The story I am about to tell you will contradict almost everything I have taught people about risk and return, about how easy it is to make money and about arbitrage in markets. Today I’m going to tell you how an experimental physicist Konstantin Anikeev discovered an infinite money machine and used it to make $310 thousand dollars. In addition he made this money in such a way that the IRS could not even tax him on the income. because Konstantin doesn’t have to pay taxes on his gains, he is left with enough money to buy a Lamborghini Huracan and get it wrapped in gold. It is reasonable to believe that he has achieved “The FX Trader Lifestyle”
Okay welcome back to patrick boyle on finance so the story i’m about to tell you today will contradict almost everything i’ve taught people about risk in return about how easy it is to make infinite money about arbitrage profits all sorts of lessons go out the window today i’m going to tell you how an experimental physicist
Constantine anakiev discovered an infinite money machine and used it to make three hundred and ten thousand dollars and then the irs could not even tax him on the income now just to be clear normally if you make three hundred and ten thousand dollars in the united states after taxes social security medicare and
So on you’d be left with under two hundred thousand dollars which is not enough to buy the cheapest lamborghini the euros which is a horrible suv and not a real lamborghini thus such games while nice will impress none of the forex traders on instagram but because constantine does not have to pay taxes on his gains he’s
Left with the full is enough money to buy a lamborghini hurricane which while it doesn’t have the right kind of doors does the job on instagram and he even has enough money left over to get it wrapped in gold and to get one of those louis vuitton bags full of cash that all the traders carry around with them
So how did he do this how did constantine get his hands on non-taxable gold lambo money and can you do it too well constantine took his idea from personal finance websites the idea was to exploit the difference between unlimited five percent credit card rewards and lower fees on gift cards and money orders he told the
Wall street journal if one has a theory one can test it experimentally some require a large hadron collider to test started out with an american express card on money spent at grocery stores and pharmacies so he used this money to buy prepaid visa gift cards at grocery stores stopping often during his
Commute and purchasing the maximum dollar amount allowed per day at a store he used the gift cards to buy money orders and then use the money orders to make deposits in his bank account and then use that money to pay his credit card bill constantine a physicist had invented a perpetual money machine in a 500 transaction
The 5 rewards would yield 25 which was more than enough to cover gift card fees of around 5 and the 1 fee on the money order he did this between 2013 and 2014 and made about 310 000 it’s a fairly straightforward approach but impressive in its sheer scale an american express spokesman told the wall street journal that
The company uses a combination of strategies to police the rules of rewards programs that don’t allow purchases of cash equivalents but what about the taxes how did he get this money tax-free well in the united states most forms of income are taxable cash back in the purchase that is not considered income and
It’s not taxable most american credit cards do have rewards associated with them and that cashback is not taxable income it’s simply a reduction in the purchase price if you spend we’ll say 250 000 on a gold-plated lamborghini and get twelve thousand five hundred back it’s viewed by the irs as a two hundred and thirty
Seven thousand five hundred dollar purchase not as twelve thousand five hundred dollars of income but what if you buy 6.4 million dollars worth of grocery store gift cards exchange them for money orders that you then use to pay off your credit card bill allowing you to keep the 310 000 in cash rewards offered by
The credit card company the irs who are notorious spoilsports didn’t like this and of course sued him claiming that the money was a gold wrapped mid-range lamborghini and the instagram fame associated with it constantine said no it’s just rebates on purchases now in many ways the irs is right surely the only way
To get three hundred and ten thousand dollars of rebates is by having more than three hundred and ten thousand dollars of taxable income if you make fifty thousand dollars in salary and cycle it madly through your american express card until you get three hundred and ten thousand dollars of rewards it can’t really
Be the case that your taxable income was only fifty thousand dollars but i think both you and i want constantine to get a gold wrap lamborghini and so did the judge in the case the judge found that the amex perpetual money machine works and is non-taxable because it’s based on the irs policy that credit card rewards are
Not income the judge wrote this policy reflects the recognition that a taxpayer who avails himself of a discount in acquiring goods and services has no accession to wealth that taxpayer has retained more of his or her wealth than a taxpayer who pays the full price for the same good or service he or she simply
Has reduced consumption the judge then went on to quote benjamin franklin who wisely observed a penny saved is a penny earned future penny earned not on the current penny saved constantine the experimental physicist had the general theory that rebates on consumption are not income he then simply ran an experiment
To see if the theory held and it turns out that it does so there you go another video on quant finance don’t forget to subscribe and i’ll see you next week bye
Transcribed from video
The Infinite Money Machine By Patrick BoyleliveBroadcastDetails{isLiveNowfalsestartTimestamp2021-03-09T232840+0000endTimestamp2021-03-09T233707+0000}