How You Invest Your Savings
Requires New Thinking
Craig R. Smith
A SWISS AMERICA WHITE PAPER
Investing today is riskier than ever before, and protecting our savings now requires savvy investors to take this new danger into account.
Some once-prudent investment strategies have become high-risk gambles, and those who unwisely still use them may see their capital suffer.
This White Paper shows you how to survive, thrive, and prosper in today's Brave New America.
The old America was a land of free market capitalism. Business and the state were largely separate.
Both of our two dominant political parties were practical, centrist, and pro-capitalist.
People could invest their money with confidence that, whichever side won the next election, little would change in government's limited taxation and regulation of businesses. The political future was predictable and optimistic for investors.
Because we had economic liberty, people were free to pursue their dreams and new ideas. This produced an America more prosperous, enterprising, and innovative than any other nation in history.
But 19 years into the 21st Century, economic data reveal a foreboding, transforming landscape.
Mark J. Perry, Economics Professor at the University of Michigan-Flint, offers us a glimpse of it in what has been called "The Chart of the Century" (right) that shows "Why socialism (And/Or Big Government) Sucks."
This chart illustrates how prices of selected U.S. consumer goods and services have changed over 20 years.
At the top of the chart, we see that the cost of hospital services has grown by roughly 225%, college tuition by almost 200%, and medical care services by more than 100%. Costs are inflating much faster than wages.
At the bottom half of the chart, we find that costs have stayed almost the same for new cars and fallen by nearly 50% or more for cellphone service, computer software, and television sets. These goods and services take an ever-smaller share of average worker wages.
This difference, explains Dr. Perry, is that the good and services with wildly inflated costs are in sectors of our economy heavily influenced or subsidized by the government. The goods that have fallen dramatically in cost but have increased in quality come from the free market, competitive sector of our economy where little government interference happens.
To make matters worse, the bi-partisan consensus to support economic freedom and keep government small is vanishing before our eyes. A February 2019 Harvard-Harris poll found that 64% of registered voters believe the Democratic Party now supports socialism, not capitalism. And, according to its liberal pollster Mark Penn, 57% of Democrats themselves "agree that their party is now socialist."
Socialism is a system in which government, not private individuals or corporations, "own" society's means of production. Socialist ownership can be achieved through direct expropriation (stealing) of private enterprise and private property.
A more sophisticated socialist government can impose de facto ownership via regulation, letting a private company keep a piece of paper naming it as "owner" (and thus obliging it to pay property tax) but controlling virtually every detail of how its business will be run. This form of Progressive socialist collectivism is called fascism.
For more than a century, government has been getting bigger and more intrusive. Early on, the liberal politicians who favored this believed such policies might help people; and by using growing government largesse to buy votes, Big Government would increase their political power. But they also understood that the taxes that made government rich had come from capitalist productivity. They took care to respect capitalism so as not to kill the free enterprise goose that laid the golden eggs they were spending.
These pro-business liberals believed in a permanent political compromise that would end forever the historic class struggle between capitalists and socialists. Companies would pay enough tax to fund a welfare state but would otherwise be free to earn capitalist profits. This was the theme of political philosopher Francis Fukuyama's 1992 book The End of History and the Last Man. But this "permanent compromise" between capitalism and the left is now unraveling.
"The natural progress of things," warned Thomas Jefferson in 1788, "is for the government to gain ground and for liberty to yield." Nobel laureate economist Milton Friedman concurred in a 1975 interview, saying that collectivism "is the natural way in which man has moved throughout history."
"Tyranny, misery and dictatorship" have been humankind's norm, said Friedman, because "the maintenance of a free society is a very difficult and complicated thing. And it requires a self-denying ordinance of the most extreme kind." Surrendering and becoming dependent on a dictatorial socialist government is easy. Working to remain free, independent, enterprising, and self-reliant is hard.
