How to Preserve Wealth in a Socialist Economy 23 comments
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In this post we'll talk about the top priority of every trader and investor: wealth preservation. Specifically, we'll discuss how to preserve wealth in a socialist economy, like an increasing number of the economies in the world today. To understand how wealth preservation differs in socialism rather than capitalism, we first need to understand the economic and productive differences between the two types of economies.
A socialist economy is essentially a centrally planned economy; in other words, government, rather than the free market, chooses how collective resources will be invested. Regardless of what one thinks of whether this is appropriate or not, centrally planned economies tend to be less efficient and less productive than their free market counterparts. While part of this is the age-old incentive issue -- why work if I'm not going to keep the profits? -- there is also the issue that centrally planned economies simply may not be capable of making the infinite number of decisions required to produce. In free market economies, the "invisible hand" of supply and demand tends to automatically guide resource allocation, which historically has resulted in greater efficiency than centrally planned models. Economist F.A. Hayek elaborated on this issue in his classic book, The_Road_to_Serfdom.
Because centrally planned economies are less capable of properly allocating investments, and because they can distort the free market through interventions, there is greater risk of malinvestments -- i.e. poor investments that do not create greater wealth, made by both central planning institutions within government as well as private investors. The impact of malinvestments is deflationary; credit is destroyed, asset prices fall, investors become more hesitant and reluctant, and the appeal of sitting tight in cash grows. Unless, of course, the central bank can stimulate the economy through inflationary monetary policies, in which case cash might be devalued as well.
To summarize, centrally planned economies tend to have a more unstable business cycle, one that is prone to both excessive inflation as well as excessive deflation.
So the question: how does one preserve wealth in a socialist economy?
To answer this question we should examine what alternative forms of money exist. Key questions to consider:
- Is there another economy that does not suffer from the typical problems a centrally planned economy does? If so, can we store our wealth in that respective currency?
- If the whole world is socialist, who is the best central planner? In other words, which central planner would you "invest" in?
- Which commodity is the market currently treating as money? Throughout history, gold and silver have been the most popular choice free marketeconomies around the world has chosen as money. Even in our current times, when currencies become unstable, individuals begin to price their assets in other currencies or precious metals like gold -- something we recently saw in Vietnam.
As the global economy is increasingly socialist and is experiencing the corresponding instability surrounding both inflation and deflation, commodity money may be the safe haven of choice in our current times. If there is a big problem -- currency crisis, political instability, etc. -- your commodity money serves as an insurance policy of sorts. More specifically, the commodity money that you take possession of is your true insurance policy, in the event of a breakdown of the socialist government. And so, when looking at your aggregate portfolio, a key question to ask may be: how much do I want to put in my emergency fund? The answer to that question should be the amount you are in whatever is the monetary commodity of choice (most likely gold), with a bias towards taking delivery, as counterparty risk will also increase should the economy become increasingly unstable.
Next time, we'll take a look at how to adjust the safe haven portion of your portfolio -- i.e. your commodity money -- based on the developments occurring in your socialist economy.
Disclosure: Long gold.
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"The OP clearly doesn't know what he is talking about. The number
of centrally planned economies has declined overwhelming--see Russia
and its satellites and China. Actually it is hard to think of any
centrally planned economies left: Cuba, North Korea, who else?
Instead the enormous movement has been toward crony capitalism--where there is an unholy alliance between certain sectors of the business
world and the political elite."
PastTense, you are overlooking the fact that your centrally planned economies and crony capitalist economies are essentially the same except for the front men. There is no essential difference between the Central Planning Committee of Cuba deciding who gets the party perks and the Goldman-Sachs/US Treasury cabal deciding who gets the bailouts.
you are correct "it is hard to think of any centrally planned economies left: Cuba, North Korea".
Countries with central planning are totalitarian in nature with starving population.
You are also correctly mentioned about "the enormous movement has been toward crony capitalism--where there is an unholy alliance between certain sectors of the business world and the political elite. These sectors channel enough kickbacks to the political elite to be sure they are re-elected, and after they retire from politics fatcat jobs as lobbyists... In return the political elite channel massive funds (bailouts etc) to these favored businesses and make sure they aren't adequately regulated."
As a matter of fact, America has been living in a crony capitalism for the last 20 years.
A crony capitalism is unproductive and unstable leading from one economic crisis to more and more severe one and political $ civil unrest.
