Governments do not produce, they do not create, at best they facilitate various services and often times very poorly when compared to the private sector, however, what governments do fantastically, is collect and spend resources that are created by the private sector.
This of course is accomplished through the incredible amount of taxes created throughout our history, whether it be sales taxes, income taxes, property taxes, inheritance taxes, etc, the list goes on and still, governments around the Western world have found ways of squandering this money, sending their nations deeper and deeper into debt.
Collectively, governments around the world now stand at approximately $77,598,169,364,443 USD in debt, with that number growing drastically higher with each passing second.
The majority of this debt was accumulated during the "good times" when many Western economies were experiencing record high GDP levels, record high stock market prices and record high employment rates.
Unfortunately, for at least the short term, the good times are now over due to the COVID-19 crisis and governments around the world have decided to go exponentially deeper into debt, enacting relief plan after relief plan in a desperate attempt to keep the economy that they forced shut down afloat.
Whether or not their decisions during this crisis are going to be deemed correct in the eyes of many in the coming years, is yet to be seen, however, the zeitgeist appears to be rapidly shifting in recent days, with the feeling of angst and frustration becoming increasingly common place in the minds of the average citizen.
This is largely due to an increasingly large amount of information coming out daily, indicating that the mortality rate of COVID-19 is drastically lower than what many health experts were previously indicating, especially when it is taken into consideration just how many people are asymptomatic and thus not getting tested and thus not included in the official numbers.
This is not meant to diminish the harsh reality that COVID-19 is still very deadly to certain demographics, especially the elderly, however, it is making many people question the strategy of isolating / quarantining the "healthy", destroying the economy in the process, a strategy that has never been enacted during any pandemic in mankind's history.
This controversial strategy has and is going to continue to cripple the global economy, regardless of whether it was the correct action or not, which as I have previously written about, is going to have drastic and dire consequences for years, possibly even decades to come.
How Are Governments Going to Pay for This Debt Bomb?
First and foremost, governments are going to rev up the printing presses, create debt and as they have been doing, throw newly fabricated fiat money at the problem, thus diminishing the long term value of the currency as whole in the long term.
This undercuts the savings of those who have saved their entire lives in just fiat money, diligently socking away the fruits of their labor in what they deem to be one of the "safest" asset classes, cash.
On the other hand, those who choose to have a portion of their wealth in hard money, such as physical gold and silver bullion will be able to mitigate many of these problems and shelter their hard earned savings from the coming storm.
However, I believe this is not the end game for many governments.
Take for example Canada, led by Prime Minister Justin Trudeau, who has decided to take a very socialist approach throughout this crisis, handing out fist fulls of money to just about everyone across the country and essentially putting in place a form of "universal income" in the short term, even if that is not what they are willing to call it.
Just head on over to "Canada’s COVID-19 Economic Response Plan" and take a look at all the programs and all the money being "spent".
Some of these figures may be considered small when compared to some of the numbers being tossed around in countries such as the United States, which is also fusing a monumental debt bomb as we speak, however, you need to take into consideration Canada's much lower GDP and population numbers.
Program after program, after program is being enacted to 1), keep the economy afloat during a forced government economic shutdown, 2) to keep people pacified and happy with the sitting government and 3), because the government knows that they are ultimately not going to be the ones paying for the stimulus programs, the people are.
Prepare for the COVID-19 Tax
Many governments are riding high, experiencing record high approval ratings.
This is nothing new and has occurred time and time again throughout mankind's history during periods of great uncertainty, such as natural disasters, war times, or health crisis. People cast aside many of their political partisanship, for the greater good and coalesce around those in charge, hoping that they will handle the crisis on hand.
Sitting governments know this and will attempt to take full advantage of this situation, hoping to secure re-elections, either naturally such as is the case in the United States in the upcoming election later this year, or through snap elections, in which many countries can call.
This will be vital for those who wish to retain power, as what is coming next will be incredibly unpopular, significant tax increases.
They can call it whatever they want, but new taxes are coming, whether later this year, or next, it is on the way and it will not be minor in nature.
Will it be based on income, will it be slapped onto the sale of all goods? Who knows the finer details, but regardless, something is coming in one shape, form, or another.
Many people are happily taking government handouts, many others are screaming for more, more, more, stating what is being issued is not enough, many of these people are both correct and wrong seemingly at the same time, however, very few are coming to the realization as of yet that this is NOT "free money".
During these times of herculean expenditures, and the immediate time period that follows, it has been a common tactic of governments to introduce new taxes to help pay for the staggering amount of funds spent during the period of uncertainty.
Take for example the income tax, which was introduced both in the United States and Canada in response to help pay for war time efforts.
As per the Canadian Government regarding the introduction of the income tax;
"In 1917, as a temporary measure to help finance the war, the federal government introduced the Income Tax War Act, covering both personal and corporate income. "I have placed no time limit upon this measure . . . a year or two after the war is over, the measure should be reviewed," stated Sir Thomas White, Minister of Finance."
Additionally, in 1920 the "sales tax" was introduced to help pay down debt levels, which is as the name implies a tax on the sale of most goods.
Fast forward to 2020 and we can see that these taxes, which were at the time deemed "temporary", were anything but and are still in existence today, however, in much more grotesque forms, as the demand to feed the increasingly hungry government machine continues to grow year after year.
The coming COVID-19 tax(es) will be no different.
It will be presented as being "temporary", it will be heralded in as a collective effort to pay down the historic amount of debt accumulated during the COVID-19 crisis and as has been the case in the past, an excuse will be created to keep it in place, indefinitely.
Get ready for higher taxes, get ready for the COVID-19 tax, get used to it.
- Source, Nathan McDonald via the Sprott Money Blog