This is why liberalism in the Democratic Party is now being replaced by socialism, a utopian ideology that promises its radicalized followers a heaven on Earth, a new Eden. Its new God will be government. Its new priesthood will be commissars, scientists, and philosopher kings; an authoritarian elite smarter than the rest of us.
In place of individual freedom, socialism imposes radical egalitarianism that hates the rich and capitalism; and demands the end of both. The bigger the government, the smaller its people become; a paternalistic state creates dependent, permanently-infantilized citizens.
"Socialism works well"¦until it runs out of other people's money," the former British Prime Minister Margaret Thatcher reportedly said. She understood that capitalism is an efficient system of economic production, but that socialism is only a system of wealth redistribution. Socialist governments are notoriously incompetent at making anything, so they use their power to confiscate and redistribute the wealth created by capitalists.
The socialists who are taking over the Democratic Party are too busy planning to spend money to count the cost of their programs. Cost does not matter, says new New York Congresswoman and self-described socialist Alexandria Ocasio-Cortez. She believes in Modern Monetary Theory (MMT), which we devoted a chapter to explaining in our 2012 book The Great Debasement: The 100-Year Dying of the Dollar and How to Get America's Money Back. According to MMT, debt is meaningless because all money always belongs to the government, which can print infinitely more money as needed to cover any debt. Even most leftist economists think MMT is wrongheaded, even insane.
Rep. Ocasio-Cortez has proposed her "Green New Deal," a classical, socialist utopian spending scheme camouflaged in shiny environmental green paint. According to former head of the Congressional Budget Office Douglas Holtz-Eakin, her ill-conceived plan would cost up to $93 Trillion in its first 10 years. This is not only more than the annual Gross Domestic Product of the United States, but also more than the GDP of our entire planet. Launching it might drain every penny of capital from the private capitalist sector of the U.S. economy. Karl Marx never did adequately explain what socialists will do when the capitalists have all been expunged and the wealth their work created is used up.
With presidential ambitions swept up in the socialist takeover of her party is Massachusetts Senator Elizabeth Warren. She is co-sponsor of Ocasio-Cortez's Green New Deal and its accompanying plan to raise income taxes on the rich to 70 percent or more.
But Senator Warren also favors an additional wealth tax on the total assets of rich individuals. Sweden briefly tried such a wealth tax and celebrated that it brought the government another $600 Million in revenue; the socialist cheering stopped, however, when they discovered that the rich had moved $200 Billion of their wealth and investments out of Sweden. Apparently Senator Warren does not realize that money is mobile - it can and will move.
Warren justifies confiscating capitalist wealth with a statement she taught to Barack Obama - "You didn't build that!" She believes that capitalist wealth exists because government built a road near the rich owner's factory and therefore is entitled to a large share of capitalism's profits.
Senator Warren has also offered legislation to require every major American corporation to get a federal government charter. These companies would then be required to serve not only their stockholders but also their "stakeholders" - community radical environmentalists, racial justice advocates, and the like. Politicians such as Warren would then decide, based on vague, capricious standards, whether each company had given enough billions of dollars and benefits each year to potentially hundreds of shakedown activist groups to deserve their corporate charters. This would allow leftist Washington politicians to control and de facto expropriate all of America's biggest companies and on a whim, shut them down without paying these businesses a penny.
As America's wealth is transferred from the productive free market to an anti-productive, ever-bigger government, investors must rethink how and where to put their savings. Consider just a few of the changes affecting traditional investments:
(1) Stocks & Bonds. The assets of major corporations will be prime targets for Big Government politicians, who will find ways to tax and expropriate them via regulation. The more successful a company becomes, the larger the political bull's-eye on its assets.
And the greed of socialist politicians will be limitless. Since 2009, for example, American politicians have not only heavily taxed banks, but also used regulations to fine them an additional $243 Billion; nearly a quarter of a trillion dollars.
"The more laws a nation has, the more corrupt it is," warned the ancient Roman historian Tacitus, who witnessed how each new law and regulation gave government new ways to extort and shake down those earning money. Under socialism, our laws and regulations will increase dramatically and give government power over every aspect of our lives.
