Power & Market
Moral Blindness on U.S. Aggression and Torture
As I was reading an editorial in the Washington Post yesterday condemning Russia for its war of aggression in Ukraine and the torture of Ukrainians, I just kept asking myself: Why isn’t the Post condemning the U.S. government for the same thing? And yet, not one single mention of what the U.S. government did to the people of both Afghanistan and Iraq.
Why? Why not use the opportunity to show the world that U.S. officials deserve to be punished for what they did to the people of Afghanistan and Iraq just as much as Russian officials deserve to be punished for what they are doing in Ukraine?
Let’s begin with Iraq, a nation that never attacked the United States or even threatened to do so. The U.S. war on that nation was a pure, unadulterated “war of aggression,” the type of war condemned by the Nuremberg War Crimes Tribunal.
The Post clearly understands the concept of a “war of aggression” because it describes Russia’s invasion of Ukraine as “an unjustified war of aggression.” Given such, why didn’t the Post use its editorial to condemn both regimes — the U.S. regime and the Russian regime — rather than focus only on the Russian regime?
One of the fiercest battles in the U.S. war of aggression against Iraq occurred in the city of Fallujah. When that battle was going on, the mainstream media was referring to U.S. troops as the “good guys” and to the Iraqi defenders as the “bad guys.” I kept thinking: But those “bad guys” are just defending their country from illegal invaders. Why are they “bad guys” for doing that? The Ukrainian soldiers are not considered “bad guys” for defending their country, are they? Is it because U.S. forces are automatically and always to be considered “good guys,” even whey they are waging a war of aggression against another country?
Afghanistan was labeled a “good war” because Osama bin Laden, who was accused of orchestrating the 9/11 attacks, was living there. U.S. officials claimed that that fact removed that particular invasion from the realm of a “war of aggression.”
Not so! The reason that President Bush ordered his army to invade Afghanistan is that Afghanistan had refused to accede to his extradition demand for bin Laden. Bush called such refusal “harboring” terrorists. But Afghanistan had the legal right to refuse to accede to Bush’s extradition demand, given that there was no extradition treaty between the United States and Afghanistan. Moreover, there was never any evidence that the Afghanistan government was complicit in the 9/11 attacks. Thus, the U.S. war on Afghanistan was a pure, unadulterated war of aggression. just as the U.S. war on Iraq was.
Sometime after the launching of those two wars of aggression, rumors began circulating that U.S. forces were torturing people. Here at The Future of Freedom Foundation, we immediately began calling for investigations and condemning all acts of torture.
We were inundated with vicious attacks from U.S. interventionists who fervently denied that U.S. forces would ever engage in torture and fiercely criticizing us for even suggesting the possibility that they would do so.
And then the proof began surfacing, such as the vicious torture at Abu Ghraib, Gitmo, secret CIA prison camps, and elsewhere.
What did our critics say then? No, they didn’t apologize. Instead, they maintained that the torture was no big deal. Some of them even defended the torture, which to me was very bizarre, given that the people who were being tortured were the victims of U.S. wars of aggression.
I recall reading about one Iraqi man who kept exclaiming during his torture session, “Sir, why are you doing this to me?” I found it fascinating that he would refer to his torturer as “Sir,” and I concluded that it was because he had a high respect for Americans. I could easily see why he couldn’t understand why Americans were torturing him, given that he and his nation had never done anything against the United States. In fact, Iraq’s dictator, Saddam Hussein, had even been a partner and ally of the United States during the 1980s. Americans often tend to forget that but certainly the Iraqi people had not forgotten it.
At one point, it was discovered that the U.S. national-security establishment was videotaping its torture sessions. My immediate reaction was: Why would they do that? For fun viewing later on? For future torture training sessions? When it was discovered that the torture tapes had been destroyed to prevent Congress from viewing them, I was not surprised that no one was prosecuted for intentionally destroying evidence of a crime. By this time, I had come to the realization that the higher-ups in the U.S. national-security state form of governmental structure are immune from criminal liability.
One of the points I kept making about all all this mayhem is that wars of aggression and torture are what communist and other totalitarian regimes do and that America should not be doing what they do. Supporters of these two U.S. wars of aggression and the torture that came with them had a difficult time seeing my point.
