Posted on 09/04/2008 11:58:19 AM PDT by Secret Agent Man
Our US currency used to be coins of silver and gold. We then began issuing gold and silver certificates, that were less risky (and heavy) than carrying silver and gold around, but they could be redeemed for their value in gold and silver. These certificates or notes, had value that was based in a tangible, physical asset.
Today being off the gold standard for over 30+ years, we have federal reserve notes that do not have value based in anything phyically tangible. They have 'value' because it is now based in the 'confidence' people have in the US dollar. Whatever that 'confidence' comes from. I suppose it depends on what you look at, to see how confident you are in it. I suppose you could base the dollar on how much oil it can purchase (petrodollars), and some may say that we went from gold-backed dollars to petrodollars, but again, it depends on if that is something you factor into your own personal confidence measure.
We have fiat money today. We cannot exchange federal reserve notes for gold or silver. Try it, your bank will laugh at you. There is nothing on the note anyway, anymore, that would even tell you you could exchange it for silver or gold. We basically were used to paper money that was back by rare metals, and we continued to use it even after it was backed by nothing except that government has told us 'it is still valuable'.
Debt keeps a fiat money system going - debt and scarcity of actual currency. We have so much money that exists digitally today because of our fractional reserve banking system, this mechanism allows for unlimited credit creation. (Can you say housing bubble?) This credit creation can basically be wiped out by a following credit contraction.
Depending on how bad the contactions are, may have a great bearing on this 'confidence' people have in this fiat money, to the point where people lose so much confidence in their money that it loses a lot of value very quickly. Another way to say it is hyperinflation. Looking at the past fiat money systems that have come and gone, there is a lot of reason to believe eventually all fiat money systems will end this way.
My question is, that in a fiat system, why the heck are taxes necessary - from a fiscal point of view? "Paying our government debts" one may say. But we are talking about money that is not backed by anything physical, just 'confidence' in 'the dollar'. The government controls the production of government currency, via the banks, which through fractional reserves, can create credit out of nothing.
WHy does the government need us to fund it? They can print themselves out of debt. They don't even have to print it, they can just 'create credit' out of nothing and declare themselves to be debt free. The 'money' isn't backed by anything.
You might also say "to keep the scarcity of actual notes down." Because that is part of a fiat system too - in order to keep people working for them. However, if that were really the case, M3 would not be so huge. They are printing money like water, but since they technically stopped reporting M3 a couple years ago, this was an attempt to obscure just how many physical notes were being printed.
The fact is, taxes are punitive. In the kind of system we are in now, it is about control over the people. With fiat money you can simply print yourself out of debt. You don't need to take other people's money to pay your govt debts. Because what can you get for it? Can you get gold or silver for it?
We are heading for hyperinflation or 'stagflation' (inflation plus stagnant economy) because it is the natural result of a fiat monetary system. The question is what to do about it, and if it cannot be stopped, what to do to ride it out. I would think that purchasing as many tangible commodities that would be valuable to others, would be a good start, if you believe there's no real way to change the money system.
Technically, thanks to Ronald Reagan you can, and that gold and silver is legal tender. The Gold Bullion Act of 1985 authorized the mint to resume producing gold coins as an opportunity for currency competition. The US Gold American Eagles are legal tender at face value. The case of Thompson v. Butler established that the law makes no legal distinction between the values of coin and paper money used as legal tender. The public never really latched on to using these gold coins and they are mostly just produced for investors or collectors. The market really has decided on this and the currency backed by the full faith and credit of the United States is more appealing than The US American Eagle gold coin. Still, you have a choice.
As for the taxation part, you do have a point in that interest imposed by the government is essentially a tax.
They don’t just print money and spend it. Fiat currency is based on debt. It is created by and lent to borrowers by the banks, not by the government. The amount of money each bank is allowed to create is limited by each bank’s reserves. Banks are allowed to count government debt instruments as a part of their reserves. These debt instruments are counted at face value, not at market value - that’s why US bonds never go unsold. All of it hangs on the governments ability to eventually redeem the bonds, which in turn depends on taxes.
Render unto Caesar that which is Caesar’s, or Caesar will put you in prison...................
Money could be printed interest free too, but instead the federal reserve banking system charges the US government interest. The reasoning is that the money supply has to be controlled or you risk run away inflation and we could be printing Billion dollar notes like Zimbabwe. The money supply is manipulated through taxes and interest rates. I suppose that taxes could be eliminated and we not ever worry about the government printing too much money, but I doubt confidence in our money would last very long.
