TGCI 50: Inflation from a 9 years old!

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Episode 50 – Inflation From a 9 Year Old!

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Summary

Today, we bring to you a very special 50th show of The Gold Collar Collar Investor podcast.  

In today’s show, Pancham is joined by his son, nice years old, Ivan Gupta. Pancham gifted Ivan, Irwin Schiff’s book, The Kingdom of Moltz. This book explains the relationship between taxes, inflation, and money in super-simple terms…and with some clever illustrations. So much so that even nice-year-old Ivan was able to grasp these concepts with ease.

Tune in to this delightful and very special show now! Enjoy!

PanchamHeadshotTGCI
Pancham Gupta
ivan
Ivan Gupta
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Timestamped Shownotes:

  • 00:43 – A special thanks to our listeners from our main man, Pancham!
  • 01:44 – What is the “Kingdom of Moltz” by Irwin Schiff about?
  • 03:39 – Pancham reads and explains this short book in simple terms
  • 04:30 – Taxes in the Kingdom of M
  • 06:40 – Igor II, the King of M decided to raise taxes
  • 08:25 – And then, anticipating a rebellion, decides to rethink
  • 09:41 – AH-HA moment – Changing the yardstick
  • 13:49 – Igor II is amazed by America’s financial system
  • 15:03 – Questioning the intrinsic value of paper currency
  • 22:55 – Pancham welcomes his son, Ivan to the show
  • 23:10 – Cooped up at home due to COVID…a ten-year-old shares his perspective
  • 23:38 – Having read the book, what did ten-year-old Ivan understand about inflation?
  • 24:33 – Is the dollar, the unit of measurement, losing its value?
  • 25:27 – Why did the US government decide to dollar backed by nothing
  • 26:08 – Can you buy less bread with a dollar now?
  • 26:59 – Pancham summarizes the entire show; food for thought – is the value of gold going up or the value of dollars going down?

3 Key Points:

  1. Discussion on Irwin Schiff’s, “Kingdom of Moltz”
  2. Understanding the many quirks of America’s financial system
  3. The negative fallout of printing more money

Get in Touch:

Read Full Transcript

Welcome to the Gold Collar Investor podcast with your host, Pancham Gupta. This podcast is dedicated to helping the high paid professionals to break out of the wall street investments and create multiple income streams.

Here’s your host Pancham Gupta.

Hi, this is Tom Burns, author of why doctors don’t get rich, you’re listening to the gold collar investor podcast with Pancham.

Pancham: Hello, hello, hello. Welcome to another episode of the gold collar investor podcast. This is your host Pancham. It’s a nice sunny day here in New York. This is going to be a really special episode. We just hit 50 episodes. Yay. It’s been an awesome journey. And I really want to thank everyone who has been listening. It’s because of you that I’m doing the show. It really takes a lot of work to put this together. You guys give me the motivation to work. Work hard on this podcast. If you like what you have heard and what you hear and got some value out of it, then please leave me a five-star written review on iTunes, it would mean a lot to me. This would help us reach a wider audience. iTunes algorithm gives more weightage to written reviews and makes it discoverable to more people. You can do so by going to thegoldcollarinvestor.com/review. I repeat thegoldcollarinvestor.com/review. So I was thinking for a few days on how I can make this special episode even more special. Recently, I was having a discussion about the cares act with my wife and how Federal Reserve is printing money and how it could lead to inflation. My nine-year-old son. Ivan was listening to the conversation and told me about He knew what inflation was. I was surprised. Then he reminded me that I had given him a book on inflation around year and a half ago. This book teaches about inflation in a very easy way that even a kid can understand. I was like that is that I want to do a show on it. The book is called the Kingdom of Moltz by Irwin Schiff. Again, it’s called the Kingdom of Moltz. This book is out of print now. And last time I checked, it was over $100 on Amazon. I was lucky to get it from the son of the late author, Peter Schiff. I met Peter at one of the conferences and he was selling one of the last boxes of these books, grateful that he’s signed it for me. It’s actually a short comic book. I’m going to read that book first and then discuss it with my son. Believe me, it’s actually really good and explains inflation to 10-year old kids by using a fictional cartoon story of a kingdom named Moltz. We are going to call it Kingdom M, as it would be easier for me to pronounce. Since it shot. I will read this story first and then invite my son to see what his understanding of inflation is. So before we begin, let me read what it says on the title of the book on the cover page of the book.