And that’s the real value of the Washington Post’s editorial yesterday condemning Russia for its war of aggression and the torture of prisoners and detainees. It’s always easy to pull the speck out of someone else’s eye. It’s not so easy to pull the plank out of one’s own eye. Even though the Post’s editorial fails to mention the U.S. government, one can easily apply the principles enunciated in the editorial to the U.S. wars of aggression against Afghanistan and Iraq and to the U.S. torture of people from those two countries.
Reprinted with permission from The Future of Freedom Foundation.
Medicare in a Pickle, But Pickleball Will Not Put it Under
That annoying clicking sound you hear from your nearby pickleball courts is not just the paddles hitting the plastic balls. It’s twisting knees and cracking hips. A report from UBS, reported in the Financial Times, estimates medical costs of $250 million to $500 million “directly attributable to pickleball and see potential for greater medical costs indirectly linked to pickleball.”
UBS believes 85% of this cost accrues to Medicare. UnitedHealth’s CFO, speaking at a Goldman Sachs conference, said outpatient care to Medicare patients is increasing. Procedures such as work on hips, knees, and cardio.
The CFO pointed out “We have insight into other areas, for example, our ambulatory surgery practices that we own and operate, [we’re] seeing very strong volumes . . . So that has continued to be quite strong actually in terms of the care — at the levels of care activity that seniors are getting.”
UBS continued, “... we estimate that pickleball contributes 3-6 bps [basis points] of annual Medicare medical costs. By care setting, we see about 6 bps of medical costs in the outpatient setting and 2 bps of medical costs in the inpatient setting. While this may seem trivial, it’s plausible that pickleball medical costs are driving 5-10 percent of the unexpected medical cost trend this year.”
Pickleball is no longer just an elitist sport. But, according to Axios, it’s popular in the Hamptons and “all the rage in Hollywood.”
Craig Coyne writes in Vanity Fair, "Leonardo DiCaprio plays every day ... George Clooney says his wife, Amal, routinely torches him on their home court in L.A. ... 'Survivor' winner Tyson Apostol has parlayed his reality-TV fame into a career as a pickleball influencer ... [2021's] Sun Valley Conference, also known as the 'summer camp for billionaires,' featured pickleball."
Coyne lets the sport have it in his 2021 piece, “remember that pickleball is just a goofy-sounding game featuring (usually yellow) plastic balls and (usually ugly) composite paddles on a hard surface roughly a third the size of a tennis court.“
Despite the goofiness, “The boom appears surprisingly democratic, as pickleball gains popularity across the socioeconomic spectrum, “Coyne wrote. “You can find courts at Carmel Valley Ranch outside Big Sur, California, and at La Casa mobile home park in North Port, Florida. How, at a time when America’s rich and poor experience increasingly distinct realities, can anything hover above the political fray?”
Meanwhile, Medicare, despite the threat of more Pickleballers, recently had its go-broke date pushed back to 2031. Healthcaredive.com reports, “That could be in part because some of the sickest Americans died due to the [COVID-19] virus, trustees said. In addition, pricey hip and knee replacements are increasingly taking place in less expensive outpatient settings.”
Medicare is in a pickle, but pickleball is the least of its problems.
Mississippi Becomes the 43rd State to End Sales Taxes on Gold and Silver
With the stroke of Gov. Tate Reeves’s pen on Wednesday, Mississippi has become the 43rd state in the country to end sales taxes on the purchase of physical gold, silver, platinum, and palladium coins and bullion.
Senate Bill 2862, sponsored by Sen. Juan Barnett (D-34), had passed out of the full senate by a vote of 52-0 and sailed through the House of Representatives by a vote of 115-0. The effective date is July 1, 2023.
Backed by the Sound Money Defense League, Money Metals Exchange, and in-state Mississippi dealers and investors, this year’s legislative effort built upon a multi-year grassroots campaign waged by sound money activists. Other key supporters in the Mississippi legislature included Rep. Jody Steverson (R-4), Rep. Jill Ford (R-73), and Sen. Chad McMahan (R-6).
Taxing all precious metals purchases has become an outmoded and even controversial practice in the United States. Only seven states still engage in it.
Every one of Mississippi’s neighbors (Alabama, Louisiana, Kentucky, and Tennessee) had already stopped taxing the monetary metals. Most recently, Tennessee ended this tax in 2022, and Arkansas and Ohio eliminated this tax in 2021. And additional states may pass their own exemptions this year.
