The Smartest Man in Europe Is Very Cautious

I'll add one more reason I don't think we're in a gold bubble: as long as countries around the world continue devaluing their currencies, the nominal price of gold will continue to rise. While it's possible that the inflation-adjusted price of gold could fall, I can't imagine that happening in an environment where fiat currencies globally are being debased. I should say that this isn't just true for gold, but for any hard asset that hasn't seen an explosion of supply (like apartments in Nevada or China for example).

When central banks worldwide stop printing and start raising interest rates, that's when I'll start scrutinizing further accumulation...

In the US MLM schemes for gold have been going on essentially since forever, so it's hard to tell signal from noise. This covers the full spectrum from the cheap survivalist magazine advertising gold coins next to weapons and emergency kits to upscale hedge funds trying to sell shares to smart money. A pretty well known media personality (Glenn Beck) has been plugging gold investing (but also conversion to cash) through one of his sponsors on his show. Whatever you think of Mr. Beck's political views, that he managed to tie them into simple ad sales shows good business sense. I'm sure our American friends here can come up with some more examples. It's hard for me to say if there's more signals recently or I'm just discovering them.

> If things were equal they'd all pay the same dollar amout [...]. That would be more moral as well.

Why?

> The reasons those with less money have trouble affording things is that they have been impoverished by government.

This (and the argument that follows) is very wrong, for at least the following reasons.

1. The fraction of the money a person receives and spends that gets taken in tax is smaller, not larger, for poorer people.

2. In particular, there are personal exemptions and deductions, which make up a substantial fraction of the salary of people with low incomes, and the lowest tax rate is 10% and not 15%. Many of your other numbers are also wrong, and curiously all in the same direction. Social security taxes are not 15% unless you include the payroll taxes that fund Medicare, in which case the Medicare rate is 0%, not 4%. (It wouldn't be 4% anyway; payroll taxes are 2.9%, including the portion paid by the employer.) 8% of 58% is not 8%. Your percentages are, to put it bluntly, bullshit.

3. If you are going to include the employer's social security contribution in the figure being taxed, you lose the right to say that what's being taxed is so-and-so-many percent "of your income". Because, y'know, it isn't.

4. The money paid to the government in taxes doesn't simply disappear into a hole. It is used to provide services. For instance, that Medicare payment pays (astonishingly enough) for Medicare. Which, if you happen not to be rich, you are likely to have need of one day. In a hypothetical world in which Big Bad Government didn't take all that money, those services would need to be provided privately, and they would cost money. Probably about the same amount of money as the government spends on them. If our hypothetical low-income person is going to avoid being "impoverished" by the government, presumably that means they simply don't get the use of those services. Sorry, Mr Low-Income Person, I know your house was burgled, but you haven't paid the private police and judicial services: no law enforcement for you! Oh, and your child was injured by a toy whose makers were recklessly indifferent to safety? Well, you should have paid for a safety audit yourself. Oh, you lost your job and are starving to death? You'd better find a private charitable organization that wants to help you, then: keeping you alive is no job for the state.

5. (This is more or less #1 from a different perspective.) The difference between poor and rich people, which explains why the poor people can't afford to make ends meet, is not that the government is taking the poor people's money and not the rich people's. The government is taking everyone's money (and doing useful things with it, see #4, but that's a separate issue). Imagine for a moment a world in which the money taken in taxes really does just get burned in a big incinerator. What happens? Answer: there's a large deflation rate, so presumably the currency needs re-denominating every now and then. Aside from that -- which would, yes, have bad effects because of the rapid change, but that's not relevant here -- everyone would in fact be about equally well off. Every year you'd lose half your money, and so would everyone else, so all the prices would have to halve to keep supply and demand in balance, so that half-your-money would be worth the same as it was before it was halved. Of course that's an oversimplification because in our hypothetical world income is being taxed but investment isn't. So the deflation rate would be a bit lower and the net effect would be a steady transfer from those with less capital to those with more. But in the real world, gains from investments are taxed just like gains from income are. If taxation is impoverishing the poor, the reason is the difference between the tax rate on income and the tax rate on capital gains, and you should be arguing for equalizing those, not for reducing taxes as such.

> When average joes start piling in and blowing up the price, then gold may take leave of its fundamentals and we'll have a bubble.

> The genuinely unsophisticated have a negative net worth, and they're not holding gold.

Perhaps I'm misunderstanding, but if I take both of these seriously then it sounds as if your criterion for a bubble is that most of the money sunk into something comes from people with negative net worth. By that criterion, I'm not sure that there has ever been a bubble in anything.

(Maaaaaaybe houses in the recent property bubble, but (1) I very much doubt it and (2) in any case mortgages are rather a special case, in that for a long time lots of people have had large investments in property that were mostly leverage; I don't think anything comparable has ever been true for gold, shares, Dutch tulips, or anything else.)

> I remain positive on China.

I cannot help but wonder about China... I am convinced they are extremely clever in toying our Western system of capitalism and number games one way or another. The only example coming to mind right now is the artificial surge in car sales in China and the government is behind a lot of it, buying and storing cars in huge parking facilities. And the refusal of publishing economic statistics or just blatantly making them up.

And they are just as incredibly clever and diplomatic in political affairs; the rhetoric used in their more recent foreign affairs are nothing but jaw dropping and display an unprecedented self-understanding an pride that is bordering smugness. They do not even try to hide or acknowledge violations of human rights; they simply wipe it off with "none of your frakking business" kind of answers. They are showing very clearly: we bow to no one.

For me as a European, their last display of power here in Europe felt like a slap in my face when they offered to "help" in the current financial crisis in Greece and the rest of the EU when I saw how little their ongoing violations of human rights mattered all of a sudden.

Please note I am not bashing Chinese people but wondering about Chinese politics and their regime and how the west, generally so proud of their "humanity" and "human rights", bends over back- and sideways now that China is becoming an influential world power.