Tuesday, November 26, 2013

Gold and Silver, the "Hidden Assets"

Lately I’ve had a few comments about the “New Paradigm,” claiming gold and silver are throwbacks to a long gone era that is no more. Also tossed in for good measure is the idea that we don’t need them anymore, civilization has progressed to credit and debit cards and real money, as such is unnecessary. And then there is the comment that we would run out of real money if our currency had to be backed by gold and silver.

There are two different issues in play here, and this is where the real problem lies hidden. Gold and silver coinage go back thousands of years, and the reason they were so successful, is because government had no control over the metals. They could tax and get payments, but they could not spend more than they took in. The real nemesis to currency is the politician and the financing of their political promises.

From early times, they resorted to clipping the edges of the coins and substituting other metals. In my lifetime our silver coinage was replaced in 1965 with nickel on copper. In 1984 the copper penny became a zinc and copper sandwich; the copper in the penny was worth more than the penny.

When the politicians break the bounds and restrictions that gold and silver impose on their currency, there is no limit to what a government can afford to purchase. And then it’s only a matter of time before people accept inflation as part of life. The neat thing about inflation, are the pay raises. People who started out at $2 an hour in 1970 are now making $12 an hour; success at last! The trouble is, the $2 in 1970 probably bought a lot more than the $12 does today. Plus, the politician doesn’t have to raise taxes; you make more, you pay more—how neat!

Government coinage backed by gold and silver prevents the politicians from printing dollars. The Eurodollar which is not based on gold or silver has a similar problem. These countries can’t print more Euros without the approval of all nations in the Common Wealth. The currency is destined to die unless the politicians can remove the restrictions on printing more Euro’s. Europe’s politicians have promised much and can’t deliver without control of the purse strings.

I have to laugh when people say the government has to print more dollars because there are more people now. All currency does is transfer your work unit into a common unit of measure in our case called a dollar. A farmer grows a thousand bushels of wheat and converts them to dollars and buys what he needs or wants. Everyone who works receives entitlement receipts according to their effort and skill. They could be paid in chickens and pigs. The thing that makes currency work, is that it is more convenient and speeds up commerce to a very high degree. When a government prints “extra” dollars (spend more than they raise in taxes or borrowing), the product purchased is pretty much confiscated from the economy.

Purchasing gold and silver is not going to make anyone rich. It is only a way to preserve your buying power into the future. It pays no interest and is immune to inflation. The reason you would buy it, is because you understand the dynamics of counterfeiting; it’s a tax on everyone using the currency. The real worry with the accelerated printing in many countries, is the necessity to ban gold ownership. The politicians cannot pay the bills and inflate the economy if the citizens refuse to use the currency and buy gold instead.

What we saw happen to the banking system in Cypress is one possible outcome that no one liked; losing 40% of your savings over 100k kind of sucks. Whatever the outcome, as a rule of thumb, an ounce of silver is about one hour’s wages and an ounce of gold is the equivalent of one week’s wages.

The neat thing about owning physical gold and silver, is that some hacker on the internet can’t spend it, the government can’t tax it, transferring it is not a taxable event, and it is invisible if you want to claim government benefits. When's the last time you have seen on a financial application, "How much gold do you have buried in the back yard?"

My gopher knows.


dearieme said...

Don't modern metal detectors make burying in the back yard a bit risky?

Jim in San Marcos said...

Hi dearieme

I only suggested it for humor. My backyard is all rock, it took a half hour to dig a small hole to bury our parakeet that died. It does raise an interesting point though. When they made gold illegal to own in 1934 they red tagged safety deposit boxes for review. If you had any, the government bought it on the spot.

Some people are so good at hiding stuff in the house, that when they have a stroke, its gone forever. A small safe mounted in concrete might be a better way to go, and share the location with a few relatives.

Anonymous said...

I find that tungsten bullion can appear to be very much like gold and can be as useful as a boating accident, if used correctly, to divert common thieves and professionally organized thieves.

Jim in San Marcos said...

Hi Anon 11:31

There is stuff out there that scares me as to how real it looks. Go to www.alibaba.com and look at their gold plated Suisse bars or silver plated Maple leafs. Its a Chinese web site. Price per coin ranges between 50 cents to $2.50 and a minimum order ranges from 50 to 1,000 coins.

I might suggest you buy a 200 gram scale from ebay for about $15 and weigh your coins. They should be around 31.104 grams. Don't be too concerned if they weigh in higher at 31.28. Making the blanks for stamping isn't an exact science, no two are exactly the same weight.