So on the front page, it says the title The Kingdom of Moltz, a tale by Irwin Schiff about inflation and where it comes from the back of the book it says puzzled by inflation? This book proves that any 10-year-old can explain where inflation comes from and why Let’s start to write off inflation is to write of people’s infinite capacity to be tricked by politicians. Read the Kingdom of Moltz for a good laugh, and then a good cry.

Alright, so that’s the beginning. And then we have some cartoon pictures here. So let’s go here. Alright, so it’s a lot of fun to look at the pictures as well as you as you read it, but now I’m going to try my best to explain it.

In the sleepy kingdom of M, people paid taxes according to the height of their houses. Those living in houses under 15 feet, paid no tax, but a tax of five gold pieces was levied on every foot over that. In addition, sir, tax of 10% was added on houses over 20 feet. 20% on houses over 25 feet, and 30% on houses over 30 feet. with a maximum surcharge of 40%. On houses over 35 feet, you can see immediately that the people of M, were truly progressive in the matter of taxation. The poor people in M, those obviously living in the smallest houses, escaped taxation completely. While those living in biggest houses, obviously the more affluent ones, paid progressively higher taxes. The third tax, of course, added a truly sophisticated feature to the system. While this method of taxation was exceedingly fair and progressive, it did, nonetheless exert an influence on the lifestyle as taxes often too, as well as on the housing styles that existed in the country. Many houses in the kingdom were constructed exactly 14 feet 11 inches high, while most other were built exactly 19 feet, 11 inches, 24 feet, 11 inches, 29 feet, 11 inches, etc, etc. It must also be observed that people in Moltz generally build houses somewhat smaller than they would have preferred. For these reasons, the citizens of Moltz live a bit more cramped than necessary, but that’s Kingdom’s business one day, as fate would have it, that King of Moltz, Igor II was informed by the Royal Treasurer that the Royal Bank account was practically depleted. A Conference of the kings advisors was hurriedly called to determine why there was such a royal money shortage. Going over the royal books, it became evident that the king Igor was spending too much money in relation to tax revenues. There’s a picture of everyone sitting on a table here and discussing over a cup of coffee. Igor therefore would have to do one of two things. He would either have to cut his spending on the Royal coat, on his royal fooling around, or he would have to raise taxes. Of course, cutting down on wasteful and unnecessary royal spending was unthinkable. So Igor did what all kings and politicians do in situations like this, and that is…”to call for more taxes”. Igor explained to his ministers, there was no alternative but to raise taxes. Hence foot taxes would be six cold pieces of foot instead of five. The housing exemptions would be lowered to 13 feet and also certain tax brackets lowered accordingly. There was some general agreement on these proposals, but then the Minister of Interior spoke up your kingship. He said, I think that it would be a terrible mistake to raise taxes now. There is discontentment among your subjects, possibly due to their cramped state of mind. a tax increase at this time would I suggest, release considerable resentment and could set off a rebellion and there is a picture of people rebelling ego stings, downright eager on taxes and stuff like that. Several ministers expressed agreement with this assessment. Perplexed and frustrated, Igor looked at his ministers and asked, but how can we raise revenue without raising taxes? Interesting question, right? Silence fell as each minister pondered this difficult question suddenly could solve. The little minister of taxation, jumped out onto the long, open Table and began to shout. I caught it. I caught it. Missing picture there. You’ve got what Igor asked how we can extract more taxes without increasing taxes? Well, let’s hear it out. Igor displaying some annoyance at his minister’s behavior. It’s really simple set codes by tradition. Your Majesty makes all of the yardsticks and rulers used in the kingdom. We need only call in all the yardsticks and rulers and issue new ones. Built 10 inches to the foot instead of 12 by making a foot, two inches shorter. All rulers and yardsticks will be shortened by 16%, which will accomplish the following. Number one, all buildings will immediately be 16% higher, and thus subject to more taxes. Number two, many buildings will now fall into higher tax brackets, thereby increasing taxes substantially more than 16%. And number three, all buildings that were built 14 feet 11 inches high to escape taxation will now measure over 15 feet and be subject to tax. By this means continued…who had since crawled down from under the table. Royal revenue will double and we wouldn’t have raised taxes, one lick. You can’t be serious said the minister of royal celebration. One would only have to compare an old ruler to the new one to see that we have changed the unit of measurement. The idea is preposterous.

