If money is Liberty, this is our gravest threat yet.
What follows may be the most incendiary piece we’ve ever published.
Some readers will hate it.
But if you have money in the bank and plan to put more in there someday soon… pay attention.
There’s a new enemy, and he’s gaining enormous strength.
We wrote recently about how the economic textbooks are all wrong. They were written in the 1950s, ’60s and ’70s… before 60% of Americans had access to 401(k)s, before mutual funds dominated the market and before retirement could last 30 years or more.
Few folks have bothered to ponder why it is that interest rates began their long-term decline at virtually the same time 401(k)s gave American workers a huge incentive to save.
Despite so much press to the contrary, Americans are saving and investing more of their money than ever before.
And the enemy doesn’t like it…
Take Senator Ron Wyden’s recent proposal. The Oregon lawmaker wants to radically shake up the investing world.
He thinks investors are getting away with free money. We’re paying taxes only when we sell an asset, he says. If we hold on to a stock for 30 years… we get three decades’ worth of tax-free appreciation.
He and his supporters want to end this “problem.” That’s why Wyden proposed a sort of mark-to-market tax scheme.
The government would examine the value of your assets each year and treat the appreciation like income… taxing it at a rate of up to 37%.
In other words, if that piece of art your grandpa gave you rises in value… get out your wallet.
The rich, the logic goes, are getting richer. And it’s not fair.
We could list all the ways this proposal would destroy the fabric of our economy, but we imagine you’ve already got a running list in your head.
We’ll move on… to another dumb proposal.
She Could Win
This one comes from a popular presidential candidate. We’ll keep it clean by not mentioning her name.
She wants a wealth tax.
Get rich enough, the logic goes, and your money becomes the people’s money.
It’s her way of paying for universal child care, student loan forgiveness and a whole host of other vote-buying freebies that Americans can’t afford… yet America somehow can.
But it’s gaining steam… a lot of it.
“Look at Mark Zuckerberg,” said an economist at the University of California. “Are you going to wait 50 years before you start taxing him through the estate tax?”
Seems like ass-backward logic… considering the 40,000 folks Facebook currently employs and the hundreds of billions of dollars’ worth of economic activity it spurs each year.
Then again… nothing is logical when the government can steal and the people can’t.
Plus, Zuckerberg is just one vote… but there are millions of poor voters in America.
Cash That Expires
But here’s the really troubling issue… the enemy that nobody sees sneaking up on us.
It has to do with a subject we’ve researched and written a lot about – negative interest rates.
Turn on the financial news these days and you can’t miss the idea. Rates are plunging, and they are certain to go below the zero bound.
In much of the world, they already have.
But doing some digging, we see our fiscal keepers have long awaited this wealth-destroying (by its very definition) epoch.
In 2009, for example, The New York Times ran a piece penned by Harvard economist Gregory Mankiw.
It shows how redistributionists have been drooling over this idea for centuries.
Check it out…
Rather than giving your money to a borrower who promises a negative return, it would be better to stick the cash in your mattress. Because holding money promises a return of exactly zero, lenders cannot offer less.
Unless, that is, we figure out a way to make holding money less attractive.
At one of my recent Harvard seminars, a graduate student proposed a clever scheme to do exactly that.
Oh joy… the best monetary policy always comes from the dogmatic world of academia and its debt-burdened students who have yet to have the guts to tread into the real world.
Let’s hear the scheme.
Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to nine out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10%.
That move would free the Fed to cut interest rates below zero. People would be delighted to lend money at negative 3%, since losing 3% is better than losing 10%.
Of course, some people might decide that at those rates, they would rather spend the money – for example, by buying a new car. But because expanding aggregate demand is precisely the goal of the interest rate cut, such an incentive isn’t a flaw – it’s a benefit.
The idea of making money earn a negative return is not entirely new. In the late 19th century, the German economist Silvio Gesell argued for a tax on holding money. He was concerned that during times of financial stress, people hoard money rather than lend it.
It’s exactly what we’ve been talking about.
But The New York Times kept out the good stuff.
It didn’t tell you what Gesell really argued for. It’s insane… and it just may become the crazy new reality.
The creator of his own form of currency… who was later detained for treason… who later escaped to Argentina… believed that money should come with an expiration date.
That way, we can’t save it too long.
Just like that coupon in the drawer for a buck off a loaf of bread… our money would have value for only so long. It would prevent us from hoarding our cash and keep the rich from ever getting that way.
We live in odd times.
The very definition of money is changing.
As it does, we bet you’ll hear Gesell’s name often. The oddball economist was simply ahead of his time.
And that scares us.
Our Liberty is on the line.
Note: Somebody just bought a lot of gold. And I have a feeling it has everything to do with what we outline above… and a huge decision scheduled to come out of Washington on September 18. If you’re at all concerned about your wealth… you need to watch this quick video and learn exactly what to do with your money today.