In a summary: America is moving to a status of a "third world" country.
www.connect2canada.com/
realtor.ca
On Feb 15 09:49 AM yellowhoard wrote:
> I've been looking towards Canada as a possible safe haven. There
> is no inheritance tax and a five year grace period for non Canadian
> cap gains. The country has enormous resource wealth so the currency
> should improve relative to the US dollar. Granted their taxes are
> high now, I see them as being reasonable five years out.
>
> When the bill comes for this orgy of spending, we will have 80%+
> marginal rates. At that point, you might as well be a slave.
>
> Any Canadians out there to give me advice?
The best investment in such a market it to buy the worst performing publicly supported industries because they can't go bankrupt no matter how bad they do. Take a clue from China or Russia. Every time the government wants the market to go up, they pump a bunch of government money into a state owned industry. Then the state partially privatizes it demanding the state owned banks support the deal. Then pump more state owned money when that fails. Then repeat the process ad infinitum. If that fails, let them doctor the books and give them a juicy government contract.
Oh the joys of our socialist state.
i have lived in dubai tax free for 20 years.
planning to move was a nightmare.
increasingly imp-ressed with Panama.
great tax regime and bank charters are administered by the the senate. you want to break into an account. go get a senate approval. i shit you not.
best
downtowndubai
On Feb 15 11:47 AM atlasman wrote:
> Think about how popular a country that goes against the grain and
> promotes capitolism would be in this increasingly solicalist world.
> First, capitol would flow to it away from inefficient socialist states
> and then talented people would follow the capitol. Eastern Europe
> and Ireland comes to mind as possible candidates. A country like
> Costa Rica would be a great haven and take a number of American refuges
> if they ever figured it out.
As for socialism, while I kid my mother, who still lives there, that she lives in the "Socialist Workers Paradise" the fact is that Canada is a very watered down socialism compared to Britain and especially so as compared to the continent. And those nations are really not very socialist either.
I don't think we would see Canada follow suit with the US if the US truly lurched towards a more socialist model. What I can foresee is Canada becoming a much bigger trading partner with China.
As for cold...no colder than much of the US in winter!
* Welfare is widely defrauded by citizens as well as new immigrants, with hard-working Canadian citizens paying for every cent. While certain provinces, such as Ontario, have taken steps to eradicate fraud (and to get capable workers back into the workforce), these policies have been widely criticized as violations of human rights. As it stands right now, a person fully capable of working can remain on welfare for their entire life, if they so choose.
* The inefficiency of government control has resulted in outrageous waiting lists for services such as cancer treatment. Waiting lists for cancer treatment are considerably longer than the American average and the times are also longer than what radiation oncologists consider to be the medically acceptable maximum (Fraser Institute). Furthermore, in 1999, over 120 people were removed from the coronary by-pass surgery waiting list in Ontario because they had been on it so long, they were so unhealthy that they would not survive the surgery anyway. The Organization for Economic Cooperation and Development has also ranked Canada low for the availability of MRI and CT scanners although Canada ranked fifth for health care costs. Similar problems plague almost every area of the system.
The majority of Canadians choose to believe that more government funding is the answer to health care problems. Most Canadians refuse to even entertain the idea of user fees, which even Sweden has implemented as part of the answer to dealing with patients who go to the doctor for every sniffle or cough.
* The Canadian rate of productivity, which is directly connected to the standard of living in a nation, continues to slow, particularly in comparison to the United States. The high Canadian tax rate discourages business growth and investment and our high level of debt (which owes great thanks to Trudeau's massive expansion of social services in 1970's) has contributed to the low value of the Canadian dollar.
* The chief executive of one of Canada's top high-tech companies said it best when he said, 'we sure have not created an economic climate to keep our top talent ... and wealth creators here for the coming century' (John Roth, CEO of Nortel). The low value of the Canadian dollar, the ability of American companies to adequately pay for highly-skilled workers, and the high rate of taxation has led to a 'brain drain.' As Roth said, 'the top marginal tax rate in the United States just moved from $283,000 to $285,000. Canada's top rate starts at $65,000 Canadian, or $42,000 U.S. So in Canada, you are wealthy at $42,000 U.S. In America, you're wealthy at $285,000 U.S."
* As for redistribution of wealth? Hardly a fair system. The provinces of Ontario and Alberta are the only net contributors to the economy of the country and are punished for this by having their wealth taken. Despite being morally wrong, this system of taking from the rich to give to the poor is rife with flaws. A family in Alberta with a household income of $30,000 - $40,000 will pay out over $3000 for equalization payments, while a family in the province of Newfoundland which has a household income of over $100,000 will receive over a $1000 in benefits. Furthermore, these equalization payments have not led to economic development in the areas receiving them, ensuring that the system will never end.