As economist Mark Perry observes, under today's complex and capricious laws regulating business: "If your company's prices are too high, government bureaucrats will come after you and charge you with price-gouging. If your company's prices are too low, government bureaucrats will"¦charge you with predatory pricing or selling products below cost. If your company's prices are too close to the same as your competitors' prices, government bureaucrats will"¦charge you with price-fixing and collusion". Whatever a business does, government bureaucrats and lawyers can arbitrarily concoct these or a thousand other reasons to fine and sue it. And fighting such legal actions against taxpayer-funded attorneys would destroy the profits of most companies.
As our government grows more anti-capitalist, a company's success or failure may be determined not by how well it makes and prices products, but by whether government regulators target it. And that may be decided by politics. As one Democratic national fundraiser threatened a group of business owners years ago: "You had better take a big interest in contributing to the Democratic Party, or we, I promise you, could take a big interest in your companies."
A company's stocks and bonds will increasingly gain or lose value based not on its products but on partisan politics. Is the company whose stock you might buy a crony of the Big Government party? These are the companies most likely to make money, especially as government drains and hobbles businesses and spends a growing share of America's money.
When President Barack Obama spent $90 Billion on environmental companies such as Solyndra, investigative reporters discovered that at least 80% of the companies chosen to receive huge taxpayer subsidies were large contributors to the Democratic Party.
The State of California, on the other hand, reportedly ideologically refuses to do business with any company involved in constructing President Donald Trump's border wall or with the National Rifle Association. The State of New York has threatened to deny lucrative business (and hinted at regulatory harassment) against any credit card company that does not find a way to block firearm or ammunition purchases with its credit cards.
(2) Staying in Cash. Cash was king in an earlier era when dollars were backed by gold and silver; the money that people saved back then could, by deflation, actually increase in purchasing power. But nowadays the government finances itself by printing roughly a trillion dollars each year more than is justified by economic growth.
The Federal Reserve, which was purportedly created to preserve the value of the dollar, now aims deliberately to create at least 2% inflation each year; this causes the dollars you save to lose more than 20% of their purchasing power every decade"¦and 80% of their value between the start of an average person's working life and retirement. Keeping your savings in cash is like buying a carton of milk when you know the carton has a hole in the bottom through which milk is constantly leaking away.
As documented in our White Paper The Secret War, government is banishing cash and replacing it with credit. This will make every transaction in your life trackable and taxable. The socialist goal of a "cashless" society will end your economic privacy, and will give government the power to regulate what you can and cannot buy.
If you carry significant amounts of cash, the local, state, and Federal governments may simply confiscate your money via asset forfeiture laws any time you are unable to prove that the money is legally yours. The government now requires your bank to spy on you, and to report any "unusual" withdrawal or deposit you make, especially in cash.
Rep. Ocasio-Cortez is right to say that government can conjure all the paper money it wishes from its printing presses. But politicians cannot repeal the natural Law of Supply and Demand. Every dollar they print beyond what value our economy produces has the effect of debasing the dollars you earn, save, and invest.
Whenever you invest in things denominated in dollars, the government can devastate your investment merely by printing trillions more dollars out of thin air. And the new socialist lawmakers in Washington, D.C. already boast of having infinite plans to print and spend paper dollars to create their collectivist utopia.
(3) Real Estate. In the past, real estate was one of the surest ways for an investor to build wealth. As the saying went: God is not making any more land. But real estate, unless rented, does not pay interest or dividends.
To the contrary, you must pay property tax - in effect, rent - to the government to stop it from confiscating "your" land. And as fewer and fewer people are able to afford their own home, property taxes will keep increasing. After all, land is one form of wealth you cannot put in a suitcase and take with you if you decide to escape a high-tax environment. Real estate is a hostage to the tax collector.