No it isn’t. First of all, we call in all the old rulers. We will do it in the name of some national emergency . It’s an amazing cartoon picture at the bottom it says you know national emergency and it they’re announcing it to the to the town that you know to the kingdom that there is an emergency we have to get all the rulers back. Okay. So now continuing, we will declare that after that date, anyone caught with the old ruler in possession will be regarded as an enemy of the state and subject to severe punishment, perhaps banishment to the salt mines of Siberia. No one will their own up to having an old ruler. But observed minister of palace decorations…if they measure their houses with smaller ruler, they will surely recognize that their houses haven’t grown any taller. Thus they must see through this whole scheme.

But they won’t, again.. People have short memories, they will have forgotten how big their houses were. Besides, before we measure citizens house, we will measure the citizen, he will be pleased to discover that he is taller than he remembers, and this will put him in a happier, more receptive frame of mind. Why our new rulers will eliminate all short men from the kingdom. The people will even feel better about living in bigger houses, and psychologically may even feel less cramped. Besides, the measurement will be there for all to see. Since your subjects can ship all…Assume you to be an honest and honorable man. would simply not occur to them that you could be guilty of such a despicable and this honest act as to shorten our nation’s traditional unit of measurement. A picture of King really smiling and making sense of it. And thus, the trust and the confidence that the people have placed in you. Believe me, your Highness, it will work. I think the idea is insane. The Minister of royal traveling, it will be impossible to pull that much wool over the eyes of so many people. Gorky, the Minister of Justice, who had been listening quite intensively interrupted at this point. I have been reading about country called America where they calculate wealth and pay taxes in dollars. Now there is a picture of this you know, Earth and you know, this is Country, America and the kingdom on the completely other side of Earth in dollars. Igor quietly asks, what are dollars? dollars Your Highness explained. Gorky are what they use for money. You mean they don’t use gold or silver questioned Igor?

No, Your Highness.

What are dollars made of?

Paper.

Paper, replied the king incredulously. You mean they prefer paper to gold and silver?

I couldn’t say for sure, Your Highness. I do know that at one time they did used gold and silver, though now they’ve used only paper and a little bit of copper.

Well, what happened to their gold and silver?

Their government took it all, replied Gorky.

But how can they transact business and pay taxes without golden, silver?

Well, replied Gorky, the government gave them these paper dollars for their gold and silver, and then told them to transact their business and pay their taxes with these paper dollars.

But said the King, obviously impressed with another monarch’s ability to acquire all of his subject’s gold and silver simply for bits of paper that must have required the use of a great deal of force.

I mean, there must be fighting and resistance, how many soldiers had to be dispatched to the people’s houses to force them to accept paper for the gold and silver and there is a picture of people fighting with swords and all that.

Know your kingship. You don’t understand Americans, explains Gorky.

Americans will do anything that the government tells them so when the government told them to accept paper for the gold and silver. This simply tell it, Americans regard obedience to government as a sign of patriotism. There is nothing that government cannot get them to do so as long as it comes in an official envelop. For instance, while we dispatch our tax collectors throughout the kingdom to figure out and collect our taxes, Americans figure up their own taxes and pay them right to the government. Why the government has them collecting taxes from each other, often at great expense to themselves. Now there are pictures of you know, people paying taxes.

Incredible. But tell me more about the paper dollars. How many pounds of these paper dollars would it take to buy a horse for instance?

Well, it doesn’t work like that, your kingship. They don’t weigh their paper dollars as we our gold when they make their paper dollars. They put numbers on them. And the bigger the number on it, the more value it has.

So could you conceivably buy a horse in America with only one ounce of paper providing?

If it had a big enough number on it? It has a picture of 500 on a bill.

Igor, still a bit confused. Questioning further…What precisely is the difference between $5 and $50? Well,

Your Highness, a $50 piece of paper has extra zero following the five which the $5 piece of paper does not have. And that one little zero makes it worth 10 times as much.

That is correct, Your Majesty. both pieces of paper were the same.

Igor questioning again.

Yes, Your Highness.

Both pieces of paper measure the same?

Yes, Your Highness. That being the case, I still don’t see why one should be more valuable than other.