Senate Bill 2862 goes into effect on July 1, 2023.
The Mississippi sales tax on gold and silver had been discouraged citizens from protecting their savings against the devaluation of the dollar – or driving them to look for out-of-state options.
Eliminating sales taxes on gold, silver, and other precious metals is good public policy for several reasons:
- Levying sales taxes on gold and silver is inappropriate. Sales taxes are typically levied on final consumer goods. Computers, shirts, and shoes carry sales taxes because the consumer is "consuming" the good. Precious metals are inherently held for resale, not "consumption," making the application of sales taxes on precious metals inappropriate.
- Studies have shown that taxing precious metals is an inefficient form of revenue collection. The results of one study involving Michigan show that any sales tax proceeds a state collects on precious metals are likely surpassed by the state revenue lost from conventions, businesses, and economic activity that are driven out of the state.
- Taxing gold and silver harms in-state businesses. It’s a competitive marketplace, so buyers will take their business to neighboring states, such as Alabama or Louisiana (which have eliminated or reduced sales tax on precious metals), thereby undermining Mississippi jobs. Levying sales tax on precious metals harms in-state businesses who will lose business to out-of-state precious metals dealers. Investors can easily avoid paying $136.50 in sales taxes, for example, on a $1,950 purchase of a one-ounce gold bar.
- Taxing precious metals is unfair to certain savers and investors. Gold and silver are held as forms of savings and investment. Mississippi does not tax the purchase of stocks, bonds, ETFs, currencies, and other financial instruments.
- Taxing precious metals is harmful to citizens attempting to protect their assets. Purchasers of precious metals aren't fat-cat investors. Most who buy precious metals do so in small increments as a way of saving money. Precious metals investors are purchasing precious metals as a way to preserve their wealth against the damages of inflation. Inflation harms the poorest among us, including pensioners, Mississippians on fixed incomes, wage earners, savers, and more.
Only seven states (New Mexico, Hawaii, Wisconsin, Kentucky, Maine, New Jersey, and Vermont) still participate in the outmoded practice of taxing purchases of constitutional sound money. Of these seven outliers, legislative allies in five states introduced sales tax exemption bills, with efforts in Wisconsin, New Jersey, and Maine still ongoing.
Related bills to restore sound, constitutional money have also been introduced this year in Alaska, Iowa, West Virginia, South Carolina, Missouri, Minnesota, Tennessee, Montana, Idaho, Wyoming, Kansas, and more.
Currently Mississippi is tied for 45th out of 50 in the 2023 Sound Money Index. Passage of this measure will increase the state’s ranking dramatically.
Meanwhile at the Fed....
Recently, the Fed raised interest rates by 0.25 percent, after another 0.25 percent hike in February. The interest rate is now at 4.9 percent. The annual consumer price index (CPI) has been decreasing in recent months and it was 6 percent in February. However, according to Shadow Government Statistics, if we measure the CPI by the methodology used in the 1980s (see how the CPI’s methodology was changed here), the CPI has also decreased in recent months, but it is barely below 15 percent.
After the collapse of FTX and the layoffs in the tech sector in November, the US banking sector is the one bleeding right now. The US has been living in an artificially ultra-low interest rate (or negative real rates) environment since 2001. This created a lot of distortions in the allocation of resources in the economy, by incentivizing companies and financial institutions to take huge risks. Plus, bank regulations made by the US government encouraged banks (through favorable accounting) to accumulate Treasurys and mortgage-backed securities (MBSs) since they didn’t take a haircut on those assets (and neither they were required to mark them to market). So, as those assets were losing value, banks could pretend there were no losses.
The US banking system was bailed out by the Fed shortly after the collapse of Silicon Valley Bank and Signature Bank and the Fed's balance sheet increased again (chart 1) and is now at $ 8.7 trillion (the peak was $ 8.9 trillion). The monetary base (M0) likely increased as well, but the data is not up to date.
The decrease in the CPI is mainly due to the fact that the monetary aggregates were contracting. As the Fed was no longer buying Treasurys and MBSs, the monetary base (M0) was not increasing and even underwent a small contraction since April 2022. Bear in mind that the bailout mentioned above is not yet an official quantitative easing (QE). That is, the Fed is not effectively buying banks' assets, but rather making loans to them using these assets as collateral (however, to do so, it increases the monetary base to make these loans and puts these assets in its balance sheet; so, it's the same effect).