Heavenly Prepper said...


You are coming to the correct conclusions for sure. An excellent educator on the matter is Mike Maloney who now has a series of videos (5) that explain why metals are money, and our dollar bills are currency and why it all matters. I think the best video is the 4th one, but they are all worth watching here: http://www.hiddensecretsofmoney.com/

Of course, he does also sell gold and silver bullion, which some may argue detracts from the message or presents a conflict of interest - but I think it is well worth the education. Cheers.

Jim in San Marcos said...

Hi Heavenly Prepper

I watched part 4 and I don't buy half of it.

Fractional lending is how the money supply grows to accommodate the population. The banks aren't robbing anyone, they manage the depositors money.

The Federal reserves main job when created, was to keep the supply of currency available in all parts of the country. Currency would migrate East and create shortages in the Western and Central States. They also were a clearing house for checks.

The Fed can also issue bridge loans to banks to keep their books balanced. The Federal Reserve stock he mentioned is done in shares, but refers to the dollars a bank is required to have on reserve with the Fed, which is 10% if you have over 89 million in deposits and the Fed does pay interest on it and it isn't 6% anymore.

The members of the Federal reserve are drawn from member banks. All money earned by the Federal Reserve is submitted to the Treasury each year.

Normally the Treasury sells bonds to anybody but the Federal Reserve.

The Federal Reserve can buy a Treasury bond with printed dollars or issue a government check. It is a zero sum game. If and when the Federal Reserve sells the bond on the open market, they get their dollars back. But in the mean time, the Treasury uses the money gotten from the Fed from the bond sale and pays government bills. The Fed right now is buying all bonds presented for sale at face value which keeps interest rates from rising. It is also buying all of the housing loans issued, the banks will write them but they're not dumb enough to hold on to them.

What the Fed is doing may seem illegal, but they can afford to hold on to home loans for 30 years and they will be paid off.

The national debt is the real problem. The government has borrowed every dime in every bank in the nation, 17 trillion. Can they pay it back? Who are the people they borrowed from? People about ready to retire?

Mike makes a good story teller, but I disagree with a lot of what he's claiming as fact. The Federal Reserve has a web page for banks that want to join. Pretty straight forward stuff.

If we were to get rid of fractional reserve banking, we would be reduced to bartering.

Mike is pointed in the right direction, but this isn't some complex conspiracy, its a bunch of idiots in Congress

Thanks for the link, its always interesting to see another's view.

dearieme said...

I hope you have enjoyed/will enjoy your turkey today, Jim.

Jim in San Marcos said...

Hi dearieme

Thank you for the well wishes. Making dinner for 8 tired me out.

Take care

Blue Skye said...

I guess we are still living pretty high. A century ago I think a day working on the farm was worth one silver dollar, and an ounce of gold about a month.

Jim in San Marcos said...

Hi Blue Sky

You're very right. My grandfather made 50 cents a day working in the oil fields in the 1880's and $20 dollars was a months wages. I remember how upset he was in the 1960's when I was a little kid over paying 35 cents for a loaf of bread.

In his time, 80 percent of the country was into farming and bartering was the method of trade, so silver and gold were defined in how rare they were to the area. Plus the banking system was not a big player until later.

in olden times, there was a real link between the value of gold and silver and the goods it could purchase. As countries went off of the gold standard, a majority of their people lost that physical comparison of its purchasing power.

The amount of what people define as currency plays a major factor in the price of precious metals today.

Joseph Oppenheim said...

Well, Steve Jobs, who is credited with transforming 4 industries, said humans are basically toolmakers and the greatest tool being the computer.

In 1962, when I began programming, it was on the IBM 1620, just punched cards in and punched cards out and the only display was a typewriter. Cost? Abt $100K.

Now, today's simple tablet computer or smart phone is orders of magnitude more powerful and cost abt $300.

And, you ain't seen nothin' yet.

Thank goodness I was never lost in the past, though I do find it interesting.

Gold? Yeah, I have some, but thanks to the greatest tool ever made,.........

Anonymous said...

Gold and Silver are money but money CAN take many other forms. Diamonds are money too, you don't believe it? then you must not know about the hundreds of millions being flown back and forth to Israel from LAX daily.

