What do you think will happen to Silver in the next few years??

The problem I see with tariffs is that they are generally prohibited in most free trade agreements; they're considered an unfair tax levied on foreign goods for the benefit of domestic goods.

I lived in Korea for a few years and their government is primarily financed by a pure consumption tax; the more you spend, the more tax you pay. The comsumption tax is applied to all goods, imports and domestics...making domesically produced goods more competitive.

I've heard the Democrats talking about adding a Value Added Tax (VAT) when the discussion of the Fair Tax comes up, but they want a VAT tax in addition to the Income Tax. The Fair Tax will only be work if it replaces the Income Tax...(imho).

Wealthy people and Corporations will still pay the most and the "prebate" ensures that lower income earners pay no tax at all. The best part is that there is no more withholding or filing of income tax returns! ...Freedom and Liberty at last!!

 

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Yes, I think all countries that are members of the WTO are prohibited from using tariffs. It would be a very good idea to withdraw from the organization and repeal the agreements. If the members were really interested in free trade, they would just sign a one page agreement stating, "All regulations and taxes related to trade anyplace in the world are hereby repealed." The fact that there are multiple documents containing thousands of pages each proporting to regulate free trade into existence pretty much confirms that something else is the goal.

 

+1 :thumb:

 

I fail to see it. Can you explain how a consumption tax applied equally to all goods imports and domestic... makes domestically produced goods more competitive?

 

It is my hope that this thread not turn political. The original question is about the future of Silver and where it will take it's place as a form of "real money" in the forthcoming upheaveal of your American supremacy of the dollar when it begins its mighty fall.

 

The consumption tax (or the "Fair Tax") is a proposed replacement for the 100 year old income tax. As the world evolves towards a global economy, the US income tax has become a defacto "self imposed" tariff on domestically produced goods and driven manufacturing out of the country.

The Federal Income Tax is applied throughout the domestic manufacturing process and is reflected in overall prices. This tax is not reflected in the price of imports.

If the current income tax is replaced with the Fair Tax, the income tax is replaced with a consumption tax (net change = 0), but the consumptoin tax is evenly applied to all goods sold in America. Additionally, the income tax is removed from the price of our goods sold overseas.

The Fair Tax makes US goods more competitive both domestically and overseas; the price of imported goods increase and the price of our exported goods decrease...the the result of manufacturing jobs returning to the US.

Additionally, the Fair Tax draws revenues from our vast, untapped, underground economy of illegal aliens, drug dealers, and tax cheats...and no more April 15th (Woo Hoo!!); paying all those tax dollars to withhold, then repay tax returns...while the wealthy hire former IRS agents to game the system.

This is more of a common sense, economic issue rather than a political one...and anything that improves our domestic economy affects commodity prices such as silver and gold.

 

China levies what is called an Enterprise Income Tax. Enterprise consisting of partial foreign investment or wholly foreign owned are treated the same as domestic enterprise. It includes worldwide income from production and business operations taxed at a rate of 25%. Foreign and partial foreign enterprise face value added tax, consumption tax, business tax, income tax on enterprises with foreign Investment and foreign enterprises, individual income tax, resource tax, land appreciation tax, urban real estate tax, and on and on.. This same scenario holds true for India and any other developed or emerging country in the world. The government wants their cut.

I still believe overhaul of the corporate tax structure is a straw man – at best lowering cost maybe 1% to 2% per unit produced. The cost of abandoning your plant and setting facilities up halfway across the world carries a cost. Shipping your raw materials halfway across the world into a country with an under-developed transportation system carries a cost. Shipping finished goods halfway across the world back to the US carries a cost. In fact I think this cost is significantly greater than 1% or 2% per unit produced. Overhauling the tax structure just isn’t enough to solve the problem of lost jobs to overseas interest - IMO. The problem is bigger than that.

 

Trying not to beat myself up over digging this one up, but this is something I have pondered at length. I first read a number of years ago that the historical gold/silver ratio was approximately 15/1, give or take 5. I have since seen that reiterated a number times, with more frequency in recent days. This made silver a very attractive investment for me since it stands to reason that should the market ever be truly free again that is where the ratio will gravitate to.

Of course if they both go down in value all that doesn't matter much, but I think they are both good investments even at current prices. For one, I don't see how prices cannot rise if the amount of money is also rising, barring very effective market manipulation. So Quantitative Easing seems to almost ensure a steady rise. Supply and demand also looks promising for silver. I recently read that China used to export about 100 million tons, and now are importing about that much, which is a 200 million ton swing in an 800 million ton per year industry. Everybody is wanting to get in on metals as the economic situation is still finding its footing, and as silver is a better conductor of electricity than gold its industrial demand is increasing as well as individual demand, in an industry that has been relatively static in production.

