Get Ready to Start Paying Your “Fair” Share

What would your reaction be if the Congress wrote a piece of legislation that said: 

“In order to pay for necessary spending programs (both past and future), 

_________________________   [<– your name here] 

will be required to pay up to 62% of the value of their wealth in taxes.”

I’m just guessing that once you picked your jaw off the table and got your heart rate back under control, there’d be at least a strongly worded letter to a congressperson involved.

That should go without saying. 

But the reality you are facing today is… this is where we’re headed. 

Why am I so sure?

Because we’ve been here before. The American people have been subjected to as much as a 62% tax on their wealth (unrealized gains if you will…).  

The wealth drain tax was largely levied without investors knowledge.

Today I’m going to let you see it for yourself…

Inflation… THE Most Brutal Tax

We’ve talked about cyclical vs. secular inflation previously

Cyclical inflation is natural.

Secular inflation is not. 

It’s the result of tinkering with the economy by those who don’t have a clue what they’re doing (which is pretty much everybody because markets are ultimately smarter than everybody). 

The Fed and the other powers that be have been tinkering with the economy since the early 1980s but they’ve gotten pretty heavy-handed for the past decade or so. 

They’ve been mortgaging the future growth of the economy — then propping everything back up with inflated money. 

But last year they did something nuclear…

They shut down the economy — the global economy, in fact — effectively pulling the plug on what was once a finely tuned machine. (Today we’re seeing exactly how finely tuned the global economy actually was.)

Now there are shortages everywhere. Prices are on the rise. Costs to produce products are on the rise

Producer prices this past October were up 8.62% from the previous October. (For a little context, the average annual rise in PPI is 1.91%).

Given the complexity of what governments around the world shattered, you don’t just grab a tube of Crazy Glue and put it back together. These effects are going to be with us for some time. 

Much like the inflation of the 1970s…

Consumer Prices: 1965-1985


Choking Off Real Growth and Investment

While inflation was raging out of control, the stock market entered a bear market that began with the high made in January 1966. 

The market effectively traded sideways for the next 16 years. 

The S&P 500: 1965-1985 (Recessions are shown in grey)

Source: Macrotrends

Granted there were significant breaks and rallies and for traders, there were opportunities to make money. But from an investor’s perspective, this was pretty much nearly a generation of zero growth. 

By the low in the middle of the bear market in September 1974, the market had given up 39% from the high in 1966. 

Your mileage may have varied depending on what you paid for your shares, but overall, the sideways move was a disaster. 

But That Wasn’t the Real Story…

It was bad enough that the market was stuck churning for over a decade with most investors not making any appreciable gains. 

But few actually consider what really happened during this time when you factor in the inflation.

A picture says a thousand words…

S&P 500: 1965-1985 (Adjusted for inflation)

Source: Macrotrends

From the high to the low, the market gave up an inflation-adjusted 62%.

That 62% was wealth taken out of investors pockets.

And given the current state of the U.S. and global economies, it could well repeat itself today.

Fortunately (or not) the powers-that-be sworn to protect and defend our economy — namely the Federal Reserve — are on the case. 

In coming issues we’re going to assess the Fed’s options at this point. I’m going to introduce you to a little known tool that can signal major policy failures.

Stay tuned.

Make the trend your friend,

Bob Byrne
Editor, Streetlight Daily