Chart 1: Fed Balance Sheet (Green) and M0 (Red), 2020–23
Source: FRED; author’s own elaboration.
M1 and M2, which include money that actually circulates in the economy and which have actual influence on consumer prices, also contracted in recent months, after a significant increase in 2020-21.
Note: Murray Rothbard’s and Joseph Salerno’s true money supply (TMS) is a more precise measure of money circulating in the economy. TMS differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).
If M1 and M2 increase significantly (like it did in 2020-21) alongside M0, then the CPI is likely to rise again. The increase in M0, by itself, does not cause consumer price inflation, but it does cause misallocations of resources in the economy (as the central bank buys rotten assets, preventing companies and financial institutions that are wasting resources (they make investments with no return) from going bankrupt and releasing those resources for potential sustainable investments. The expansion of M0 also causes asset price inflation (real estate, bonds and stocks).
This latest interest rate hike raised the IORB (Interest Rate on Reserve Balances), which is the main rate the Fed uses to influence the Federal Funds Rate (FFR), from 4.65 percent to 4.9 percent. In July 2021, the interest rate on reserve balances replaced the interest rate on excess reserves (the interest that banks received from the Fed on excess reserves they held with the Fed and which was the rate that the Fed used, since 2008, to influence the federal funds rate) and the interest rate on required reserves (the interest rate on reserves that banks are required to hold with the Fed). For details on how the Fed began to use the interest rate on excess reserves to influence the federal funds rate in 2008, read pages 61–68 of my article at Procesos de Mercado.
Note that the federal funds rate has been almost on the same level as the interest rate on excess reserves (and now as the interest rate on reserve balances):
Chart 2: Federal Funds Rate (Red), Interest Rate on Excess Reserves (Green), and Interest Rate on Reserve Balances (Orange), 2019–23
Source: FRED; author’s own elaboration.
The Federal Open Market Committee – FOMC stated:
The Committee anticipates that some additional [monetary] policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation [prices] to 2 percent over time.
However, it also stated:
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals.
This could be seen as an indication that the Fed rate hikes may be near the end. And we can never trust the FOMC’s projections.
And the fact that the Fed is increasing its balance sheet again already undermines its commitment made at the February meeting:
[...] the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
This same commitment was made in the last meeting.
An increase in interest rates means a decrease in the prices of fixed-income assets (like corporate bonds and government bonds) and a reduction in the present value of future revenues of companies (which makes their stocks go lower). In Q4 2022, banks registered unrealized losses. The total of these unrealized losses (including securities that are available for sale or held to maturity) was about $620 billion. Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry.
With the Fed raising rates once again, there could be more turmoil in the banking system and/or other sectors of the financial market as these losses tend to increase. The Fed is loosening monetary policy on the one hand (by expanding the M0) and tightening it on the other hand by raising rates. It makes no sense.
Money Inflation Is Baked In. Savers Need to Preserve Assets
This time is different. Crises aren’t just typical cycles. In Great Inflation II, savers can at least preserve savings and likely earn substantial returns by owning gold.
Government spending as a percentage of GDP has risen to a new minimum level—34 percent.
Government Spending
Total National, State, and Local in USA, percent of GDP
Spending was ratcheted up by congresses and presidents from both parties.
The spending is substantially paid for by creating and borrowing money. Interest is paid later, and the principal’s real value is inflated away. This money inflation is a slow-motion default on this borrowing, and is a stealth tax that’s taken from everyone who holds dollars.
Crises
Money inflation regularly produces cycles of government money error (GME, pronounced “gimme”) and occasionally produces crises.
The Great Depression was forced by 7.8 percent average annual True Money Supply increases for 8 years. Great Inflation I, by 9.9 percent increases for 18 years. The Financial Crisis, by 11.0 percent increases for 12 years. Great Inflation II, as of April 2022, had already been forced by 22.2 percent increases for 14 years.
Four Crises Summarized
Anthony, James. “Gold Is the Solution for Financial Crises, Not their Cause.”
Mises Institute Power & Market Blog, 21 Oct. 2022, licensed under CC BY-NC-ND 4.0.
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7 | Treated as illegal from 5/33 through 12/74 |
All government-money-error cycles bring wasteful malinvestment and then necessary corrections. Crises bring even-more malinvestment and correction and also long-lived shifts in saving and shopping.