In summary, I expect silver to break $50/oz in 2011 if not early 2012 unless both QE3 and any major catastrophes are averted. If we do get the best case scenario, we're still committed to QE2 through June so $40 wouldn't seem out of the question. In regards to hyperinflation, the person I've seen mention this as a concern was Peter Schiff, and he was one of the few people to forsee the current economic situation. While I tend to think it will take a few more years of currency debasement for that to happen, it is the sort of thing that can catch you by surprise as is the nature of things approaching infinity. If we begin down that slippery slope then the sky is the limit.

 

I have never seen a convincing argument for hyperinflation in the present situation. By it's nature, a high level of debt is deflationary because it requires servicing, payoff or default. The markets can crash and debt can be defaulted as fast as the Fed can increase the money supply. And in an economy where the debt is money and money is debt, the more of it they create, the faster it defaults. So it is possible [but by no means certain] that we will see a situation where the demand for money to service debt increases faster than the increase in the money supply, and this will result in deflation even though the money supply is rising. These are not normal times. Don't expect normal results.

And to be clear, I think there is a 50/50 chance of hyperinflation or deflation. I just wanted to give the deflation case a hearing because very few people consider it possible.

 

Cloudsweeper

With all due respect, no one in America has seen this in the past 200 years. This is why denial is so strong! When the Chinese Yuan becomes the the next World Reserve Currency, then you will see the hyperinflationery aspect we are talking about. I pray to the Almighty that this does not happen but it sure seems likely to do so.
All I can say is I sure hope the Great American Spirit that built this Country can revive itself and save it!! I fear for the worst as our leaders are leading us to the burning pit's of he**.

 

On CNBC, a poll from the YPO, Young Presidents Organization, consisting of 17,000 company presidents from around the world under the age of 50, revealed that the ones who most doubted China overtaking the US economically in the next 10 years or more, were Asians. It seems they have a much more realistic view of China than in US or Europe. They seem to better realize the severe problems in China ( one being food inflation, which most believe triggered their recent rate hike). We tend to like an underdog role and adopt it more easily. The IMF had the chance in Dec., 2010, to discuss the Yuan, or even add it to the basket of reserve currency, but they not only did not do this, they increased the US percentage for 2011 to 66% from 49%. If that is not a statement of relative financial trust, what is ? I think we are ( like every country's citizens) feeling our situation is worse than everyone's else in the world.

If the situations between China and US were reversed, We would be refusing to sell wheat and other soft commodities to the world until the price was such that import/export exchange would swing from China to US, but then politics would not allow us to do that. They have no such constraint.

I think anyone who concentrates their financial future on precious metals alone, run a risky scenario, which is mainly based on worse case possibilities, like H1N1, HIV, Global Warming, consuming the earth. The first 2 didn't , and there is still questions on the 3rd. But I do respect the possibilities of Black Swan events and people's desire to have excitement, even bad excitement, in their lives. No disrespect intended.
Jim

 

I'll take it a step farther. No one in America has seen this period. And I agree that is why it is misunderstood. The past inflations in America occurred when either (1) there was no central bank or (2) debt levels were low. And if/when the Yuan becomes the reserve currency, it is at least as likely that we will experience a deflationary depression due to massive defaults and debt service problems as it is hyperinflation. This is a new game and the Zimbabwe model doesn't apply. That's why I believe the probability is closer to 50/50. Remember -- inflation isn't a rising money supply. It is a rise in the money supply that is faster than the rise in demand for money. And the demand for cash in a debt liquidation scenario is a huge and unmeasurable factor.

It's something to think about. Anybody who thinks they KNOW what will happen just doesn't understand the dynamics [in my opinion].

 

Well first off, I do not claim that I know what will happen. I am merely suggesting that preparation for such an event will perhaps be a prudent choice of educated men.

While every Country has it's own problems, the problem in the USA is massive debt! I am of sturdy conviction that this level of debt can only foster inflated prices in all markest across the board. It has not even escalated yet and food, energy, PM, and in general most items required to live have gotten more expensive. I do not see that as deflation by any means.

Tell me you have not noticed the cost of living increasing all around you? I have noticed.
I am sure everyone else has too or it would not be so public on the nightly news.


Desertgem

I agree, no man should put all of his eggs in one basket.