* Canadian law has given labour unions the right to force people to join as a condition of employment, in violation of the right to freedom of association.
* This last point isn't so much about socialism than just stupid government. If you're a serial killer, Canada may be a good place to put some roots. There is no system of consecutive sentencing in Canada, resulting in such recent cases as the five year sentence given to a man who had a large role in the 1985 Air India bombing which killed 329 people. Many Canadian police officers have become frustrated as people convicted of such crimes as break and enter are routinely let off with light probation.
www.namyth.com/Sociali...
On Feb 16 09:51 AM Ferdinand E. Banks wrote:
> If what they have in Canada is socialism, then count me in. Of course,
> most of the people in this forum who call the US socialist wouldn't
> recognize socialism if it climbed into bed with them.
On Feb 15 09:49 AM yellowhoard wrote:
> I've been looking towards Canada as a possible safe haven. There
> is no inheritance tax and a five year grace period for non Canadian
> cap gains. The country has enormous resource wealth so the currency
> should improve relative to the US dollar. Granted their taxes are
> high now, I see them as being reasonable five years out.
>
> When the bill comes for this orgy of spending, we will have 80%+
> marginal rates. At that point, you might as well be a slave.
>
> Any Canadians out there to give me advice?
On Feb 16 01:22 PM paintismotion wrote:
> Wait another ten years and we will all be americans perhaps. I for
> one can not see Canada staying independent from the USA in the long
> term. Also- it is not worth losing one's life over or fighting for
> - as amalgamation is inevotable from a resources perspective. one
> has to keep the eye on the long term and the long term indicates
> a progressively aging population, oil scarcity, probably continuing
> bad government at most levels and a rapidly unravelling economy over
> the next 50 years. immigration will and should be discouraged in
> the face of dwindling resources off into the future. If I was you
> i'd buy a farm and learn how to grow food. Land and food production
> in the future will be wealth generators.
On Feb 16 11:58 AM If U Say So wrote:
> Pierre Trudeau started the Canadian cause for a society where no
> one "should be entitled to superfluous or luxury goods until the
> essentials of life are made available to everyone", which set the
> tone for modern day Canada. Unfortunately, their have been some side
> effects.
> * Welfare is widely defrauded by citizens as well as new immigrants,
> with hard-working Canadian citizens paying for every cent. While
> certain provinces, such as Ontario, have taken steps to eradicate
> fraud (and to get capable workers back into the workforce), these
> policies have been widely criticized as violations of human rights.
> As it stands right now, a person fully capable of working can remain
> on welfare for their entire life, if they so choose.
> * The inefficiency of government control has resulted in outrageous
> waiting lists for services such as cancer treatment. Waiting lists
> for cancer treatment are considerably longer than the American average
> and the times are also longer than what radiation oncologists consider
> to be the medically acceptable maximum (Fraser Institute). Furthermore,
> in 1999, over 120 people were removed from the coronary by-pass surgery
> waiting list in Ontario because they had been on it so long, they
> were so unhealthy that they would not survive the surgery anyway.
> The Organization for Economic Cooperation and Development has also
> ranked Canada low for the availability of MRI and CT scanners although
> Canada ranked fifth for health care costs. Similar problems plague
> almost every area of the system.
> The majority of Canadians choose to believe that more government
> funding is the answer to health care problems. Most Canadians refuse
> to even entertain the idea of user fees, which even Sweden has implemented
> as part of the answer to dealing with patients who go to the doctor
> for every sniffle or cough.
> * The Canadian rate of productivity, which is directly connected
> to the standard of living in a nation, continues to slow, particularly
> in comparison to the United States. The high Canadian tax rate discourages
> business growth and investment and our high level of debt (which
> owes great thanks to Trudeau's massive expansion of social services
> in 1970's) has contributed to the low value of the Canadian dollar.
>
> * The chief executive of one of Canada's top high-tech companies
> said it best when he said, 'we sure have not created an economic
> climate to keep our top talent ... and wealth creators here for the
> coming century' (John Roth, CEO of Nortel). The low value of the
> Canadian dollar, the ability of American companies to adequately
> pay for highly-skilled workers, and the high rate of taxation has
> led to a 'brain drain.' As Roth said, 'the top marginal tax rate
> in the United States just moved from $283,000 to $285,000. Canada's
> top rate starts at $65,000 Canadian, or $42,000 U.S. So in Canada,
> you are wealthy at $42,000 U.S. In America, you're wealthy at $285,000
> U.S."
