches for them. That's not our business model. So one or two have opened up a bit.

One official gave me his personal and unofficial thoughts on what might happen in the highly, no extremely, no next to impossible event that the USD is officially associated with gold in some fashion some day off in the nearly infinite future. With all of those qualifications preceding his comment, he went on to give his opinion. It was an enlightening conversation and a window into a thought process.

It was not what I expected. Hint: No high taxation as I have been discussing here since 2001. The expectation is that a high gold tax rate will criminalize gold and create a black market, the opposite of what they want. They want an optimal tax rate on gold that generates the highest tax receipts for the IRS but without creating a black market. He pointed me to this paper (https://docs.google.com/viewer?a=v&q=cache:qizJM_ttPBkJ:www.msu.edu/~davidso4/OptimalTax.pdf+&hl=en&gl=us&pid=bl&srcid=ADGEEShzTeQ50FWq5dkos_oT4iyyHpl4PEjR1CmYkkEz p1lnBD00EeApympjfuRJW_5FAXI1LrxnhpttmeqQDhuGFW6DPJ Ktnij8ltNB-Qv5P0Tl72cm0myecSyxXHORedzw26f6aeES&sig=AHIEtbT7n6TkNZddT-IwbOiVkKS4f0lmag). In fact there is concern, he said, that the existing classification of gold as a collectible may cause the tax rate to be too high if the gold price keeps rising; as the gold price rises, so does the incentive for gold holders and dealers to conspire to evade taxes.

raja
10-14-12, 12:26 PM
EJ had a post about this that indicated that perhaps a high tax on gold would not be coming.

It was not what I expected. Hint: No high taxation as I have been discussing here since 2001. The expectation is that a high gold tax rate will criminalize gold and create a black market, the opposite of what they want. They want an optimal tax rate on gold that generates the highest tax receipts for the IRS but without creating a black market. He pointed me to this paper (https://docs.google.com/viewer?a=v&q=cache:qizJM_ttPBkJ:www.msu.edu/%7Edavidso4/OptimalTax.pdf+&hl=en&gl=us&pid=bl&srcid=ADGEEShzTeQ50FWq5dkos_oT4iyyHpl4PEjR1CmYkkEz p1lnBD00EeApympjfuRJW_5FAXI1LrxnhpttmeqQDhuGFW6DPJ Ktnij8ltNB-Qv5P0Tl72cm0myecSyxXHORedzw26f6aeES&sig=AHIEtbT7n6TkNZddT-IwbOiVkKS4f0lmag). In fact there is concern, he said, that the existing classification of gold as a collectible may cause the tax rate to be too high if the gold price keeps rising; as the gold price rises, so does the incentive for gold holders and dealers to conspire to evade taxes.

Here is a link
http://www.itulip.com/forums/showthread.php/23521-Election-as-Forcing-Function-Part-I-On-Track-for-a-Bond-Market-Panic-Eric-Janszen/page25 post 241

Thanks for reminding me, jiimbergin.
That EJ post was not too long ago, and I actually responded to it.
(I guess I've been stuffing my head with economics to the point that it's affecting my memory.)

And I'll stick with my previous reply to that post:


Again, too optimistic . . . .
That might be the way it plays out in the Fed's dreams -- that they will always maintain control, and everything will be OK.

But if there is a run on the dollar, and the Fed/Treasury can't stop it, and the US Gov needs to take the drastic measures such as those suggested by Rickards, your Fed informant's strategy will not prevail.
Political needs will trump the economic needs . . . and a windfall profits tax on gold "profiteers" wil be enacted.



Also, the paper EJ referred to discusses the benefits of a black market, so I don't see how it backs up EJ's contention that the Fed fears the black market so will reduce gold profit taxes. (That said, the paper was quite technical, and I may have misunderstood something.) Here's an excerpt:

In his well-known textbook, Rosen (2005, p. 353) claims that a black market, or
"underground economy," might improve welfare by effectively allowing some economic
activities to be taxed at lower rate than others, in a manner consistent with optimal tax rules. We
investigate this reasoning by introducing a black market into an economy where different goods
are taxed at the same rate. We present conditions under which the black market moves the
economy closer to an optimal discriminatory tax system, where goods are taxed at different rates. In some cases, the black market can be used to replicate this tax system.







