If one was to purchase gold and silver as insurance and track the spot price at kitco.com on an hourly or even weekly basis, one is missing the purpose entirely. Do you review your health, home, or automobile insurance policies weekly? Of course not. You review it before you purchase it, put the policy in a safe place, and bring it out when you need it.
Then there is the camp that loves to argue that silver and gold are a worthless store of value and that good stocks with good dividends are the way to protect your purchasing power over the years, to be a store of value. Stocks are a superior alternative to precious metals, they insist. Besides, Warren Buffet stated, “Gold is a barbarous relic.”
In reality, the U.S. dollar is the barbarous relic. It is worth only paper and is used as currency by faith and tradition. Gold and silver have never been worth nothing. Even more confirmation of this is here: Gold still compares favorably with stocks and inflation [1]
There have already been eight, yes eight, devaluations of the U.S. currency since 1933. In 1933 FDR outlawed the private ownership of gold. Most people foolishly turned theirs in. When all of the gold that was going to be got (wink, wink) was turned in, FDR devalued the dollar 59%. He raised the price of gold from $20.67 an ounce to $35 an ounce. In 1971, President Nixon raised the price of gold to $38 an ounce, and in 1973 it was raised to $42.22 an ounce. Wow! That’s three devaluations. Then the U.S. government ordered the Federal Reserve Corp to eliminate the silver from the coinage, which was another devaluation. Then the slow grind of the rising money supply from 1973 to 2006 forced couples to work just to live in a similar manner as their parents. Now, we have QE1, QE2, OPERATION TWIST, and QE3, which were ALL devaluations. That is exactly what the world and in particular, the Chinese, see. Everyone that bought our bonds is losing their value because of the creation of U.S. money. That is called monetizing the debt. It’s great for us, but it stinks for everyone else.
To understand the banking world you are forced to live in, this is excellent! This is your primer to understand way more than your friends or the typical American. Arm yourself with knowledge! It is a great intro [2].
Experts are telling you what they are about to do! Right now, today! This brings us to the end. (I think I already said that). I have paid attention and studied worldwide macroeconomics for over 35 years. This is the first time in history where we have every nation in insurmountable debt. Most all are in extreme debt, meaning that their debt surpasses their nation’s ability to produce income or Gross Domestic Product (GDP), as it is known. The U.S. has a GDP of approximately $17 trillion. Of course, you have heard that the U.S. debt is $18 trillion. And you may have heard that the U.S. unfunded liabilities, Social Security, Medicare, Medicaid, Fed Gov Pensions, et cetera is over 240 trillion. Okay, when speaking of ridiculous numbers and concepts such as the debt, who gives a hoot. There is no proof of the validity of any of these figures, nevertheless when I go to the grocery store and buy coffee I see the difference in package sizes. Remember?
At this point, it is best to conclude by reflecting on the long career of one of the best macro economists still alive today, Alan Greenspan. As head of the Federal Reserve Corp., he was horrible. Overseeing the transfer of manufacturing capacity and manufacturing jobs to China, he did a great job of gutting the USA. Of course, not to be outdone, the witless Ben Bernanke oversaw the transfer of 100s of tons of gold to China and the purchase of the JP Morgan worldwide banking headquarters located right next to the NY Federal Reserve Corp. The building has a tunnel to the NY Fed Reserve building! The Chinese bought it for under a billion $$$ when the complex was valued at over 5 billion $$$. Hmm.
Let’s get back to Greenspan. Before he was appointed as Fed Chairman, in 1966, he wrote the following:
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
Check out the rest here [3].
Greenspan went on to be the fed chairman from 1987 to 2006. During that time he did not speak of gold like he did in the 1960s. However, he did deliver what we call forewarning signals at crucial times, and every time he was correct. To recognize these, one must listen to their speeches and decipher the meaning. For example:
- In the late 1990’s he stated, concerning the dot com bubble, “That this unbridled exuberance in the market place cannot be sustained”. I thought about what he meant for about a month. Then it came to me. What he was saying was that the dot com bubble was going to burst; get out! We got out one month before the collapse.
- In 2007, Greenspan said that “the housing market was frothy.” I had studied many speeches delivered by the Federal Reserve Corp. from the 60’s to 1980’s. By then I understood perfectly. In the futures market we bet that Freddie Mac and Fannie Mae were going to go lower. He was telling us that the housing bubble is about to burst, and it did.