> * As for redistribution of wealth? Hardly a fair system. The provinces
> of Ontario and Alberta are the only net contributors to the economy
> of the country and are punished for this by having their wealth taken.
> Despite being morally wrong, this system of taking from the rich
> to give to the poor is rife with flaws. A family in Alberta with
> a household income of $30,000 - $40,000 will pay out over $3000 for
> equalization payments, while a family in the province of Newfoundland
> which has a household income of over $100,000 will receive over a
> $1000 in benefits. Furthermore, these equalization payments have
> not led to economic development in the areas receiving them, ensuring
> that the system will never end.
> * Canadian law has given labour unions the right to force people
> to join as a condition of employment, in violation of the right to
> freedom of association.
> * This last point isn't so much about socialism than just stupid
> government. If you're a serial killer, Canada may be a good place
> to put some roots. There is no system of consecutive sentencing in
> Canada, resulting in such recent cases as the five year sentence
> given to a man who had a large role in the 1985 Air India bombing
> which killed 329 people. Many Canadian police officers have become
> frustrated as people convicted of such crimes as break and enter
> are routinely let off with light probation.
> www.namyth.com/Sociali...
a plus - canadians as a rule tend to be more law abiding than u.s folks. my canadian friends are always bemused by the sacred cow nature of gun-control politics in the u.s.a
a minus - the winter climate (maybe not so minus after all, illegal mexican immigration has not been much of a problem in canada),
> jack
On Feb 16 10:28 AM kelm wrote:
> I immigrated to the US from Canada some years ago. Canada has a lot
> of pluses and of course it's own internal issues as their federal
> system allows the provinces much greater autonomy than a US state
> has. I think the big issue would be with what the Canadian dollar
> ends up doing. The Bank of Canada has been happy to keep the Looney
> consistently weaker than the US dollar. If the US dollar falls out
> of bed - which I expect - then it is not clear to me what Canada's
> response will be. Do they try to keep it low or do they change tactics
> and accept a new global role as owners of a strong sought after currency?
>
>
> As for socialism, while I kid my mother, who still lives there, that
> she lives in the "Socialist Workers Paradise" the fact is that Canada
> is a very watered down socialism compared to Britain and especially
> so as compared to the continent. And those nations are really not
> very socialist either.
>
> I don't think we would see Canada follow suit with the US if the
> US truly lurched towards a more socialist model. What I can foresee
> is Canada becoming a much bigger trading partner with China.
>
> As for cold...no colder than much of the US in winter!
On Feb 16 10:28 AM kelm wrote:
> I immigrated to the US from Canada some years ago. Canada has a lot
> of pluses and of course it's own internal issues as their federal
> system allows the provinces much greater autonomy than a US state
> has. I think the big issue would be with what the Canadian dollar
> ends up doing. The Bank of Canada has been happy to keep the Looney
> consistently weaker than the US dollar. If the US dollar falls out
> of bed - which I expect - then it is not clear to me what Canada's
> response will be. Do they try to keep it low or do they change tactics
> and accept a new global role as owners of a strong sought after currency?
>
>
> As for socialism, while I kid my mother, who still lives there, that
> she lives in the "Socialist Workers Paradise" the fact is that Canada
> is a very watered down socialism compared to Britain and especially
> so as compared to the continent. And those nations are really not
> very socialist either.
>
> I don't think we would see Canada follow suit with the US if the
> US truly lurched towards a more socialist model. What I can foresee
> is Canada becoming a much bigger trading partner with China.
>
> As for cold...no colder than much of the US in winter!
On Feb 16 04:49 PM john s. gordon wrote:
> yellowhoard - canada is a country of strong regional differences
> - maritimes, quebec, ontario, prairies, pacific. centrifugal forces
> have acted in canadian politics before & may do so again.
>
> a plus - canadians as a rule tend to be more law abiding than u.s
> folks. my canadian friends are always bemused by the sacred cow nature
> of gun-control politics in the u.s.a
>
> a minus - the winter climate (maybe not so minus after all, illegal
> mexican immigration has not been much of a problem in canada),
(btw have you ever been on the Yellowhead route?)
Today's Vancouver Sun (February 17):
"METRO VANCOUVER — Another daylight shooting on the streets of Surrey left a young woman dead Monday. Her four-year-old son in the back seat was not hit.
The woman was driving south on 148th Street at 96th Avenue at about 10:30 a.m. when her Cadillac was sprayed with gunfire on the driver’s side."
On Feb 16 07:29 PM yellowhoard wrote:
> Thanks! I like the fact that you have nearly zero crime.
>
>
> On Feb 16 04:49 PM john s. gordon wrote: