Letter: The Coming Global Financial Fiasco

Mr. Latimer,

Lately it’s becoming quite clear that the global financial system has passed the point of no return and is essentially doomed. My question now is, when the system begins its meltdown, those who will be able to get their money out before it’s all lost will no doubt be putting that money into hard assets as fast as they can. This of course will cause gold and silver to skyrocket. So here’s the question, should I sell my gold and silver at these fantastically high prices and receive a lot of paper money, which may become worthless due to hyperinflation, or illegal to keep as cash, or risky to put in a bank? Or do I sell half of the silver and gold and try to buy other hard assets while prices still are reasonable?

It is hard to find sound and honest financial advice in these upside-down, whacked out financial times, so I turn to SurvivalBlog, where I know I will get a straight story. – TWT

HJL Responds: In a time of economic upheaval, obtaining equipment, parts, spares, and supplies will most likely be exceedingly difficult, so the basics need to be covered first. If you have PMs but you do not have food, life will get expensive in a hurry because you cannot eat PMs. Traditionally, PMs do not fare very well during the economic upheaval because an established barter market does not generally exist and people have difficulty in shifting their thinking from valuing things in fiat dollars to whatever the market wants. Your comment about selling for “fantastically high prices” is an example of the difficulty in transitioning how we value things and we all have this difficulty. PMs do work very well for holding value through the economic upheaval until the market is somewhat stabilized though. Understand that if the established market is a grey or black market, PMs will generally hold less value if you use them than would a commodity that is in demand at the time. For this reason, the standard advice is to make sure the Beans, Bullets, and Band-aids are taken care of first. Then make sure any tangible assets that could be required are dealt with (tractor, spare parts, tools). Consider debt relief, then start thinking about storing value in PMs for the other side of a crises. Anytime you can deal directly with a commodity that is in demand rather than PMs, your position will improve. Consider fiat money only as required to deal with obligations that have no other way to satisfy them. If you already hold PMs and do not have the basics covered or debt relieved, consider selling the PMs now and taking care of those issues.

If cash becomes illegal, there will be an alternative market that picks up, but your ability to transition from the regulated market to the alternative market will be controlled by your debt to the financial institutions and the taxes collected by whatever government is in place. Obviously, the less stake you have in either of those two institutions, the more freedom you have in your own financial affairs.