The government is over 25 trillion dollars in debt, which is a truly astonishing amount. The only solution they have to deal with it is to default, use inflation, try to steal from you, or a combination of both!
The question is:
How will they do it?
If we know their tactics and understand their laws, we can better prepare for the future. In this article, I explain how the government will take your assets, pay you less, and tax you more.
Step #1: They Will Confiscate Your Assets Through Inflation
The government is going to steal your money and here is how they're going to do it. I'm going to explain this to you in three simple fast steps.
The government, you're drunk, insolvent uncle Sam is in massive debt, almost 25 trillion. Maybe even more. To prove that, here is an image Of the US debt clock as of May 29 of this year.
Now, look at this whiteboard and all of its elements.
There's nobody that wants inflation more than the government and you're drunk, insolvent uncle Sam. In fact, he's holding a sign saying: “I heart inflation.” And you better believe he does because he can only default or inflate his way out of the problem.
In this whiteboard example, you are the guy on the right side of the board. Temporarily you have a big smile on your face because you've saved your money.
You've worked your butt off to acquire some assets: Real estate, your 401k, some gold, and precious metals. Let's say that right now, you have $50,000 in real estate, $25,000 in stocks, and $25,000 in gold, which equals a $100,000 portfolio.
Your $100,000 portfolio represents the amount of goods and services, as you can see in the first blue circle on the right. That illustration is important, I'm going to key on that later on.
This being said, the government comes in, and the Fed prints up funny money, which creates inflation in the economy.
Over a long period of time, let's say they create so much inflation that the real estate you have goes to $500,000 in price, the stocks go to $250,000, and your gold and precious metals to $250,000.
You may be saying to yourself, “Well, George, that's fantastic! I just got rich!” But what you're not realizing is it only went up in nominal terms. They went up with the rate of inflation.
Your purchasing power, the amount of goods and services you can buy with the money on your portfolio, is still identical. It hasn't changed.
What has changed is now you have to pay a capital gains tax because your portfolio, nominally, went from $100,000 to $1,000,000.
Let's just say that now the capital gains tax is around 40%, and it goes to income, which I think it most likely will in the next five years.
So you would have a $400,000 tax bill that would go up to pay for your drunk, insolvent uncle Sam's profligate spending.
This would leave you with $600,000, but remember the amount of goods and services you can buy didn't change at all.
Basically, you're giving 40% of your assets or 40% of your current purchasing power directly to the government as a result of inflation.
Step #2: They Will Pay You Less
The second way the government is going to steal your money is by paying you less in the future. There are several benefits tied to the rate of inflation such as:
- Social security payments
- Payments for military retirees
- Government workers.
That is supposed to go up with the rate of inflation, but recently the government has proposed to change the methodology for measuring the inflation for the payments.
Here is a chart that explains how.
They've suggested going from the CPI-U(blue line), which is currently what they use, to the CCPI-U (Red line).
What this means is over time inflation is downplayed.
The rate of inflation isn't as high as it otherwise would be.
If the rate of inflation they're measuring is lower, that means the amount of money they're paying you is a lot lower as well.
The easy takeaway here is the CPI-U, with the way it's measured, you're getting close to what you should be getting. That's debatable.
But if they move to a method of measuring inflation that understates it, that means you are going to be getting a lot less in the future.
To understand this better, let's go right to shadow stats.
This is a chart from 2000 all the way to 2020. The blue line is a measurement of inflation, as it was measured in the 1990s by the government.
In red, it's how they measure inflation today, during 2020. Notice there is about a 2.5% discrepancy between the two.
What does this mean specifically for you?
If right now you're getting $1,000 a month in payments from social security, military retirement, or retirement for government workers, in 20 years at a 2% rate, you'd go from getting $1,000 a month to $1,400 a month.
But at a 4.5% rate, a 2.5% difference, you'd go from getting $1,000 to $2,400.
So the government, by understating the rate of inflation, will be paying you a lot less money per month.
Step #3: They Will Tax You Even More
This is very similar to them paying you less in step number two, where it's all about the way the government measures inflation. For the taxes, this has actually gone into law.
It went into law in 2018, ironically, when they lowered the overall tax rates. They have already gone from the CPI-U to the CCPI-U for the tax brackets.
So how does this work?
Here is my whiteboard to explain.
Look at middle-class Mike on the left side, he's making $50,000 a year. When you combine all the taxes he pays and the different tax brackets starting from 0 to 10, 10 to 20, his effective tax rate is 10%, and those aren't exact numbers, I'm just using them as an example.
This means he's paying about $5,000 a year in taxes. His after-tax income would be $45,000, which is what he can use to buy the amount of goods and services represented by the blue circle in the middle.
Rich Richard on the upper middle section of the whiteboard is making $100,000 a year. Because we have a progressive tax system, his effective tax rate, his average tax rate, is 20%.
So he would be bringing home $80,000 a year after taxes. Of course, his purchasing power, or the amount of goods and services Rich could buy would be more than Mike.
Now let's fast forward 10 years into the future.
10 years from now…
Mike has gone from making $50,000 a year to $100,000 a year. You may be saying to yourself, “Well, that is great news. It's good for Mike. He had a raise!” Not really.
His wages just went up with the rate of inflation, but his purchasing power really hasn't changed at all.
But what happens if the government understates the rate of inflation for moving the tax brackets up?
This means that Mike will be paying a larger percentage of his income, or purchasing power to the government in taxes.
Let's take it to an extreme. Imagine the tax brackets didn't go up at all in the 10 years because the government was understating it, manipulating it, and changing methods.
Who knows what they'll do to screw over the average Joe and Jane, but let's say the tax brackets didn't go up at all. Mike would now be paying 20%, just like rich Richard was 10 years earlier.
Mike would be taxed 20% now he makes $100,000 a year instead of $45,000 that he can use to buy the amount of goods and services shown before. And because his tax would be 20%, his take-home would be $80,000, but that money would only buy $40,000 worth of goods and services now.
Although Mike was making the exact same amount of money in real terms, adjusted for inflation, his purchasing power went down. He paid more of his income to drunk, insolvent uncle Sam.
Let me go over this in a slightly different way, just to make sure that everyone is understanding the scam the government is trying to pull.
They're really trying to pull the wool over your eyes with this tax bill that went into effect in 2018.
If we're in the year 2000, Mike is making $45,000 after taxes. In the year 2010, Mike is making $80,000 a year after taxes.
But when you adjust for inflation and look at it in terms of the year 2000, we're comparing apples to apples, Mike's after-tax income is only $40,000.
Its $5,000 less than it was 10 years earlier, although his income in nominal terms, not adjusted for inflation, has actually doubled.
The bottom line is the government is going to steal your money by creating inflation, and understating it in order to take your assets, pay you less, and tax you more.