Your taxes are going up – and far faster than you believe. You are about to be hit with the silent tax, and in this issue we show you how to evade it . . . legally.

The U.S. Treasury has announced that the government has run the biggest deficit in history. The gross federal debt on October 1, 2008 (the start of fiscal 2009), was $10.12 trillion. As of July 31, 2009, with two months left to go in the fiscal year, the debt had reached $11.67 trillion, an increase of $1.55 trillion. It is on track to reach nearly $2 trillion for the full fiscal year.

Incredibly, in spite of this deficit time-bomb, equities markets moved higher in early August. Tepid economic reports trickled in, such as smaller jumps in unemployment and weakly rising home sales, which were hailed by the monetary authorities as proof that their stimulus policies have worked.

We are to believe that the financial geniuses of Wall Street and Washington have fought off The Second Great Depression with a thunderous barrage of government spending and Federal Reserve money creation.

Really? Common sense suggests the opposite. The old maxim that “you can’t get something for nothing” tells me that perpetual prosperity cannot be created with a printing press.

They are not Deficits, They are Taxes

When you, I, or the government borrows and spends money that will never be repaid, the lender must lose. Effectively, a debt entered into with knowledge that it will never be repaid is theft. Who is the lender, or victim, in the case of federal debt? Anyone holding U.S. Dollars or claims on U.S. dollars – in particular, the vast American middle class.

The point is, the $2 trillion deficit is a lie. It’s not really a deficit at all – it is a surreptitious tax that will be paid through inflation. This fraudulent system of clandestine taxation has been going on for a century – and it’s escalating.

From 1800 to 1913, federal debt was effectively flat, reaching only $2 billion during more than a century. Over that period, consumer prices fell bv an average of 0.5% per year – which made deflation, not inflation the norm!

The moment the Federal Reserve Act was signed into law in 1913, however, the restraints of the gold standard were broken and the great deluge of federal spending began. And the great inflation began. In the following century prices rose by an average of 3.5% per year.

We’re told that the enormous gross federal debt, now standing at nearly $12 trillion, is a burden that will fall on the shoulders of our children and grandchildren. Not exactly. The deficits run over the past fifty years have already morphed into higher prices albeit with a rolling time lag measured in years. We’ve already paid those taxes through inflation. The dollar of 1913 has lost more than 98% of its purchasing power.

The theft through inflation is initially so slow that deficits and price inflation seem unconnected, something further camouflaged by the intermediary step in which the Federal Reserve purchases the Treasury IOUs, increases bank reserves, thus expands the money supply. The fact that deficits and price inflation are conjoined twins is only clear by studying the long-term relationship between federal debt and inflation.

A careful look at the growth rates of federal debt and consumer prices makes the link between federal debt and prices quite clear. However, since the year 2000, the lines are no longer roughly parallel. For the past decade, federal debt has been growing at a much faster rate than prices.

Logic tells us that for these two lines to resume and continue their historical relationship, either the rate of growth of federal debt must slow, or price inflation must accelerate. Which do you think is probable? It’s what’s known as a no-brainer. Price inflation is coming on with a vengeance.

Evade this Tax, NOW!

The abrupt collapse of the credit bubble caught almost asset holders by surprise. Now, we are in the middle of another bubble. If the above analysis is correct, the collapse of the purchasing power and exchange value of the U.S. dollar could be just as abrupt. The financial losses to those suffered in the melt-down of the credit bubble.

There’s no telling when – or how severely – price inflation will surge. All we can be certain is that the silent tax will be levied with a vengeance. Fortunately, there are many ways to both protect your assets, and profit. First, avoid any asset denominated in dollars, and particularly longer-term bonds. Physical gold and silver will preserve purchasing power, and when the next inflationary surge hits, should soar. A mix of foreign currencies and real assets, such as commodities, are also sound ways to protect your wealth. Finally it’s critical to have a well-thought-out plan in place to move your wealth – and yourself – offshore.

John Pugsley founded the Bio-Rational Institute
www.biorationalinstitute.com