Well, in America, people will simply exchange more goods for pieces of paper having bigger numbers on them than they will for pieces of paper having smaller numbers. That is why larger numbered pieces of paper are more valuable than the smaller numbered pieces of paper.

Where do the pieces of paper…these dollars come from?

Well, in America, the government is responsible for making dollars, much in the same way, sir, as in the kingdom of Moltz, you make the rulers.

That is why, I think this suggestion might work. Because in America, government is always making dollars smaller by making more and more of them to use to pay some of its own debts. Naturally, each new dollar it buys less and so It is indeed smaller. So why can’t we in Kingdom of Moltz make rulers smaller?

So there is a picture at the bottom showing United States dollar factory where their manufacturing bills. Why? In America when they make their dollars smaller the event by official proclamation, then the government tells the people to calculate their wealth in these smaller dollars and they do it naturally, their wealth now appears to be larger. So they pay more taxes and the government doesn’t have to raise taxes also, in this manner, the populace can be fooled into believing they are growing richer, even as they are being made poorer. So you know, there is a picture here I want you to appreciate this picture. You know, it shows a picture where there is Saturday of 1950 where the house is of certain value and the car is of certain value. And it’s growing in value, or people think that their wealth is becoming more. And then there is a picture of Saturday 1970, where the same house which was $12,000 is now $36,000. The car, which is 1500 dollars now…and so on and so forth. And then there is a picture. I’m laughing because it’s actually so true. It’s a picture of Saturday of 1980, where there’s an article in newspaper, it shows husband and wife both working second jobs, walk to work, couldn’t afford gas, and then it says combined paychecks of $500 before taxes, and you know, the house is now worth $75,000. So, you know, basically what they is really trying to show is that year over year, decades, over decades, the prices have gone up. People think that they’re worth more but now they have to work more jobs or make more money using these jobs to kind of survive. So that’s the illustration that is trying to say. Anyway, I’m going to continue now.

Amazing, said King Igor scratching his head in utter disbelief. And the government can really get away with that.

It doesn’t seem to present any problem your kingship.

But observed Igor, the king of America must be really powerful fellow to get away with a stunt like that.
They don’t have a king, your kingship, they govern themselves.

You mean they played this trick on themselves?

King Igor: America must truly be the land of simpletons.

No, Your Highness, Americans are not simpletons. As a matter of fact, Americans spend a lot of time and money on education.

Why is that?

America education amounts to a national fetish. schooling is compulsory until age 16. Though most continued to age 18, with many continuing to age 22 and 30. I think that it is quite possible. In America, more time is spent in study than in work. Well, said Igor, now feeling somewhat encouraged and relieved. If they can get away with that in America, since in Moltz, we have no schools at all. Maybe we can get away with that to the end.

So there is a picture of this king smiling as if he has found some treasure. So how was that? Do you see something similar happening right now?

Anyway, I’m going to invite my son, Ivan now. Ivan, welcome to the show. Thank you. Tell everyone about yourself.

Ivan: I am in third grade. I graduated third grade, and I’m gonna be going to fourth grade in the September. And I’m right now in summer vacation.

Pancham: Are you having fun in summer vacation?

Ivan: Yes, but it’s very boring.

Pancham: Okay, it’s boring. Why is it boring?

Ivan: Because we can’t go outside because of COVID-19.

Pancham: Okay, but what was the most fun part of summer?

Ivan: Going to Bushkill falls in Pennsylvania.

Pancham: Great, great. Yeah, that was a fun trip. Alright, even so, you know, you read this book, Kingdom of Moltz, right? What did you learn from the book?

Ivan: I learned what inflation is.

Pancham: I see. Okay, so what is inflation?

Ivan: Inflation basically is, um, for example, like the US government prints $10 billion dollars every day. But let’s say you have $1,000 in your bank account then the US government prints $10 billion or more dollars that come into circulation. The less value of money becomes. So basically if you had $1,000 in your bank account today, tomorrow they will be less well because there was more there’s more money into circulation now

Pancham: I see so money being more in circulation suddenly reduces the value of the dollars you have in your account. Why is that? How did the book explain that?

Ivan: The book says that they lie about using rulers

Pancham: Okay, so what happened when they had rulers?

Ivan: So, in this kingdom and the book…in the book they were using rulers to measure height. So like they made the unit of measurement shorter. So, that’s basically what they’re doing in the US. They are making the dollars…it is a unit of measurement. It’s measuring the price of the produce like fruit and vegetables. So a dollar is a unit of measurement, and foot is a unit of measurement, and the ruler is measuring how many feet a particular house has, right?