 

There have been increases in my costs. Gas at Costco has risen by about 10% over the last 9 months or so. Food prices much less, but we have a local beef and farming industry, and if one does decide to buy generic food stuffs at 99 cent or Dollar stores, I dare say they can stay even as far as prices. Costco is interesting in that many of their Kirkland brands are store labeled national brands, and they have controlled cost well. Water utility has increased about 6%, electricity also. Garden seeds have gone up a large amount. But the increases are from my experience within range, and not necessarily related to financial unrest or debt caused inflation. As a farmer friend said, he is finally making some money after 8 years of breaking even on wheat. I asked him if he was going to plant more, he said probably not, as this has been more a weather problem for the world rather than anything else.

Jim

 

Desertgem

This is my point, it has not happened yet, no financial unrest or debt caused inflation yet!!! This is what may be coming down the road and very soon indeed. This is what will catch Americans off guard, this will have never happened before and what causes the denial thoughts of "this just cant happen to us" when it does, it will be too late. For me I am preparing for this event. If it does not happen, great! If it does, then even better since I will be prepared.
Thank you for saying that.

 

Some high profile necessities have risen in price. At the same time, there is no corresponding increase in median personal income, which is still below 1999 levels. So people are funding their purchases of higher priced goods by cutting elsewhere. This is not monetary inflation which would be signaled by simultaneous increases in prices and income as in the 1970s. So people are hurting and being squeezed, but it is due more to global competition for limited food and energy resources, and not from inflation. There's a difference. We may end up with inflation, or people might continue to be squeezed. It's too early to tell.

 

I liked the information an anlysis in your post but with regard to the the portion listed above I think you left out a couple of groups. Those that reject out of hand that a Black Swan event may happen by virtue of the fact that they rarely happen and those who are data driven and reach a well-reasoned conclusion that some negative event may occur.

Regards,

Bluesboy65

 

In a normal economy (one with access to credit) debt creates inflationary pressure because it creates economic activity and increases velocity. One of the few tool the Fed has in it's arsenal to deal with inflation is to raise lending rates so that economic activity is slowed down and thus mop up excess liquidity.

The case for inflation: Our national debt ($14T) requires either servicing or default. We will never default because to do so would truly mark the end of our ability to attract money to run our government; so we can take that option off the table. Servicing of our debt is funded through tax receipts, taking on additional foreign debt or by creating money (a technical default). With stimulus, M1 is growing much faster than growth in the economy but the real risk is with the debt held by foreign governments and their loss of confidence in our currency because 1) our loose monetary policy and 2) our ability to eventually pay. As confidence fades, bond yields climb (happening now) which quickly makes our debt problems much worse. In response our Fed will more frequently be forced to step in as the buyer of last resort (this too is already happening) as we are no longer able to attract foreign investment. This will lead to an environment where not only will we be unable to attract buyers, but our buyers (i.e. the Chinese) will become net sellers and dump our bonds for whatever they can get (painful for US and China). When this begins, the trillions of dollars that begin to flood the global market will dramatically increase M1 and we will see substantial price inflation; we will be in a decidedly tight spot. These dollars will begin chasing coal, corn, wheat, timber, oil, cotton, apparel, consumer electronics, durable goods etc.

People have debated about whether we are headed for inflation or deflation but the inflationary scenario is the one that is playing out. Even Ben Bernanke is discussing his plans of dealing with the inflation he is trying to create. He has explicitly stated that he is trying to create inflation. So the global story is inflation, it is threatening emerging markets, heating up the biggest growth story in history (China) and you can feel it when you go to the store. That’s how I see it. I invite anyone to pick apart my analysis and articulate the mechanics of a deflationary scenario. Whether we continue to see inflationary pressure or this reverses and we begin to experience deflation portends very different approaches to precious metals investing.

 

An article I read yesterday indicated that China does want to pursue that goal, but that they would need about 5,000 tons of gold in order to have the proper backing necessary to be successful, and that is approximately 2 years worth of global production which they will obviously not get all of. I think that bodes well for metals as well since that goal will diminish supply. I am more concerned about something like the Amero, or any sort of global currency beyond the control of our nation's legislation replacing a defaulting USD.

 

Cloudsweeper, I don't know that I would expect to see an increase in personal income in this case. Small businesses have been run out of town by big business bailouts. Everybody is getting squeezed, because greed is the name of the game. I don't know much about the difference between inflation and price inflation, but my perception has been that inflation is just increasing the money supply, and the usual effects thereof are what most people refer to as inflation. If that is accurate, then we are obviously already experiencing it, but the fruition of effects remains to be seen. Feel free to correct if/as necessary =) I appreciate the seasoned expertise you have to share.