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Bad News For The Fed and IRS
This month, Utah became the first state in the country to legalize gold and silver coins as currency.
So what does this mean to you, me, the Fed, IRS, and the world? To understand the significance of Utah’s actions, you need to understand the definition of the word “currency.”
As strange as it may seem, governments determine what they think money is. For most of us, money or currency is the paper in our wallets. It only has value because governments have the power to declare paper to be money.
In 1933, President Franklin Roosevelt made owning gold illegal. The president declared that money now was paper. The key to this scheme working, is the government only accepts its own “paper” as money. You cannot pay your taxes with gold or silver…only official government paper.
To make sure we only used “paper” the government imposed a very high capital gains tax of 28% on gold and silver. That means, if you bought gold or silver for let’s say $10 and it increased in value by $10, the government would tax you $2.80 for your gains, even if you held the gold or silver for several years.
A 28% tax is nearly 100% higher than long-term capital gains tax of 15% in the US. For example, if I bought a stock for $10, held it for a year, and sold it for $20, my tax would be $1.50 on my gains.
One reason why I like real estate, better than paper assets or gold and silver, is I can be taxed 0% on my gains. In fact, if I use the tax laws correctly, I receive money back from the government. In other words, rather than be taxed for $10 gains, I often receive additional money, a payment from the government rewarding me for making money. For example, not only do I receive my $10 gain, I receive an additional $2 from the government for doing what the government wants me to do.
Please read my latest book Unfair Advantage – The Power of Financial Education to better understand how entrepreneurs and real estate investors use the tax law to receive payments from the government. In this book, my tax accountant and Rich Dad Advisor, Tom Wheelwright does a better job of explaining this tax strategy.
He explains that real estate is one of the few investments where not only can you legally escape tax on your gains and your cash flow (rents), you can actually receive tax deductions against your other taxable income. So if you have $10 of cash flow from your rental property, the IRS actually gives you a special deduction, called depreciation, that could produce a tax benefit of $2 or more so your total cash flow is $12.
Summarizing the trade, the gold and silver investors pay $2.80 in tax for a $10 gain, netting $7.20. Long-term stock investors pay $1.50, 15% in tax for a $10 gain netting $8.50. And real estate investors might pay $0 for a $10 gain. Then they may receive a $2.00 bonus from the government for doing what the government wants done, netting $12 for a $10 gain. This is why I love the business of real estate.
Oil has similar returns as real estate, but not as good as real estate. When I invest in oil, I receive a 28% tax break from day one. That means, I pay 28% less in taxes. Lets say I invest $10,000 in an oil well. If my tax bill for the year is $10,000, I receive a $2,800 tax break and pay only $7,200 because I invested in oil. When the oil comes in and I start to sell and earn $100 income, the government allows me to pay tax on only $85.00, a 15% tax break, of the $100 income. In other words, they discount my income, before taxing it.
You can see that I receive two tax breaks. I receive one tax break for investing in oil production and I receive a tax break when we get paid for our production.
Workers in the E and S quadrant are taxed on 100% of their income. No discounts. This is why lesson #1 in Rich Dad Poor Dad is “The Rich Don’t Work For Money.” The rich do not invest in 401ks filled with mutual funds either. Why? No tax breaks…but that is another story.
BACK TO GOLD AND SILVER
The reason Utah’s actions are significant is because Utah is taking on the Federal Reserve Bank, IRS, and Washington, D.C.
The Utah state government is bypassing the Fed and the Treasury by accepting gold and silver as money, for example, allowing taxpayers to pay their taxes in gold and silver.
Let me explain further. Let’s say I bought gold in the year 2000 for $300 an ounce. In 2011, with gold at $1500 an ounce, if gold is now treated as money instead of being treated as an investment, I do not have to pay that 28% capital gains tax to the US Treasury.
In this example, of $300 per ounce to $1500 per ounce, a gain of $1200, I do not need to pay 28% of $1200, or $336 per ounce, in taxes to the US Treasury. On 1000 ounces, using the same buy and sell numbers, that is a savings of $336,000 in taxes, or $336,000 staying in my pocket for me to use. Thank you Utah. Tom Wheelwright adds that the change by Utah does not mean that gold will now be treated as money by the Federal government. It should mean that Utah will not tax it when used as money. It will be years before the courts decide whether this change means a change in how gold and silver are taxed.
Not only does this challenge the Fed, IRS, and the US government, it makes gold and silver more valuable. Using gold and silver as money, rather than a taxable investment like stocks, bonds, and real estate, makes gold and silver more desirable, at least in Utah.