People tend to expect the future that they want, and deny the one they don't want. The Fed wants things to stay under their control, so that is the future they see, and their predictions are based on that premise. The iTulip philosophy for over a decade has been that gold is a good investment, so they see a 90% windfall profits tax as unlikely. Not only reputation, but the personal fortunes of people who are heavily invested in gold are at stake, especially if they are not diversified in other assets.

I would really, really like it if the government did not invoke a 90% windfall profits tax . . . and got rid of the 28% collectibles tax. But I have yet to see a convincing argument that gives me hope . . . .
I would also like to see more discusssion on this topic in this forum . . . . .

Adeptus
10-15-12, 05:30 AM
Aside from some collectors coins which EJ has mentiond in the past were a good deal since premiums vs the latest mint issued coins were at a minimum due to high price of gold, he seemed to have managed to offload a few hundred thousand (possibly worth closer to 1 mil) of silver in a matter of a couple of daysback when it hit $48.50. Unless you have family memebers or best friends in the coin store business or know well heads of local banks, I can't imagine how he offloaded that much physical silver in succh a short time. My gut is that it was mostly, if not all, online invested which he could dump in secods at the click of a button. To boot,he recommends on the website bullion vault - an online vehicle for pm investmnts.xcuse the typos.. am on tablet.

raja
10-15-12, 01:49 PM
Aside from some collectors coins which EJ has mentiond in the past were a good deal since premiums vs the latest mint issued coins were at a minimum due to high price of gold, he seemed to have managed to offload a few hundred thousand (possibly worth closer to 1 mil) of silver in a matter of a couple of daysback when it hit $48.50. Unless you have family memebers or best friends in the coin store business or know well heads of local banks, I can't imagine how he offloaded that much physical silver in succh a short time. My gut is that it was mostly, if not all, online invested which he could dump in secods at the click of a button. To boot,he recommends on the website bullion vault - an online vehicle for pm investmnts.xcuse the typos.. am on tablet.
Let's say someone had GLD or another paper gold asset, and it looked like a crash with the subsequent creation of a NewDollar was likely . . . .
What good is it to sell paper assets and get Old Dollars, only to see them devalued in the next day or two? Would there be time to convert them into real property? I think not.

Also, keep in mind that many gold owners own gold because they fear economic mayhem. So they will be particularly observant of the economic situation. If there is scary news that would suggest dumping gold, expect the gold price to drop at lightning speed.

Adeptus
10-15-12, 02:05 PM
Let's say someone had GLD or another paper gold asset, and it looked like a crash with the subsequent creation of a NewDollar was likely . . . .
What good is it to sell paper assets and get Old Dollars, only to see them devalued in the next day or two? Would there be time to convert them into real property? I think not.


Step 1. Buy gold at low price
Step 2. Sell gold at high price
Step 3. Convert US dollars into safe fiat currency on your FX account
Step 4. PROFIT!

:)

Fiat Currency
10-15-12, 02:38 PM
Step 3. Convert US dollars into safe fiat currency on your FX account ))O ;]]

I forget ... is that a Type I or II error? :D

mrm27
10-16-12, 03:17 PM
I spoke to my account that I knwoa nd trust abotu strategies for avoiding a tax on my gold, and he said they'll egt yuo somewhere. His recommendation was to use it as a medium of exchange for real estate of some sort that generated a return. If you purchase the real estate with gold, the seller who now has your gold doesnt pay the gains tax on it, and you dont have to pay the gains tax until you sell the piece of real estate. Taxes delayed are better than taxes paid. Considering the fact that the NAR is exempt from money laundering laws, you could buy with gold, and I dont even know if someone would have to report that.

GoldMiner
07-24-13, 03:33 AM
I think portfolio diversification might help a big. I wonder if they'd do anything bad to alternatives to gold - e.g. platinum or palladium. You could buy a few platinum rings or anything - not necessarily in the form of investment metals. Diversify as well as possible...

I've always been a fan of Rickards, by the way :)