Across the Great Depression, including the resulting World War II, private investment plummeted. During Great Inflation I, after a “deadtime” delay of several years, most savers sought out harder assets like real estate and gold.
Crisis deadtimes are made of many component deadtimes. Producers must decide to raise prices, knowing this will make customers look elsewhere. Customers must decide to buy assets, consumer products, producer consumables, labor, and producer durables (which can last decades). Savers must learn about crises, and must make decisions that are emotionally taxing.
Crises aren’t the usual fast government-money-error cycles, crises are irregular, slow, longer-lived increases in government spending, powered by crisis-level money inflation. In crisis booms and busts, the indicators that are of first importance aren’t the often-studied fast signatures of recessions, but instead are rarely-considered slower indicators of behavior changes—in government spending, and in individual saving, producing, and shopping.
Debt as a percentage of GDP has risen to a new minimum level—343 percent.
Debt
Total Public and Private in USA, percent of GDP
Employment has fallen to a new post-2000 maximum level—62.3 percent.
Excess deaths since the start of covid have reached 1.30 million—0.4 percent. Little has been done to limit these deprivations by government either during covid or in future operations.
So then in the current Great Inflation II crisis, government spending is high and is staying there. Money inflation has been unprecedented for the USA in peacetime, and a juggernaut of money inflation is now baked in. Debt is high and is increasing. Employment is low and is decreasing. Lives are already lost and these losses are increasing.
When hard-to-reverse trends are for the worse and are worsening, how can savers preserve or even increase their savings?
Asset Preservation
Stocks have in the long run delivered the largest total returns of any large asset class. This has been true even across crises, eventually.
Figure: Anthony, James. rConstitution Papers. Neuwoehner Press, 2020, p. 10.21.
Data: Siegel, Jeremy J. Stocks for the Long Run. 5th ed., McGraw-Hill Education, 2014, p. 6.
Total Real Returns
USA Stocks, Government Bonds, Treasury Bills, Gold, and Dollar
Stocks are ownership shares of productive capacity. This capacity is worth less in downturns, when the capacity utilization is less. But even then, whatever value will eventually spill over into nonproducing assets like real estate and gold must first have originated as value added by productive businesses. In the long run, nonproducing assets can’t outperform stocks.
Stocks naturally protect against inflation. Stock prices reflect all future net profits. When product prices inflate, future net profits inflate too.
Savers learn that the total returns from stocks quickly fall substantially if savers don’t stay invested in stocks. The S&P 500’s 2002–2021 annual total return would have been cut from 9.52 percent to just 5.33 percent if a saver had missed out on just the 10 best trading days in these 20 years.
But while it can be rewarding to stay invested in stocks across sub-crisis government-money-error cycles, it would be punishing to stay invested in stocks during crisis drops in stock prices. In the Great Depression, Great Inflation I, and the Financial Crisis, savers were pummeled by substantial drops in the S&P 500, respectively, of 82 percent, 64 percent, and 53 percent.
Currently, earnings forecasts can’t be trusted. Current forecasts figure in both stagnation-or-recession in 2023 and a strong recovery in 2024, but both can’t happen. If a recession is strong enough to limit price inflation, then current earnings forecasts are too high. If there isn’t a strong recession, then price inflation will be high, so there won’t be a strong recovery, so here too, current earnings forecasts are too high.
Bonds inherently lack stocks’ considerable upside potential. Also, interest rates ultimately should increase, so then the nominal value of bonds will decrease. Also, money inflation and product-price inflation will continue, so the real value of bonds will decrease.
Dollars are guaranteed to lose value. Currently the Fed openly tries to force dollars to lose value at an average annual rate of 2 percent. Already, Wall Street Journal reporter Jon Sindreu suggests that the Fed should force dollars to lose value at an average annual rate of between 4 percent and 6 percent.
And yet, even these figures wouldn’t capture how quickly the Fed forces dollars to lose value. Modern price-inflation calculations are used to claim that dollars are losing value at annual rates of 6 percent to 9 percent. But in reality, more-accurate 1980 calculation methods indicate that dollars are losing value at annual rates of 14 percent to 17 percent.
Gold has a proven track record as money. Now, computerization allows gold to efficiently be kept in vaults and have its ownership transferred without moving the gold, which eliminates a past drawback of gold as money. No other store of value can match gold’s proven track record and infrastructure.