One reason there is such a high tax, 28% on gold and silver is simply because the Fed and the tax department do not want us to hold gold and silver. By holding gold and silver, we pull their phony dollars out circulation and mock their corrupt system of counterfeit money.
Utah is truly a story of David taking on Goliath. Minnesota followed Utah later this month, taking a step closer to make gold and silver legal money. North Carolina, Idaho, and at least nine other states have similar bills being drafted. A Republican lawmaker has introduced a bill in Congress to explore the option for the entire US.
If the 28% tax on gold and silver is repealed, you may see a massive rush to own more gold and silver. Repealing the 28% tax is like a 28% increase in value. More importantly, it means 28% more money for those who have been following COR.
In many ways, history is only repeating itself. After all, gold and silver, especially silver, has been real money for thousands of years.
Thank you for supporting COR.
Robert Kiyosaki
PS: I thank the people and state of Utah for taking the first step to dismantle the conspiracy of the rich. This is big.
Original Source – Conspiracy of the Rich
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If I were to borrow money from a bank to invest in a property, I would incur a debt. Is this debt considered to be a good debt or bad debt? Well that really depends on who is paying off the debt. Based on the Rich Dad’s series by Robert Kiyosaki, a good debt is a debt where someone else is paying off for me while a bad debt is a debt where I need to pay off myself.
For example, if I were to rent out my property to someone, then I would be collecting rental income. This collected rental income could be used to pay off my mortgage loan. In this sense, I was the one who had borrowed the money but my tenant would be the one paying off my debt. However, if I had failed to rent out my property to anyone, then I would not be having any rental income. In other words, I would need to pay off the mortgage loan myself. Then this mortgage loan would be considered to be a bad debt.
If my property were rented out, then the debt would be a good debt. If my property failed to rent out, then the debt would be a bad debt. Depending on whether I had any tenant, my debt could be switching to and from bad debt to good debt in a given period of time. Thus, a good debt may not stay as a good debt indefinitely while a bad debt may not stay as a bad debt forever.
With this new understanding, there are two things that I can do to strengthen and protect my financial position.
Firstly, I can identify all my bad debts and try to convert them into good debts. For example, if I were to own a car but I rarely used it. I could rent it out to earn rental income. This rental income would be used for covering my car loan. In this way, I had converted a bad debt to a good debt.
If I failed to find someone to rent my car, I would try to settle my bad debt as soon as possible. Using the previous example, my car loan is a bad debt because every month I would need to service the loan repayment. Since I rarely used the car, then it may make sense for me to sell it off and pay off my bad debt.
Secondly, I need to do proper financial planning for all my good debts since there is a danger of a good debt becoming bad debt at any point of time. Based on what is learned from the Rich Dad’s series by Robert Kiyosaki, it is important to get into good debts to accumulate wealth. But how many or how much good debt should I be taking on?
For example, if I were to borrow from a bank to invest in a property, I would incur a debt. Since my property was rental out and the monthly rental income was more than the monthly mortgage loan repayment, then my debt was essentially a good debt.
Assuming I bought a property valued at $200K and I had loaned at 80% of the valuation price, then my good debt would be $160K. Now there were two possible scenarios that could change my good debt into bad debt.
The first scenario is that my tenant did not continue to lease my property and thus there were no more rental income. Without anymore rental incomes, then my debt would become bad debt. And suddenly, I would need to service my mortgage loan all by myself.
As a precaution based on my financial education, it is necessary for me to set aside 3 to 6 months of expenditure including mortgage loan repayment. If such a scenario were to happen, I would be able survive for at least 3 to 6 months. This period should be long enough for me to find new tenant or sell off my property.
The second scenario is that the valuation price of my property drop to $100K. Assuming that the bank only allowed me to borrow at a maximum limit of 80% of the valuation price, then I could only borrow $80k. Thus, the bank would have to force me to top up the difference of $80k. If I had failed to do so, then it would be considered to be a default on mortgage loan. The bank would have the right to sell off my property to reclaim the loss.
If I had more than one property, then I would be a much worst financial situation when the second scenario occurred. This is where financial education can plays an important part as highlighted by the Rich Dad Series by Robert Kiyosaki. With my financial education, I could determine how many and how much debts that I could take on without running into the risk of becoming bankrupt if the situation were to turn against me. That is I would not be overstretching myself with too many good debts. I would borrow within a reasonably safe limit.
Kim & Robert Kiyosaki – How We Got Out of Bad Debt!
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One of the most dangerous lies in all of finance and economics is the implied myth that inflation somehow “destroys” wealth. It doesn’t. Inflation doesn’t hurt everyone equally — inflation helps some and hurts others.
Inflation is actually one of the biggest reasons large corporations are so powerful in society. The government and big banks use inflation to force people to spend their money and go into as much debt as they can afford.
