SurvivalBlog.com

Mister Rawles:
We know having a supply of junk silver is a good idea, and we’re working slowly toward that goal. What would you suggest for those that have inherited sterling flatware or serving pieces? Not many people seem to use them anymore, we sure don’t, but it’s hard to sell them for cash in today’s economic climate. Do they have any value as trade items in a SHTF scenario? What would you suggest doing with these old family items that don’t hold sentimental value for us? Thanks! – Susan W.

JWR Replies: Unless they have sentimental value, I recommend selling (or trading) silverware, and getting a like value of pre-1965 quarters. Those 90% silver quarters will be much more recognizable and trusted for barter–not to mention that they will be in much more convenient divisible units.

Jim,
CRW points out that:
If you had $1,000 in 1900, you could have bought 50 ounces of gold with it, yet today, a thousand bucks will buy only about one ounce of gold Clearly, gold has held its value better than numbers on paper. Fine, but that’s a fairly useless observation.

Consider: gold doesn’t hold its value as well as other things. The overall consumer price index has increased by a factor of only about 32:1 during the same time; that is, gold has failed to hold its value relative to consumer products, primarily because refined gold was already as good as it could get but other products have increased in intrinsic quality and value.

And consider this: you could also have invested your money in 1900 in an interest-bearing savings account at an average rate of return of four percent per year (conservatively less than the actual historical average), and today you’d have almost $72,000. You could get about 72 ounces of gold with that. In other words, keeping your money in gold would have lost you some of your money relative to investing it even at a low, reliable interest rate.

Or you could have invested your money in stocks.

From January 1900 to June 2009, stocks in the Dow Jones Industrial Average appreciated from an index value of 66.1 to 8,447, a ratio of 12s8 to 1. If you’d given up your gold in 1900, you could have turned it into 128 ounces of gold today, in spite of all the stock-market crashes between then and now.

Over the same time, the S&P composite index appreciated from 6.1 to 921.9, a ratio of 151 to 1. Even better. (And I note that even this result represents an average rate of return of only a little over 4.7%– which shows that the stock market isn’t necessarily better in the long run than safe interest-bearing accounts. This conclusion should not surprise anyone, since the returns from these accounts tend to come from the same kinds of business investments that underlie the stock markets, but it’s not generally well understood.)

Inflation isn’t even in the top 20 of things people need to worry about or prepare for today.

You already correctly advise people to buy durable goods instead of gold. Naive comments like CRW’s only distract people from that message.

– PNG

JWR Replies: While his premise does disregard the macro-level investing world, it does illustrate gold’s relative stability versus non-invested paper currency. (What is commonly termed “mattress money.”) It is often mentioned by Austrian School economists that a century ago, one ounce of gold would buy a good men’s suit. It still will, but a $20 bill certainly won’t. Nor will a German 20 Papiermark note. (And the later Mark notes went to almost zero in 1923.)

I cannot over-emphasize this: Gold is not an “investment”. It is merely a safe store of value in times of monetary crisis. Neither I, nor writer CRW have suggested “investing” in gold. For absolute safety, there are very few stores of wealth that can match gold. Granted, on average, stocks would have gained more than gold. But diversified risk wasn’t an option until advent of the first mutual fund in 1928. (The Wellington Fund.) Countless individual stocks have gone bust, and their certificates are now only good for wallpaper. And, granted, savings compounded in an interest-bearing bank account would have also gained more than gold. But until the advent of the FDIC, lots of individual investors lost money in bank failures, too.

I believe a balanced investing portfolio should include some precious metals, but only after key logistics have been secured. To clarify: hedging with some silver and gold is only appropriate after you have your beans, bullets and Band-Aids set aside.

