In a very under covered story it has been discovered that in, of all places, the health bill that just passed, there is a clause that forces gold dealers to make up 1099's and turn them into the IRS on any transactions of goods greater than $600.00 in value.

In my article "The Trouble With Transparency", found in the archives of Kitco; I wrote that I, like most people, am in favor of transparency. But, if it crossed the line into the invasion of privacy it could pose a danger. I made the following observations:

"...which leads us to the question, does the government have the right, 'in the public interest', to disclose the existence and contents of private contracts? The answer should be 'yes', if they can prove fraudulent activities, and 'no' if they cannot.

For example, Swiss bank accounts that were sacrosanct and protected for centuries have been recently opened to government scrutiny. Does the government really have the right to expose individual private accounts to 'the light of day'? Are these 'dark' areas of the market really the business of government? In the name of preventing fraud, government has decided the individual, whether innocent or guilty, must at times yield his right of privacy to the 'greater good' to provide transparency and protect the system.

Further, does the government have the right to know how much cash you hold at any one time? How many gold coins you own? How much in collectibles? How often you trade them? What contracts you have made with others and the exact details? After all, we want transparency, don't we? This knowledge could help the government prevent fraud. If government can open up Swiss accounts to search for criminal activities, why not all accounts? Does anyone detect a slippery slope here?

If it is now law (with the urging and cooperation of the United States) in Switzerland to inspect private accounts, how far-fetched is it to expect strict regulation of the buying, selling, and storing of gold and other commodities? My worry is that, at the last minute, wording might be snuck in and voted on that would be much more intrusive than anyone expects. This could open the door to aggressive control and regulation of the private market. It could allow the governments to force individuals to disclose personal
property and transactions. I hope not." End Quote.

My fears have just been justified. We find out that buried deep in the health care bill there is a gold clause. According to Steve Moore, Editor at the Wall Street Journal, and also reported by ABC News, "every transaction in the buying and selling of gold coins worth over six hundred dollars must be from this point on, reported to the IRS."

The possession of gold is now going to be "transparent". The implications of this new law are just now being digested. The implications for the price of gold (which has since begun to fall) and the difficulties for small marginal coin dealers having to do paper work with every transaction are significant.

My quick take on this new law is the following: One, from what I can tell one purpose of the law is to provide a paper trail of gold buyers. This is a major intrusion of privacy. Two, it will also affect marginal gold sellers, financially. Some companies may have to increase their paper work by 1000 to 2000 reports to the government per week. Three, it is broader than just the gold dealers in that it includes ALL sales of goods and services and therefore will affect the entire economy. And finally, it does not appear to tax gains. It taxes the sale of anything over $600.00. Therefore, it appears to be a huge increase in taxes.

So, at the end of the day, this amounts to also be a revenue raising measure that is estimated to raise revenues by some 17 billion dollars over the next 10 years. It will take a lawyer to actually decipher what this law means and its ramifications, but it is the epitome of Nancy Polosie's statement "we will not know what is actually in the bill until after we pass it".

The fact that such a law on gold ownership can be tucked away in a health bill shows to what length government will go, to cover up their real intentions. If they can do this in a health bill what will they be able to conceal in a financial regulation bill?

Since most regulations are yet to be written over the next year or two, it will be a long time before we know the degree of intrusion into our daily lives by government in the name of regulation and transparency. An army of new regulators and hundreds of pages of new laws, rules, and regulations are about to fall onto the shoulders of this economy.

I am for limited government. I believe in one law that states that the initiation of force, fraud or any form of coercion is illegal. It takes one sentence to say that. It is up to those that claim to be violated by such acts, to bring claims of force or fraud into the court system. All other regulations and laws are redundant. Worse, regulations that claim to protect us from force, fraud, and coercion, are making us, the end users and consumers of products, suspects.

If you trade in derivatives you are a potential crook. If you work at a bank or are affiliated with Wall Street, you are a potential crook. And now, If you buy or sell gold, you are a potential crook. To those of you who have been clamoring for more regulation -- you have it!

Market Update:
This week two stories other than the gold clause story hit the wires that moved markets. First, there is talk that some democrats are beginning to believe that a tax rate extension would be the best course of action for the economy. The market immediately surged.

As I wrote a couple of weeks ago, it would be smart if the Obama Administration, and democrats in general, joined the calls for a tax rate extension. This week, it looks like it is actually being considered.

Second, the fed is finally having a look at the possible merits of quantitative easing. Since the beginning of the year, neither M1 nor M2 have increased at all. I wrote last week that I thought the next move by the fed would not be to "exit" and decrease money supply growth, but to increase money through quantitative easing.

When I hear calls for monetary easing from within the fed itself, it at least indicates that someone is aware of the case for such easing. I am not for massive increases in money supply to stimulate growth. On the contrary, I for normal growth in the money supply. For centuries under the gold standard, money supply increased at a steady 2-3%, more or less. To stop money supply as the fed has done over the last year or so is abnormal, especially in the face of falling inflation and growth rates.

I enter the weekend having picked up TZA as I said I would last week, plus I added EPV, (Ultra short Europe). Both are small positions and I have close stops, mental or physical on all stocks. Copper is breaking out, even as gold took a plunge last week. We still live in a very mixed economy and the markets reflect this fact.

The way to play this kind of market is to stay "small". Keep all positions small and reduce exposure quickly if markets go against you. EPV is a perfect example of how to do this. It is trading in the 19 area. Its low is about 19 for the year. If it breaks that, I'm out. Very low exposure, very small possible loss, good upside potential.

RBY moved well at the end of the week and Copper Fox seems to be consolidating as copper moves higher. Unemployment figures hit the market next Friday and unless we have fresh news, I expect the markets to be rather subdued -- finally.

Paul Nathan