In recent years, the courts have greatly expanded government's power of "eminent domain," which was originally intended to let government buy land for public purposes such as building a new road or courthouse. Now governments can confiscate land for whatever they deem a public purpose, which can mean transferring your property to another private owner who is a crony of local politicians, or who would build condos on it that pay higher property tax than you do.
Recently the socialist Mayor of New York City, Bill de Blasio, has asserted his power to confiscate buildings from landlord owners who do not go along with government giveaways to tenants. Under socialism, property is a prime political target for increased taxation and confiscation. Chicago is developing a "Progressive" tax on home sales that gets heavier depending on the value of the home and/or the wealth of the home seller.
As governments become more socialist across the nation, real estate is becoming a costlier, riskier investment than ever before. As Karl Marx said, the very definition of communism is "the abolition of all private property."
(4) Diamonds. These glittering gems may appear to be the perfect example of portable wealth allowing people to carry their life savings in their pocket.
The value of diamonds, however, has for most of a century depended on the monopoly over these gems maintained and marketed by DeBeers. If this company's stockpiles were dumped on the world market, the price of diamonds would plummet.
China reportedly has perfected the manufacture of synthetic diamonds with inclusions and fluorescence difficult to distinguish from natural ones. China might flood the world with high-quality, seemingly-natural gems; a supply that would drive global diamond prices down steeply but shift a large share of profits to China.
Those who sank their life savings into these jewels could soon be painfully reminded that the hard crystal we call diamond is really just carbon; a charcoal briquette that has been put under tremendous pressure.
(5) Gold. This precious, incorruptible metal element has been global money for 5,000 years or more, and even now it is bought by nations and central banks to give credibility to their own paper reserves.
Gold retains its natural purity, luster, and purchasing power millennium after millennium, regardless of changing politics. In addition, physical gold has been the single best performing asset class in the 21st century. Gold prices have risen from $300/oz. to $1,300/oz. - a 375% increase - since 2001.
This explains why a century ago J.P. Morgan said, "Gold is money. Everything else is credit." Gold owners maintain a long-term perspective of the unchanging value of gold in a rapidly changing world of paper currencies. Gold is the ultimate store of value which also serves as the world's most trustworthy medium of exchange.
No other investment can claim such reliability, which is why the Framers of America's Constitution specified precious metal as our money. No matter what the changing ideology of the government may be, for investors and savers gold holds its value. This is the kind of dependable value we need to restore to America.
Is it possible for a healthy nation, pioneered and led by free market capitalists, to co-exist with a strong push toward economic socialism? Will previously prudent, capitalist investment strategies now become high-risk socialist gambles?
The answers to these questions may well be decided between now and November 2020 as our nation engages in a serious debate over the merits of capitalism vs. socialism. The truth is, America has already traveled nearly halfway down the road toward becoming socialist.
As economist, Bill Bonner reminds us, "America's medical system - 17% of the economy - is largely socialized. So is the education system - another 7.3%. And its national pension system"¦ Social Security"¦ is run by the feds and takes up about 5% of GDP. If you add in all the industries and activities that are required by the feds, or heavily controlled by them"¦ the total comes to about half the GDP."
No wonder wise Americans are hedging their future by changing their investment diversification strategy. My recommendation: follow the leaders.
Big money has turned to the safety of gold. Billionaires who have been buying gold in recent years include; Ray Dalio, founder of Bridgewater Associates; 'bond king' Jeffrey Gundlach, CEO of Doubleline; David Einhorn, founder of Greenlight Capital and most recently real estate mogul Sam Zell, founder of Equity Group Investments.
What do these wise investors see coming next? Most likely they have learned just how valuable gold becomes during seasons of sudden economic and political change.
History reminds us that at least one major economic slowdown or recession strikes our nation every decade over the last century. With each uptick in the national debt, the U.S. economy (and the world) are increasingly operating on borrowed time and borrowed money.
Gold alone has an untarnished track record of protecting portfolios during major economic downturns - in both the free world and in socialist nations. Protect your wealth with gold, which has a rich history of helping citizens survive, thrive, and prosper during political upheavals like we are facing today.