Tags: currency | taxes

Get Ready For the Quantitative-Easing Tax

By    |   Monday, 01 November 2010 09:41 AM EDT

Some things cause a “tax” on you even when they don’t come with the name “tax.” Let me explain.

The last round of quantitative easing that the Federal Reserve and Treasury instituted caused a massive amount of money to be created. It did very little for the overall economy but it did push up prices and costs higher.

So unemployment is still largely where it was before. The only problem is that the tactics of the Fed have continued to backfire on you and me through higher prices.

You see, when they print more money, it dilutes the value of the dollar which causes you to have to come up with more dollars to buy the same things as before.

Looking at it another way . . . when you have more dollars out there chasing a finite amount of goods, it drives up the price of those goods.

Either way, the rise in the cost of goods ends up increasing your cost of living. It’s a recipe for disaster when more people are not employed, yet their costs to live just went up.

For the skeptics out there who don’t believe the cost of living is going up, you have to look no further than the Commodity Research Bureau (CRB) Index. This tracks the prices of a basket of goods.

The CRB Index just hit a new 52-week high last week.

But let’s say you are skeptical about that index and want more proof. I was looking up the gain or loss that many commodities have had just this year alone. Here’s what I found:

  • Cotton has risen 85 percent this year.
  • Silver, up 51 percent
  • Coffee, up 50 percent
  • Corn, up 41 percent
  • Gold, up 30 percent
  • Soybeans, up 28 percent
  • Sugar, up 27 percent
  • Copper, up 26 percent
  • Wheat, up 25 percent

    Now this is all great for the commodity trader, but it’s horrible for you and me as we go to the grocery store and buy food. It’s horrible for us as we buy goods made of silver, gold, and copper, too.

    The bad part? We know that the second round of quantitative easing is likely on its way. The Fed is toying with the idea of doing another $2 trillion or more.

    This will only make the price of commodities go nuts once again and “tax” you even more.

    So while the idea of putting more money into the economy to boost it initially may sound like a good idea to some, in the end it’s not a good idea. As you can see, this tactic doesn’t materially lower the unemployment rate but it does raise your costs.

    This eats away at your paychecks as producers and wholesalers have to jack up their prices to cover their increasing costs which jack up the costs of goods at the consumer/retail level.

    For a while now, many of the producers have been eating some of these costs but that’s about to change very soon, especially in light of the fact that higher prices are more than likely on the way soon.

    So expect a “quantitative easing tax” to come your way soon as the Federal Reserve and Treasury weaken the dollar and boost costs once again.

    By the way, if there was a way for me to make your money less valuable . . . I would be a cheat and a crook . . . a criminal. But when the government does it, amazingly there’s nothing wrong with it (legally anyway . . . morally is another issue all together).

    So what can you do to fight against this? Well I wouldn’t advise you getting a team of lawyers to tackle the Fed and Treasury.

    Therefore, I say . . . when you can’t beat them at their game . . . take advantage of their game.

    Since you know they will be diluting the dollar over time and causing the cost of commodities to rise over time, then buy up the currencies of commodity-exporting nations that will benefit from the rise in these commoditie prices. At the same time, short the dollar and benefit from both sides of the equation.

    Don’t worry about the wave that they create since you or I can’t stop it anyway. Instead, surf the wave of higher prices that they create. You see, if you’re invested in things that benefit from the rise of commodities and the dilution of the dollar, then they’ve almost become your friend rather than foe.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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Some things cause a tax on you even when they don t come with the name tax. Let me explain. The last round of quantitative easing that the Federal Reserve and Treasury instituted caused a massive amount of money to be created. It did very little for the overall...
Monday, 01 November 2010 09:41 AM
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