In the usual sub-crisis government-money-error cycles, gold has a relatively constant value.
In crises, gold also gains value. In the Great Depression, Great Inflation I, and the Financial Crisis, gold gained, respectively, 69 percent, 849 percent, and 156 percent.
Gold Price
per Ounce
Back when the Great Depression started, the government had claimed that dollars were worth a fixed amount of gold. But the government had inflated the quantity of dollars, so dollars were worth less.
To avoid honoring the government’s claim and as a result losing more and more gold, President Franklin Roosevelt issued an executive order that claimed that owning gold was illegal. State governments, congresses, and justices didn’t respond by using their offsetting powers to secure people’s right to own gold. This deprivation of the right to own gold continued until 1975, by which time Great Inflation I was well underway.
Now, the national government hasn’t been claiming that dollars are worth a fixed amount of gold. So the national government no longer has an incentive to deprive people of their right to own gold.
Naturally, demand for gold has already increased. Central bankers have had to increase interest rates. Higher interest rates are costing central bankers higher interest payments. Also, higher interest rates are causing central bankers’ holdings in the moneys they create to lose value. Both kinds of losses have been forcing central bankers to buy and hold a better store of value—gold.
So then in the current Great Inflation II crisis, stocks are at unsupportable prices. Bonds and dollars are sure to lose value too. But gold is proven in crises.
Unprecedented money inflation is already baked into Great Inflation II. Savers need to preserve and increase their savings by owning gold.
Murray Rothbard's Birthday
Today would have been Murray Rothbard’s ninety-seventh birthday. He was an unforgettable friend whose immense knowledge of many different fields was unsurpassed, in my experience. In a lecture on the Austrian theory of the business cycle, he mentioned the common objection that the expansion of bank credit might have no effect if investors anticipated trouble. After the lecture, I asked whether Mises had answered this point. He said, “See his response to Lachmann in Economica, 1943.” I often went to used bookstores with him, in both Palo Alto and Manhattan, and listened to him as he commented on nearly every book on the shelves. When he was a student at Columbia, he admired the philosopher Ernest Nagel, who he said would always encourage students to do new work. Murray was like this himself. He constantly encouraged students to work on Austrian and libertarian topics. His support for me was never failing, and I owe him everything. If only he were still here now, to guide and instruct us!
Mississippi Legislature Votes Overwhelmingly to End Sales Taxes on Gold and Silver
State lawmakers of both houses have just voted overwhelmingly to exempt physical gold, silver, platinum, and palladium coins and bullion from the Mississippi state sales tax, sending the bill to Governor Tate Reeves (R) for his signature.
Senate Bill 2019, sponsored by Sen. Chad McMahan (R – 6), passed yesterday out of the full senate by a vote of 47-2. This afternoon, Rep. Jody Steverson’s identical House Bill 1661 passed out of the full house chamber on an overwhelming voice vote.
Backed by the Sound Money Defense League, Money Metals Exchange, and in-state Mississippi dealers and investors, the legislative effort built upon last year's momentum. In 2022, a similar sales tax exemption bill had passed out of the Mississippi House of Representatives overwhelmingly but it missed a deadline in the Senate needed to receive a hearing.
If Gov. Reeves signs the bill next week (or if he simply chooses not to veto it), Mississippi will become the 43rd state to exempt sales of sound money from state sales tax. The effective date is July 1, 2023.
Every one of Mississippi’s neighbors (Alabama, Louisiana, Kentucky, and Tennessee) have already stopped taxing the monetary metals. Most recently, Tennessee ended this tax in 2022, and Arkansas and Ohio eliminated this tax in 2021.
Under the status quo in Mississippi, citizens are discouraged from protecting their savings against the devaluation of the dollar because they are penalized with sales taxation for doing so.
Eliminating sales taxes on gold and silver is good public policy for several reasons:
- Levying sales taxes on precious metals is inappropriate. Sales taxes are typically levied on final consumer goods. Computers, shirts, and shoes carry sales taxes because the consumer is "consuming" the good. Precious metals are inherently held for resale, not "consumption," making the application of sales taxes on precious metals inappropriate.
- Studies have shown that taxing precious metals is an inefficient form of revenue collection. The results of one study involving Michigan show that any sales tax proceeds a state collects on precious metals are likely surpassed by the state revenue lost from conventions, businesses, and economic activity that are driven out of the state.
- Taxing gold and silver harms in-state businesses. It’s a competitive marketplace, so buyers will take their business to neighboring states, such as Alabama or Louisiana (which have eliminated or reduced sales tax on precious metals), thereby undermining Mississippi jobs. Levying sales tax on precious metals harms in-state businesses who will lose business to out-of-state precious metals dealers. Investors can easily avoid paying $136.50 in sales taxes, for example, on a $1,950 purchase of a one-ounce gold bar.
- Taxing precious metals is unfair to certain savers and investors. Gold and silver are held as forms of savings and investment. Mississippi does not tax the purchase of stocks, bonds, ETFs, currencies, and other financial instruments.
- Taxing precious metals is harmful to citizens attempting to protect their assets. Purchasers of precious metals aren't fat-cat investors. Most who buy precious metals do so in small increments as a way of saving money. Precious metals investors are purchasing precious metals as a way to preserve their wealth against the damages of inflation. Inflation harms the poorest among us, including pensioners, Mississippians on fixed incomes, wage earners, savers, and more.
The trend across the nation is to eliminate taxes on precious metals. The state of Louisiana and Ohio both experimented briefly with reimposing sales taxes on precious metals purchases. They both quickly reversed course (within two years) and reinstated their sales tax exemptions on precious metals -- because businesses, coin conventions, and state tax revenues were leaving the state.
After the two identical Mississippi bills are transmitted from their respective chambers, Governor Tate Reeves must sign or veto the legislation within 5 days after transmittal (excluding Sunday), or it becomes law without his signature.
In 2023, bills to restore sound, constitutional money have also been introduced in Alaska, Iowa, West Virginia, South Carolina, Missouri, Minnesota, Tennessee, Montana, Idaho, Wyoming, Kansas, and more.
Currently Mississippi is tied for 45th out of 50 in the 2023 Sound Money Index. Passage of these measures would increase the state’s ranking dramatically.
Missouri Senate Votes to End Income Taxes on Gold and Silver, Hold Monetary Metals in Reserve
The Missouri Senate today passed legislation that would prompt the state treasurer to hold at least 1% of state funds in gold and silver while eliminating all state income taxes on monetary metals.
In a growing national backlash to the rampant inflation caused by massive federal spending, debt, and central bank money printing, more than a dozen states are already moving forward on sound money bills during their 2023 legislative sessions.
Sponsored by Sen. Bill Eigel, Senate Bill 100 passed the Missouri Senate by a vote of 21-12 and now heads to the House.
If ultimately signed into law, SB 100 would reaffirm that gold and silver are money in Missouri and: 1) exempt taxpayers from state income taxes on “capital gains” from gold and silver reported on their federal income tax returns; 2) require the state treasurer to hold “an amount of gold and silver greater than or equal to one percent of all state funds;” 3) require the state to “accept gold and silver coinage as payment for any debt, tax, fee, or obligation owed.”
The Show Me State rightfully exempted gold and silver from state sales taxes years ago. Removing income taxes from the precious metals, holding gold and silver as reserve assets, and accepting gold and silver as payment are among the next steps a state can take to promote sound money.
Arizona, Utah, and Wyoming have already enacted similar income tax exemptions into law.
Meanwhile, the Wyoming Senate just passed a measure last week that would similarly prompt its state treasurer to hold gold and silver in order to protect the state’s assets, as well as create a mechanism so certain state taxes could be paid in gold or silver.
Removing income taxation from gold and silver is good policy for several reasons:
- Current Missouri law assesses taxes on imaginary gains. Under current law, a taxpayer who sells precious metals may end up with a capital “gain” in terms of Federal Reserve Notes. This capital “gain” is not necessarily a real gain, it’s often a nominal gain that results from the inflation created by the Federal Reserve and the attendant decline in the dollar’s purchasing power.
Yet this nominal gain is taxed at the federal level – and, because Missouri uses federal adjusted gross income (AGI) as a starting point for Missouri income calculations, this nominal gain is taxed again by the Show Me State.
- Inflation harms the poorest among us. Inflation is a regressive tax. The hardest hit are wage earners, savers, and pensioners on fixed incomes – as well as those who own few or no tangible assets.