Sorry but the market has never been given that chance. Fluctuations in the value of gold holdings are counted as income for tax purposes. So no, you can't use gold as a currency.
The income tax started before the money became fiat. And taxes never go away once they start.
Currently the income tax serves the government as a means of bribing the taxpayers to engage in favored behaviors. Spend so much on <insert favorite program here>, and you get a tax deduction or even a credit. It's a pretty poor situation when you get bribed with your own money, but there it is.
Of course, the trend is now to move the bulk of the taxation to the payroll tax, otherwise known as FICA and Medicare. That is a pure, regressive, unavoidable tax, unlike withholding, with the added feature that half of it is hidden from most of them as must pay it. Only the self-employed get to see it in all its glory, and they don't count in DC. (Not enough of them.)
Yes, in 1913 I believe (and they only taxed the top few percent of the weathy too, at much less rates than today). But in 1915 it became fiat money again.
I guess we better believe the “In God We Trust” on the money, because when it all boils down to it, that’s the only thing that we may have left after hyperinflation hits and the currency ultimately fails.
Only if the gold is sold for a profit; if it's not sold then there's no income to be taxed, and if it's sold at a loss then the total taxable income is less.
"...you can't use gold as a currency."
Sure we can. I can go into any store and offer a gold swap for merchandise any time I want. I can find a job that pays in gold. The reason I don't is the same reason most people don't; relative to most other goods and services the cost of gold changes too much, and besides that it's just too much bother. So you can go ahead and use gold if you want and the rest of us will stick to dollars.
That is incorrect. M3 is the largest measure of total liquidity, it includes cash and cash equivelents held in deposit accounts, M2 add short term obligations (basically CD's with < 30 day maturity>. M3 adds longer term capital (1 Year CD, for instance). All of these are WAY MORE THAN THE AMMOUNT OF CURRENCY IN CIRCULATION. The answer to your question, "why can't... " is that it will result in massive inflation. But in fact we pretty much ARE doing just what you suggest, at least in part. That's what a $500 billion deficit is. Printing money to cover the costs of government. The problem, as you point out, eventually the value of the fiat currency goes to ZERO. We're on the road there.
I SUPPOSE THE REALIST ANSWER IS THAT THE MODERN AMERICAN IS A “WAGE SLAVE”. That’s why many “working class” I know work two, three jobs. Get rid of the FED and return to a solid dollar and you bring freedom economically (and prosperity)-at least the foundation back to a people.
I hate “national bankers (traitors)”. A good place to start would be the documentary “The Money Masters (DVD)”
The market really has decided on this and the currency backed by the full faith and credit of the United States is more appealing than The US American Eagle gold coin. Still, you have a choice
The face value of a 1oz Gold Eagle is $20. Currently they cost about $800. That's not really a practical medium of exchange at face value, given that huge disparity.
I believe there was one fellow in Southern California who paid his staff in gold coins and declared only the face value of the coins as income for the. (So you paid someone $100 a month on the books, but paid them in coins worth $4000. He didn't do well in his encounter with the IRS, however he does now have rent-free housing!)
Inflation is a tax on wealth (money in the bank.)
But it fails to grab a share of the labors of those who spend their income, and accumulate no wealth. That’s what the income tax does.
1. We are not heading for inflation or even stagflation, we are heading directly to a deflationary collapse. Hint - what happens after demand destruction ?
Leading current indicators - all assets(real estate, cars, boats, other toys), gold, oil, all other commodities - all down and heading lower
Money supply - way down due to the implosion of the shadow banking system, foreclosures, and other loan defaults. Credit market pretty well seized up, HELOCS and corporate LOC being cut off every day by banks. Easy money nowhere around. Bankruptcies well on the rise for both personal and corporate entities. Earnings well down, margins squeezed, wages steady or down, unemployment up.
2. The other answer to your question is that the .gov isn’t content with the 3% a year from average inflation to bail out their debts, they need to suck up lots more to feel the power.
I don’t think I believe that. Everytime someone pays for something, they are paying a cost that has inflation behind it.
For example, the guy who never accumulates wealth, pays when he buys a stamp now at $.42 cents, when 50 years ago a 1st class stamp was $.03 cents. The cost he pays now is an inflationary cost, the buying power of his dollar today is nothing like it was 40-50 years ago.
Unless I am misunderstanding your point, inflationary prices nail everyone who needs to buy something. I would say income tax is a punitive tax that punishes people for earning a living. It cuts your rate of savings by taking a slice of it.
try reading this
http://home.hiwaay.net/~becraft/RUMLTAXES.html
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.