Pancham: So what is dollar measuring?

Ivan: A dollar is measuring the…

Pancham: What was it measuring before?

Ivan: It was measuring the value of gold and like the value of gold. So basically, before 1971 was backed by gold after 1971 President Nixon took dollars off the gold standard.

Pancham: Right now, it’s backed by what?

Ivan: Now it’s backed by nothing.

Pancham: Okay, okay. So now, because the supply is more now the value of your money in the bank account is less right? So what that really does, does it bring inflation? The prices go keep going up?

Ivan: Yeah.

Pancham: Why?

Ivan: Because the more money into circulation, the more the value becomes a bread. For example, let’s say your belly bread was $5 today, and then the government after a month will become $5 and 50 cents or like some money, because now the government had printed about like, 5-10 billion dollars into the circulation. And now the bread’s value goes up a little.

Pancham: Thank you. I think you understand. That’s great. And the author did his job. So what anything else you want to share that you learned from the book?

Ivan: Not really.

Pancham: Okay. Okay. Cool. Thank you, Ivan. I think we will do this more often, right?

Ivan: Yes. Cool. Thank you.

Pancham: So guys, what do you think of the illustration in the book? I think it’s a great way to talk about what’s happening, or happened in the past. And I believe what they were just talking about how the guy was fascinated by how the dollar bills get more value by just bigger numbers written on it. You have to like if you really know the history, right, since 1971, is not backed by anything. So what this guy, Igor the king, really thought was actually happening before 1971 was a different story. And you know, when he was talking about in the book about, oh, you know what, let’s do this. Let’s confiscates all the rulers and make it illegal to own the rulers and if you own it, then you would be, you know, incarcerated. So really what happened in 1933, you have to look at the history. Exactly the same thing happened. FDR, President Roosevelt actually made owning gold illegal. If you’re interested, check out the executive order 6102 on Wikipedia, just google “Executive order 6102”. And you will see, FDR actually made it illegal to own gold and it was up to $10,000 in penalty, which is equivalent to $198,000. In today’s dollars and up to 10 years in prison. If you had them in your lockers, you had to actually return them in exchange for $20 and 67 cents in value, which was one ounce of cold at the time, after all said and done, the one ounce of gold was repriced, from $20 and 67 cents to $35. Does that sound like what happened in the kingdom of Moltz where they really changed the unit of measurement. So if you see what’s happening to the price of gold now, so this is a food for thought, do you think the price of gold is going up? Or the value of dollar is going down? Show number 31 will answer that question for you. I actually did a full show on the history of gold and silver with an expert on show number 31. If you have not listened to that, I highly encourage you to listen to it and learn about that and it will also answer the question for you whether the value of gold is going up or the dollar is going down. You can listen to it by going to thegoldcollarinvestor.com/show31. I repeat thegoldcollarinvestor.com/show31 and if you want to know how money is actually created and want to learn about Federal Reserve, you know, which is printing money. lot of money lately, you can listen to show number 16 with G. Edward Griffin. And by going to thegoldcollarinvestor.com/show16. I repeat thegoldcollarinvestor.com/show 16. So on this show g Edward Griffin has studied Federal Reserve for I think a very long time wrote a 600-page book on it talks about Federal Reserve, so you can listen to that show to learn a bit about Federal Reserve. So with that, I hope that you guys enjoyed this special edition and my conversation with Ivan. Do write to me if you enjoyed it, and do not forget to leave a five- star written review on iTunes. It would mean a lot to me. Thank you again, and I appreciate you. This is Pancham signing off. Until next time, take care

If you want to know the top six reasons on why you should consider diversifying outside of the Wall Street, then you are in the right place. I have written a free report for you. It goes into not just the top six reasons why investing in stocks for one case may not be the sound strategy, but also what are the alternatives get your free report today on thegoldcollarinvestor.com/download, I repeat thegoldcollarinvestor.com/download.

Thank you for listening to the gold collar investor podcast. If you love what you’ve heard and you want more of Pancham Gupta visit us at www.thegoldcollarinvestor.com and follow us on Facebook at the gold collar investor. The information on this podcast are opinions as always, please consult your own financial team before investing.

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