The point is, that yes we have a national debt and it's the largest in the world...but a balance sheet has two sides, Debits and CREDITS. We keep highlighting the debt without ever considering the asset of this great country.
People will say, what assets, our country is falling apart, our infrastructure hasn't been maintianed, we are dookmed, etc, etc...
What I say is, maybe so, but all I know is that when I look around the world, the u.s. is the only country I want to be citizen of. Sure I would like to vacation in the Caribbean but there is one place I call home and feel safe in and that's the u.s. And I'm not the only one, immigrants from around the world with bags of money are coming to the u.s. and settling down here. It boggles my mind when people say the u.s. is in decline and we are screwed. Are we? then why don't you move to wherever you think is better.

The FED is printing, ObamaCare sit doesn't work, etc, etc but who the hell cares, this country is still the best country in the world and if you are going to live in it and take from it, then appreciate it. It doesn't mean you can't criticize some decisions but how about applauding some good decisions.

Anyways, I have said this before, there are some who see a dark future for the u.s. and some who see a bright future. I believe some that see the dark future of the u.s. are not looking at the right metrics. And one metric that doesn't matter but everyone focuses on is the national debt but does it matter?...I know the answer but many of you book smart people don't get it!

To each their own but time tells all, and if we are in 2015 or 2017 and all is well, you might have to question your economic models that only accept gold and silver as money.

Money can be anything with value, and if I have a 50 billion dollar patented medication for cancer, I can easily take your 50 billion in gold in exchange for a pill that costs me a penny to make. Hopefully one day people see that currencies are backed by precious metals but by a countries true assets.

The Naive Optimist

Anonymous said...

Should read;

Hopefully one day people see that currencies are NOT only backed by precious metals but by a countries true assets.

Rob in Nova Scotia said...

Hi Jim

What bothers me most about way system is gamed right now is that people like me are forced to play the stock market when we don't want to. My Grand dad was a farmer who raised 11 children in midst of Great Depression. His philosophy rubbed of on me when it comes to saving money. I worked for him and my Dad. My grand father never heard of a mutual fund but by time he retired he owned a farm free and clear. Same for my Dad. He owns outright a house, a cottage and 40 acres of land along with money in bank. Neither of them were/are experts when it comes to stock market or precious metals. Anyway at one time you could just cash your check and put it in matress for rainy day. Now with the wonders of inflation that choice has been taken from me. Right now I'm invested in mutual funds but I think whole thing is ponzi scheme. Pretty sad when someone is forced into market because a GIC doesn't even cover cost of inflation. I really don't want to be rich all I want is enough money in my old age to play some golf and drink a few beers. Unfortunately inflation has taken that option away from me and now I have to compete with the HFT computers. The game is rigged because of all this prolifigate borrwing and money printing. I really think when it comes down to it the government doesn't want us to own anything but stocks and ETF's. That way all us in proletariat are forced to huddle around TV every night to check out where Dow Jones ended for day.

Jim in San Marcos said...

Hi Rob

Long time no comment. Glad to see you are still with me. I feel like we are both in the same boat.

I think that Canada is on better financial grounds than the US and that should give you some peace of mind.

You might want to buy some of your fathers land assets if he need cash. Farm land bought from a relative is usually price reasonably.

Best of luck to you. We are in it together.

Take care

Rob in NS said...

Thanks Jim

It has been quite a while since I've posted although I do stop by to check what you have posted regularly. Myself I'm not too worried about money or the economy. Years ago I got best financial advice from my parents when I decided to get education. My wife and friends get the thousand yard stare when I start talking about economy, I've been called a Doomer. Anyway I don't see it that way. I'm more of a dispassionate observer of the insanity that is the economy and the talking heads on TV that are trying to make sense of it. When people come to this blog they might think as first impression that we are all tin-foil hat wearing end timers. That isn't how I see it. It's good therapy at least for me to at least talk about it. Who knows maybe the powers that be can keep all the plates spinning for another forty years or so (I'm 48). I'm not counting on it but I'm not worried either. As long as I live within my means everything will work out.

To that end my boss handed me my Christmas bonus yesterday. I got 1500 dollars.

As I saw it there were three options in front of me.

1) Spend it on flat screen HDTV from China.

2) Hand it over to my financial advisor to put in RRSP mutual fund(401K).

3) Put it in GIC at local Credit Union in another RRSP. They are currently paying 3.25% interest.

I chose the third option. If I listened to pundits on TV I would have felt obliged to spend it or failing that plunked it on table at Casino which currently passes for stock market.

I slept great last night.


I did splurge on 3 bottles of wine, some chocolate and spent quiet evening at home with my lovely wife.

Cheers from Great White North.

Keep writing Jim I enjoy what you have to say.