- Now, forward to 2014. He is answering questions at the International Monetary Fund (IMF). He is getting back to his original belief that gold, and to a lesser degree silver, are money. The rest are currencies. From his meeting at the IMF, October 29, 2014:
- “Price of Gold Will Rise”
- Greenspan said, “The only protection against inflation is gold”, and I would add silver
- And what about QE? He made the following comments on the subject, Greenspan: “The Fed’s balance sheet is a pile of tinder, but it hasn’t been lit … inflation will eventually have to rise.”
- Q: Why do central banks (still) own gold? Greenspan: “This is a fascinating question.”
- He did not answer the question, but he did point out: “Gold has always been accepted without reference to any other guarantee.”
- What does this mean? Understanding their language, what he said was that when you accept any world currency, you are trusting that government issuing the currency can back up the value of the currency. Gold and silver require no government, no promise, and no weapons to guarantee their value. Gold and silver have always been money and always will be money. Currencies come and go.
While Greenspan did not want to comment on current policy, he was willing to give a forecast on the price of gold, at least in a Greenspanesque way:
Greenspan: “The price of gold will rise.”
Q: “Where will the price of gold be in 5 years?”
Greenspan: “Higher.”
Q: “How much?”
Greenspan: “Measurably.”
The conversation continued:
- The reason this is most relevant is because many politicians think there’s unlimited money to spend. And, of course, if the Fed’s printing press is at the disposal of politicians, the temptation to use it is great. Not only is there the temptation, some politicians truly believe the Fed could and should help out any time. As Greenspan now acknowledges, these politicians have a point, but it is to the demise of the country’s purchasing power.
But what a pleasure it was to rediscover the old Alan Greenspan, before he turned his coat and forked his tongue. Back in 1966, when he still believed in free markets and sound money, he expressed himself clearly.
- “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold in 1933.”
- If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods.
- The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
- This is the shabby secret of the welfare statists’ (statists believe that the state/government should control everything) tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard
- While I and my buddies have argued for many years that there might not be such a thing anymore as a safe asset and investors may want to take a diversified approach to something as mundane as cash, Greenspan’s talk adds urgency to this message. “The dollar has lost over 97% of its purchasing power in the first 100 years of the Fed’s existence.”
- He said the promises made by the government cannot be kept. Mathematically, he said, it’s impossible.
- And not to be pointed out as a lone voice, the Bank of International Settlements issued a new warning on markets in their Dec 2014 Quarterly Review [4]. They issued yet another warning about “the growing fragility hidden beneath the markets buoyancy”.
- See http://us-issues.com/2015/08/05/list-of-imf-and-bis-systemic-risk-warnings/ [5]
- in their Dec 2014 Quarterly Review [4]Over the past few years we have documented numerous warnings which the IMF and the Bank for International Settlements (BIS) have issued in regards to risks that exist to the stability of the global financial system. Some of the warnings come directly from IMF and BIS officials and publications. One comes from a speech by BIS General Manager Jaime Caruana. Others come from articles appearing on the IMF Direct blog. One is a link to former IMF Peter Doyle who says despite issuing risk warnings, the IMF has failed in providing early warnings for systemic crisis.
This is absolute insanity! How irresponsible of this thing called the federal reserve!
How are you going to impact your purchasing power?
Median Income Example
All income tiers added together with the median for all:
10 10 11 11 12 12 13 13 14 14 15 30 35 80 85 = 365 / 15 = 24
After the end of the year, most all household income increased. Raising the median:
10 11 11 12 12 13 15 16 17 18 18 38 42 119 120 = 472 / 15 = 31
The lower tier of households. In our example, from the graph on page 11, below $200,000:
10 10 11 11 12 12 13 13 14 14 15 = 135 / 11 = 12
After the end of the year, most all household income increased. Raising the median:
10 11 11 12 12 13 15 16 17 18 18 = 153 / 11 = 13
The top two tiers with the median:
80 85 = 165 / 2 = 82
After the end of the year, most all household income increased. Raising the median:
119 120 = 239 / 2 = 119
Now do you see why they used the median as an indicator? The top tiers influenced the median, while the bottom tiers barely had an impact! After inflation is deducted, most of the bottom tiers went backwards.