If we go back in history, we see gold and silver as the universal medium of exchange. Usually it was in a ratio of 15 to 1: silver to gold. Put another way, a day’s wages were an ounce of silver, a week’s wage was an ounce of gold. Not sure it has kept up to its historic norm.
The big thing to remember is that the medium of exchange got spent. Gold or silver, it was gone by the end of the month; laborers were waiting for the new payday. Some savings was occurring. But it wasn’t something that would have made the precious metals more valuable, and make them worth more. The system had no inflation. A silver dollar was a dollar.
In today’s world, gold and silver float in a commodity’s market. The currency systems of the world are all about paper currency; no gold is necessary. Inflation is a function of printing more currency instead of taxing the people.
Is our currency as good as gold? The answer is no. Inflation (a disease of paper money) will eat the perceived value of the dollar alive. The price of gold and silver over time will reflect the inflationary effect of government spending and printing of currency.
The big thing about buying gold and silver now is that it costs very little to retain ownership over time. it used to be that you got 8% interest on your savings. Now you only get .05%. There isn’t much reason to put your money in the bank anymore. Buy gold, it doesn’t comprehend inflation.
Inflation is a tax on old people, not the young. Retirees have saved a lifetime and many can no longer work. They are stuck with what they have saved over the years. The extremely low interest rates on savings have literally ruined retirement plans for many of the elderly. An 18-year-old buying a pack of cigarettes for $8.00 today, has no idea that they costed 25 cents a pack 40 years ago. Mix the mindset of the young person with that of the retiree. It takes a lifetime to realize that you have been ripped off silently.
The real problem right now is not the scarcity of gold silver or platinum. The problem is the perceived value of the government currency. If too much currency is printed, the buying power of one million dollars may in the near future, only buy one hundred thousand dollars’ worth of goods.
What we are looking at here is an option that most have overlooked. There is no investment loss on buying precious metals. The banks cannot even match the yearly inflation rate loss of 7 percent; they’re paying .75 percent interest. So, I am suggesting that people 20 years away from retirement, put their savings in gold and silver. The Hell with an IRA. Congress created the IRA so they could borrow more money; not enough people were saving the dollars that Congress desperately needed to borrow, to fund government spending.
You are not buying gold as an investment; you are buying precious metals as a backup for a government induced inflation. It cost you nothing at the present bank interest rates. In fact, the whole retirement IRA scheme falls apart at these low bank interest rates. There is no incentive to save dollars today for consumption 20 years in the future.
Reflect back, with an interest rate of 7 percent, your nest egg will double in 10 years. With and interest rate of .75% your money will double in in 95 years.
Imagine if a politician told retirees that they are taxing everyone’s savings at 7% a year and keeping the interest rates extremely low, they would be voted out of office. The funny thing is that the retirees can’t do much about it. Inflation and interest rates are not parts of a party platform for reelection. Inflation is a little like sex, as you get older—you get too much of one and too little of the other.
The thing to realize here, is that all of your savings in a 401K or in the bank are an entry on a ledger. If through no fault of your own if the currency becomes worthless, precious metals in your possession have a basis of worth. You have to ask one question. Can this deficit spending go on forever? Or is there a limit? So far the answer is that it can go on forever. Common sense suggests that limits imply responsibility. There is no responsibility, so hold on to your hat.
7 comments:
In Germany in 1923, the stockmarket collapsed during hyperinflation, then zoomed back. I also recall reading that after the Wall Street Crash the dealers on the Chicago Stock Exchange wallpapered their clubroom with stock certificates; five years later they were steaming them off again.
So I think the danger not only for cash holders when governments try to inflate their way out of crisis; is for people who borrow, and can't sell assets to pay their creditors when the call comes because everyone else is doing the same; and for people who invest with borrowed money, or speculate on margin.
If that's right, then perhaps a useful strategy is to divide one's wealth between gold, productive assets - and cash to snap up bargains in a credit meltdown.
But what do I know?
A few years ago I noticed that our local banks were closing their safety deposits. Then a new bank opened and boasted of its safety deposit. But cash and precious metals were forbidden fruit in its boxes.
So what should I do? I could buy gold sovereigns and store them, say, at the Royal Mint but then they'd be a sitting duck for government confiscation. Would Australia or Canada be any more secure than Britain? Could I hold in vaults in Switzerland or Singapore? Or I could buy them in a series of small amounts and hide them in a Very Secret Place. But where?
I have got some "paper gold" ETFs in my private pension plan but is that a trustworthy method of owning gold?
(In Britain gold sovereigns have the advantage of being free from Capital Gains Tax, though how long that will last Lord knows.)
Where are my manners? Merry Christmas and a Happy New Year, Jim.
@Dearieme: gold bugs have been saying for quite a long time now, don't trust others to hold your gold securely. If noody knows you're holding physical gold, there's no reason for them to come looking. And if you buy smaller amounts in cash, you may not be pestered by authorities if and when there is a US 1933-style ban on private hoards.
And Merry Christmas to you and Jim!
Hi Sack
I'm in complete agreement with you. The only trouble is that a majority of people go to hell real quick after retirement and what made sense before retirement makes little sense in retirement. Imagine the shock if your house is paid off and you are happily retired and you need 60k. The bank won't give you a loan, they'll tell you to sell your house.
We had a bunch of homes built along the golf course and they were quickly bought up by retirees who wanted to play golf. Of the few that are left, the kids with skateboards really get to them (I was renting a home there).
I'm more worried about having a stroke and being thrown in a rest home. Precious metals in a bank vault are quite invisible and secure, with you wife (or favorite girlfriend) as a co-owner of the box--you keep the keys. The other thing that is nice to have is a living trust. Your assets transfer to the second party upon your death and you avoid probate.
Hi dearieme
When I first got interested in precious metals, I believed most of the rumors that the government could issue you paper for your precious metals. It was even suggested that FDR was examining bank deposit boxes when gold was made illegal to own. That never happened. Most safety deposit box are big enough to put more than 400 coins in as well as your documents and deeds. Its nobody's business at the bank to know what is in the box.
We had a distant relative bury some gold in his basement. He had a stroke and they never found it even after he died.
The drawback to silver is that 1,000 ounces of silver weighs about 62 pounds. That is a lot of weight to drop on your foot at my age.
In your case, buy the British Sovereigns and keep away from paper gold; always take delivery. Get a safety deposit box close to where you live and forget about it. Keep a receipt of the amount bought, from whom, cost and the date you paid for it.
Governments do go after people for not paying their taxes, and that is where a safety deposit box might get examined.
Just in case I am late with my next article:
Here's wishing you and your families a Merry Christmas and a Happy New Year
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