One of the earliest recorded economic experiments may be found in the scripture passage known as the Parable of the Three Talents (Mathew 25:14-30). In it, Christ speaks of the master who entrusts his wealth (Talents) to his three main lieutenants while he goes on a journey. When he returns, he compliments the two lieutenants who have increased his wealth, but admonishes the third who simply buried the treasure in the ground. One might reasonably conclude that the wealth in this instance really referred to capital – or savings. The actions upon which the first two lieutenants increased the wealth may have been in acting as lenders or as financial partners. Either way, what is indisputable is that the capital was deployed to increase economic activity and hence the Masters’ wealth. This concept is as true today as it was 2,000 years ago. Hence, when I observe statistics about the amount of gold that savers are buying, I cannot help but think that this is akin to “burying the treasure in the ground.” Gold really is a dead end investment, designed only to protect against the primary fears of savers – the loss of their capital either through confiscation or inflation. In contemporary terms, such losses can occur either through major tax increases (think France and PM Hollande’s decision to impose a “confiscatory” income tax rate of 70%) or money printing to bail out various enterprises in trouble.
So what to do?
Promote government policies that will encourage savers to invest their capital in growth promoting strategies. What is that? Stable and equitable tax rates (meaning not constantly changing and not favoring special companies that are cozy with Washington DC) and spending policies that do not pile up mountains of debt that create the fear of future confiscatory tax rates. In this regard, the January 1, 2013 “fiscal cliff” that some pundits are calling the automatic spending cuts and the expiration of the Bush-era tax rate reductions may not be such a bad thing if the private sector gains confidence in the measure and begins to deploy capital in productive ways.
All comments and questions are welcomed.
Bob Bilkie, CFA