- Taxing imaginary gains is harmful to citizens attempting to protect their assets. Investments in precious metals coins and bullion are rightly exempt from Missouri’s sales tax. Neutralizing Missouri’s income tax treatment of the monetary metals would remove the last major disincentive in Missouri that stands against the ownership and use of the monetary metals.
Meanwhile, Ohio is the only state currently known to hold physical gold as part of its state funds, even though the inclusion of precious metals in a financial portfolio has been shown to increase real returns while also reducing volatility.
Most states have substantial exposure to debt paper (such as bonds), most of which have a substantially negative real rate of return as a result of inflation rates that are substantially higher than the nominal yield on the bonds.
Current economic circumstances have sparked increased interest in many states to hold gold and silver as a form of financial insurance. Other bills to facilitate gold and silver holdings have also been introduced this year in Tennessee, West Virginia, and Wyoming… with another bill expected soon in Idaho.
Missouri is currently ranked 32nd on the Sound Money Index. If SB 100 becomes law, the Show Me State would rival Wyoming, the state currently at the top of the index with a score of 56 out of 100.
Following the Wyoming Senate’s passage of SF 101 last week, Missouri is the second state to pass sound money legislation out of a full state legislative chamber in 2023.
More than a dozen states have introduced pro-sound money legislation in 2023 so far, including Alaska, Minnesota, Mississippi, Oklahoma, Tennessee, Oregon, West Virginia, Wisconsin, Kentucky, Florida, and more.
More Lies in the CPI
As reported by CNBC last week, the Consumer Price Index (CPI) figure of 6.5% shows how the mainstream media disseminates false economic information for consumption by the masses. Try to spot some of the more concerning parts:
Initially, the chart raises questions such as where this data comes from and who participated in the sampling. Once the data was compiled, how did statisticians determine what constitutes the “average” egg, frankfurter, or new vehicle?
In another article, CNBC tries to explain:
CPI is the most closely watched inflation gauge as it takes into account moves in everything from a gallon of gas to a dozen eggs and the cost of airline tickets.
As discussed on multiple occasions, calculating (price) inflation is the Art of Moving the Goal Posts. Consider the impossibility of comparing gas, eggs, and an airline ticket. Adding them up and dividing by 3 would not produce meaningful results.
However, if weights of relative importance were assigned to every individual item then apples could be compared to oranges, mathematically. Of course, statistical calculation doesn’t equal sound logic. In addition to using highly subjective guess work to arrive at these relative weights, other tactics such as adjusting for seasonality or simply excluding certain items if they’re “too volatile” are employed to massage the CPI.
Consider the two images below, the first being the latest snapshot of the CPI data showing the relative importance:
Now compare the relative importance from almost a year ago:
According to the charts, since last year, food has become less important while energy has become more important. Unfortunately, we live in a society that values statistical calculation and the ability to draw upon data more than reasoning.
Rather than argue with merits or lack of logic itself, mainstream economists found that the best career move is to not fight for the truth, but embrace the data, flaws included. This leads to Fedspeak like this excerpt from Andrew Hunter, a senior economists at Capital Economics who told CNBC:
The huge amount of inflation we had from rising gas prices has now almost completely reversed.
It’s one thing to say (price) inflation has slowed in recent months, but to claim “almost completely reversed,” simply makes no sense. The average person could only wish that prices have reversed, meaning price decreases, but this is not the case. At best, we can hope for a slowdown in the rate of increase.
He’s not alone in his inflation elation. In the same article, Mark Zandi, chief economist at Moody’s Analytics said:
I don’t think people will be talking about inflation this time next year.
And despite the skyrocketing price of eggs as purported by the abundance of memes on social media, he went so far as to say:
I think it’s already starting to feel better for people.
Naturally, Moody’s top economist is in a much higher income bracket than the average person; so his perspective could be skewed.
Ultimately, the biggest red flag is waved, not by the data itself, or the economists whose job it is to cheerlead the Fed and its support system, but it comes from this:
Inflation closed out 2022 with a 6.5% annual reading, as measured by the consumer price index, the U.S. Bureau of Labor Statistics said Thursday. It was in line with economists’ expectations.
Given the countless data fields and inputs, including relative weights of importance required to arrive at the CPI figure, how is it conceivable that economists’ expectations matched that of the bureau of labor and statistics?
Either these economists are really that good, or this data is really that bad.