Sent by Chris H.: In this recession, older white males see jobs fade

From GG: Doctor Doom: The Road Ahead for the Global Economy – Roubini says debt monetization will continue

Also from GG: Insiders are selling at highest rate since top of market

Items from The Economatrix:

Obama Says GDP to Show Contraction, Job Losses

Durable Goods Orders Tumbled in June

Profit Reports Push Dow to Best July in 20 Years

Sir,
Let’s look at a way to visualize inflation. Let’s say you had a $1,000 bill in 1900. At that time, this would be the equivalent of letting the government safeguard [about] 50 ounces of gold for you.

In 1933, Franklin D Roosevelt devalued the dollar, and as a result gold’s price rose from $20/ounce to $35/ounce. Equivalently, you could also say the 50 ounces of gold the government held for you now became 28.57 ounces of gold. The government stole 21.43 ounces of gold from you overnight!

In 1971, Richard Nixon ended the Bretton-Woods gold standard for good, and by 1974, gold had risen to $200/ounce. You now had 5 ounces of gold. Thus, between 1971 and 1974, the government stole 16.43 ounces of gold from you.

In 1999, gold bottomed out at $250/ounce. You now had 4 ounces.

With gold nearing $1,000/ounce today, you are down to 1 ounce. Over the last 10 years, the government has stolen roughly 3 ounces of what little gold you have left.

Now instead of paper money, visualize that you did indeed have 50 ounces of gold in your safe in 1900 and that year after year the government broke into your home and stole gold from your safe at this rate. Would you find that acceptable? – CRW

Mr. Rawles,
I would first like you to know your family is in my thoughts and prayers. Thank you and your family for opening our eyes to what is happening all around us and for helping to prepare us for what could happen. To borrow a phrase, “The sleeper has awakened”.

On to my topic. I am what may be described as a prepper and after reading many of the countless articles by investors on the accumulation of silver, I began to take your advice as well as their advice and have been purchasing silver whenever the budget allows. With a family with two small boys (2 and 4) and both my wife and I working, it is hard to justify the expense of obtaining silver or gold for that matter. My point is this, I was purchasing Silver Eagles and after reading many posts on SurvivalBlog, I have turned to buying pre-1965 silver coins as “junk silver”. The going rate right now on auction web sites is 10 or more times face value of the coins. I cannot afford to buy even a quarter bag of silver at a time let alone the half bag ($500) recommended. I work in commodities and watch most very closely along with the weather and the US dollar, but silver and gold are not our main trading. My concern is that there is such a great demand for silver right now. For this example I will use the 1 oz. Silver Eagle. Recently the price over spot to obtain eagles was over $5 (now it is around $2.50 per Eagle). This means that if the going rate [per ounce] in the spot month (the month closest to the month we are in at the time) is for example $14, then you would have to pay $19 dollars per Silver Eagle. All because of high demand. The U.S. Mint has suspended the production of the proof and the uncirculated Silver Eagle because by law, the mint has to satisfy the demand for the bullion Silver Eagle. The same thing goes for the proof gold coins. I am writing this because I am afraid that most people are waiting for silver to return to the $5 area. With the demand for a hedge against inflation, the demand for silver could continue for some time. My advice is to be prepared as possible and don’t count on precious metals to return to previous low levels anytime in the near future. Thank you for all that you do to keep us informed. – Traveller

I found this linked over at the Total Investor blog: After the fall; The collapse in world trade has stopped, but there is no sign of a recovery

Thanks to Rebecca S. for this news link: Weak Treasury Auctions Raise Worries About US Debt Burden

Reader Greg C. suggested this: Adrian Douglas: CFTC Conceals the Real Problem, the Infinite Dollar

Items from The Economatrix:

Weak US 5-Year Debt Auction Raises Worries

Bernanke on the Record (video)

The Hole in Our Universe (The Mogambo Guru)

Commentary by John Browne: Dead Banks Walking

Fed Report Suggests Recession May be Bottoming Out. [In related news: Pigs seen flying over Chicago]

Big Banks Cashing in on Rash of Smaller Bank Failures

Copper Peaking as Inventories Signal Market Top

Detroit Area Jobless Rate Tops 17%