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November
21
2020

Three Conditions for a Free Market Economy
Tom Dyson

Emma’s note: Regular Diary readers will be familiar with colleague Tom Dyson’s story. For the last couple years, Tom has traveled the world with his wife Kate and their three kids. Right now, after a six-month road trip across the U.S., they’re spending the winter in the Teton mountains learning to ski.

Tom’s overall investing philosophy is very similar to Bill’s. He’s a goldbug, just like Bill. And he favors long-term investments over short-term trading, too.

Today, he describes the libertarian philosophy that underscores all his major investing (and life) decisions. 

Greetings from the Little School for Libertarian Kids in the Teton Mountains…

Kate and I are running an experiment. We have three kids, ages 12, 10, and 8. Instead of sending our kids to school, we educate them ourselves.

And instead of pursuing traditional educational goals, like getting good test scores and getting accepted to college, we adopted a completely different educational standard…

The primary goal of our homeschool is to raise our three kids to be humans that other humans like being around.

We focus on “soft” interpersonal skills like kindness, humor, conversation, paying attention to others, storytelling, art, music, personal development, and sound philosophy of thought.

For example, we spent five months traveling around America this summer, visiting Postcards readers. We were hosted 31 times across 21 states… often for several nights in a row.

We slept in basements, guest rooms, and driveways. And we shared meals with our hosts around big tables.

We’re currently in the Teton mountains, hunkering down in an Airbnb for the winter. This is one of the coldest, snowiest places in North America. While we’re here, we’re going to learn to ski…

For now, before the slopes open, we’re spending most of our time indoors. I’m taking the opportunity to bathe the kids in libertarian ideas and free-market ideology.

Porter’s “Three Conditions” for a Free-Market Economy

Right now, we’re doing a lot of work on libertarian philosophy and the ideas that founded America…

Today, we discussed Porter Stansberry’s “Three Conditions” for regulating the relationship between government and a free-market economy…

1. Sound money.
   
   
2. A flat tax on all income, excluding capital gains.
   
   
3. A mandatory balanced budget.

Porter is the founder of the financial publishing company Stansberry Research, and a longtime friend of mine.

“The idea,” says Porter, “is to use real money, or else you will never know what is actually happening in the economy or with the government’s spending. Money is a form of communication across the economy. When that channel is distorted, the economic costs are enormous.

“Second, we know that people will always vote for more government if they don’t have to pay for it. So get rid of progressive taxation. The most important principle in the American experiment is democracy while protecting the rights of the minority. You do that by making everyone equal in the eyes of the law.

“What’s more important than taxing everyone in the same way, and at the same rate? Yes, rich people will pay far more, but only in the same proportion.

“And finally… a government that runs generational debts is immoral. We would never leave debts for our children to settle, so why do we allow our government to do so?

“Besides, debt allows politicians to create the illusion that you can get something for nothing, via socialism. We know it’s not true, but millions still believe Social Security works…

“So you can see what really happens is one generation (or two) wins while multiple future generations will suffer. That’s completely immoral.

“Why exclude capital gains from income taxes? Because that’s capital that’s been invested, which means it is saved income. It was already taxed. And then it was put at risk. If successful, the dividends it generated have been taxed.

“Taxing the capital is a horrible policy. It leads to double and triple taxation, and greatly retards the formation of new businesses and jobs. It’s the worst form of tax for economic growth – the very worst.

“I would also recommend setting the tax rate independently of the spending authority (Congress). Let the people choose the tax rate each year based on their own perception of how much government is needed. Then, let Congress figure out how to spend it.

“We can vote for 5 percent, 10 percent, 15 percent, etc. but if you allow Congress to set the rate and spend the money, the rate will always go up.

“Or let the president set the rate each four years, and we get to vote on the president we want. That would work, too. But you must get the rate-setting away from the spenders.”

Washington’s Lack of Courage

While the kids do their homework, I study macroeconomics. And, as longtime Postcards readers know, this is my core thesis…

The U.S. government is broke, it just hasn’t admitted it yet. The only way it stays in business is if the Federal Reserve prints trillions more dollars.

Out-of-control currency printing and spending will devalue the dollar… and the entire system of paper currencies that revolve around the dollar.

Bonds and other savings instruments will have sharply negative interest rates, especially after accounting for inflation, possibly for decades to come.

Gold will hyperinflate as investors and traders flee from bonds and currencies, and into hard assets.

Measured in gold terms – which, in my view, is a much more accurate way of looking at the markets – the stock market is in a primary bear market. But it’s being temporarily held up by the greatest pulse of government-generated liquidity in history.

U.S. stimulus enriches China. China’s economy is extremely competitive. The more dollars the U.S. prints, the more international assets and resources China ends up owning.

These trends formed because of years of short-term thinking and a terrible lack of political courage in Washington.

COVID-19 has only accelerated trends that have been years in the making. Now, the vaccine may get rid of COVID. But it won’t cure the debt bubble…

Regards,

Tom Dyson
Editor, Postcards From the Fringe

P.S. Two years ago, I went “all in” on a single trade… You see, the financial system is rotten to the core with intervention, manipulation, fake money, fake trades, fake deals, fake news, and robotic trading. The system has become very, very fragile.

The bottom line is, I don’t want to participate in this toxic mess. I want to sit on the sidelines in this one trade and get on with my life… until it’s safe to return to the financial system. It’s a trade that will play out over several years. But I have total conviction in this idea. Learn more here…

Like what you’re reading? Send your thoughts to [email protected].

Tom Dyson is the editor of Postcards from the Fringe and Tom’s Portfolio. He’s a former London banker and money manager.

In 2018, Tom sold his furniture, handed back the keys to his Florida apartment, and set off on a two-year trip around the world. His Postcards from the Fringe e-letter is a chronicle of life on the road with his ex-wife, three kids, and a suitcase.

Tom also documents his thoughts on the markets and the global economy in his Postcards. He’s well-known for his contrarian ideas, among them, buying bitcoin when it was selling for just $6 in 2011… right before it climbed 302,000%… as well as his “all in” bet on gold in 2002, right before it became that decade’s best-performing investment.

But that wasn’t the last time Tom went all-in on gold. Starting in 2018, he bet nearly $1 million on a gold strategy he developed. He believes it could be the biggest moneymaking opportunity of the next two decades. In Tom’s Portfolio, he breaks down the ideal portfolio to take advantage of this strategy.

 

 

www.rogueeconomics.com