But how does it all work? Before we answer that, let’s first look at a parable. Some things are best learned in a story format, and inflation is one of those.
The Saver and the Slave: An Inflation Story
There were once two men who were neighbors. Their names were “Jack” and “John”.
Jack was a saver. He spent his entire life saving every penny he could get his hands on. He saved money with coupons, saved money by buying stuff only in off-seasons, saved money by spending as little as he could, etc. He was a saver. By the time he was 45, he had saved exactly $100,000.
John was a spender. He spent every dime he ever earned. Back in his 20s, he even took out a $100,000 loan, and bought two houses with it. He never used coupons, never looked at prices before buying anything, and wore nicer clothes.
During this time, inflation started to hit in. Inflation was fairly high. By the time Jack and John were 45, inflation destroyed 90% of the value of the US dollar.
For Jack, this was disastrous. He spent his whole life saving $100,000, and suddenly it was worth only 10% of what it should have been worth. This means that rather than having 100k it was as though he only had 10k. Not enough to even buy a house.
For John, this was perfect. He spent his whole life spending his money, so he didn’t see his money lose value. He took out a 100k loan, but his loan was only like he had a 10k loan now — and he still has two houses. John ended up selling one house, paying off the loan, and walking away with a free house, and 90k.
Inflation Destroys Debt and Dollars
Inflation doesn’t destroy wealth — inflation destroys dollars. This means if you’re in debt, inflation makes your debt less and less. If inflation is 10%, it’s like your debt is getting 10% smaller every year. If you’re a saver, inflation makes your savings 10% smaller every year.
Every year people in debt see their net worth increase because of inflation.
Every year people who are savers see their net worth decrease because of inflation.
Inflation doesn’t hurt everyone equally — it just hurts people with cash, and forces them to spend their money and get into debt. Inflation essentially forces people to become slaves to banks and to not have money.
In an inflationary society, people who are willing to go into debt to buy houses, businesses and such are at a huge, huge advantage over people who just save their money. Savers are penalized. Spenders are rewarded.
What This Really Means
Because inflation makes debt more attractive, an economy with inflation will see a much higher level of debt than societies with less inflation. This leads to the economy becoming much less secure, and sets us up for financial catastrophe.
Inflation is one of the reasons so many people purchase houses and property even before they have the money — inflation makes cash less profitable or secure.
There’s a reason the government and large banks support creating inflation. It pushes individuals into debt. It makes consumers slaves to creditors. It transfers wealth from savers to people in debt. It stops frugal people from being able to make ends meet unless they have large incomes.
This all means several things:
a) Investing makes more sense. Savings accounts don’t pay interest that’s higher than inflation. This means that most people will use the stock market to build up wealth over time — they have to take part in the financial system. Plenty will get fleeced in the system. Big financial institutions make more money this way.
b) Debt makes more sense. This should be obvious. You’re using inflation to essentially get free money. Most debt comes from banks, meaning you’ll be a voluntary debt slave to a bank because it’s profitable to become one. You’re shackled to the system.
c) An independent retirement is difficult. Being able to save your own money for retirement is much, much more difficult with inflation. If it wasn’t for inflation, social security would be much less likely to exist. This means inflation makes the people more dependent on the government. The establishment loves this.
If you save $1,000,000 for retirement over the course of 50 years, and inflation is 4.07%… you actually only save $136,000 in today’s money, which probably won’t be enough to own a nice house.
Does this mean you shouldn’t save? Does this mean you should go into debt? Not quite. I’ll be writing what you should do in the future… hint: gold is a great inflation hedge.
Right now, inflation is skyrocketing. Gold is exploding. Silver is exploding. The dollar is dying. This is all happening in a way that is destroying savers, rewarding debt, and creating an economy that is based on debt and insecurity.
Shaun Connell is the the founder and editor of Stand Strong Research. He’s an entrepreneur and investor living in rural America. He’s also a firm believer in income investing, inflation hedging, and debt-free living.
Related articles
- Millions of savers have no choice but to lose money (independent.co.uk)
- Through the Looking Glass economics (theglobeandmail.com)
- Why bother saving? (telegraph.co.uk)
- QE2 and Its Effects (economicnoise.com)
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Conspiracy of the Rich is a new book in development by Robert Kiyosaki, the bestselling author of Rich Dad Poor Dad, that has traditionally bucked convention and undoubtedly will yet again with this new work in progress. In this book he challenges conventional wisdom about finance, and teaches readers how to adapt to money’s new rules in today’s economic turmoil.
Rich Dad’s Conspiracy of the Rich: The 8 New Rules of Money
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