If all the roads were closed, should you sell your Chevy and buy a Ford? If there is a food shortage, should you buy new silver service? If the stock market tanks should you buy bonds? In other words is a so called "flight to safety" selling your Chrysler and buying Treasuries? I say a hearty NO!
Switching from one dollar denominated piece of paper to another isn't "safety" at all, but re-arranging the deck chairs on the Titanic. A casual look at the M3 figures, even if you can trust a government issued statistic, is simply frightening, and indicates what is obvious to even the most economic dullard, and that is like all governments before this one, which have started to inflate their currencies, it will end in collapse eventually. Maybe not next year, and maybe not in ten years, but throughout history, no currency that has been produced by the flick of a printing press switch, has survived. In America, it has already happened three times. First during the Revolution when the "continentals" were printed to help win the Revolutionary War. The expression, "not worth a continental" originated when the currency became worthless, due to its not being backed by anything. During the War Between The States, both sides printed with hearty abandon, and the North's Greenbacks and the South's Confederates became worthless, and all who saved in them lost their assets. I have a genuine Confederate hundred dollar bill which is worth more than its face value. Antique value only, because most of them went up in smoke or were used as you know what in outhouses.
Saving one's surplus assets in stocks, gives one perhaps a teeny tiny partial 'ownership' in a huge mega-corporation. When that corporation becomes another e-toys or even maintains some value, the stock in that corporation goes down in price, and the equity one has invested vanishes. By leaving the stock market, hopefully at a profit, and investing it in federal government paper, you have not engaged in a "flight to safety," but rather than putting your faith in a large corporation, which has tangible assets, you have placed your faith in a piece of paper with absolutely nothing to back it except the "full faith and credit of the U.S. government," and surely you know that is funny. Of course that "investment" will earn you interest, which is duly reported and taxed. But if that instrument earns a 5% interest, and you pay 30% income tax on it, and the dollar it is denominated in loses its value at the rate of 3% a year (government figures), you have profited nothing, but have merely earned your broker a nice commission.
By getting out of dollar denominated items, and into items denominated in other forms of measurement, when the dollar (peso, yen, franc, etc.) loses value (prices go up), the tangible you have invested your surplus assets in goes up in the price of that currency. If you need the currency to purchase food, you sell your tangible asset, and you have "hedged." yourself. There are many forms of tangibles to invest in, which are indeed a "flight to safety," meaning you are out of currencies backed by nothing, and into a tangible which needs no backing, as it in itself has value, although it pays no interest. A cord of firewood, an acre of ground, a hundred pounds of flour, a ton of coal, a gallon of oil, or an ounce of gold or silver. Note the denominations of "cord," "acre," "pound." "gallon," and "ounce." These are not denominations of dollars, pesos, yen, or francs, which have no actual value other than what they may purchase now, but will surely require far more of such to purchase an equal amount of goods in the future. By getting surplus assets out of currency denominated instruments such as T-bills, and the like, you will have flown to safety. Admittedly land has taxes to pay, flour can get bugs in it, and termites can eat your firewood, but ounces of gold or silver are universally regarded as real money, are compact, beautiful, and well, you know the arguments. But they do not pay interest. Tangibles owe nothing to anyone, as they are valuable in themselves, and require no faith in any government. Currently, silver is far below production cost, and gold at about cost, making them both outstanding flights to safety, thanks to the outrageous manipulations of governments and various financial houses. If you need things of interest, try antiques of all kinds, stamps, old cars, rare art, or whatever strikes your fancy, but anything in short supply and which is a literal tangible will do. These things may be difficult to sell if the need arises, whereas gold and silver won't, but admittedly gold bullion coins aren't very interesting...just safe.
Whole life policies, savings accounts, certificates of deposit, bonds of all kinds, or other securities denominated in dollars will go by the way if the M3, M2, and M1 continue to escalate, as they surely will. Prices don't go up. Currencies go down. Is a quart of milk worth more at a dollar, than it was at a dime when I was a kid? No, as it is the same milk! Only the currency has gone down; the milk has not gone up. Get out of currency denominated things and into tangibles deniminated in other forms of measurement.
While this is a simple explanation of basic economics based on the Austrian School, it totally escapes most minds, as perhaps it is too logical. A life insurance policy I might have bought when a teenager with a value of $500, seemed to be a lot of security then, with gas at twenty cents a gallon and an apartment renting for $50 a month, both of which are accurate figures. Today, that life insurance policy would still be worth $500, and it was paid, over the years, with constantly decreasing value dollars, and today it is basically worthless, compared to the effort and work paid into it. After WW I, the Germans who had saved their surplus assets in savings accounts or whole life policies, lost everything they had because they saved in marks. The same thing happened to them again 24 years later. Saving surplus assets in government controlled, unbacked, currency denominated vehicles, no matter how much they are touted by supposedly well educated, respected, admired brokers, is placing your faith in things that historically have become worthless sooner or later, and are taxed, and manipulated in the mean time. Leaving one's assets to one's kids or grandkids becomes rather sticky, taxable, and complicated, but if non-deeded, non-titled tangibles are handed down anonymously, it is rather simple. Some measurements are firm, set in stone, and virtually infallible. Pounds, ounces, acres, gallons, tons, and the like cannot be manipulated, or their values changed. Dolllars, yen, pesos, francs, etc. can be debased with glee by stupid politicos or the privately owned federal reserve. No one can mess with universal measurments.
March 1, 2001
Don Stott has been a precious metals broker for over 23 years, has written 5 books, hundreds of articles, and considers himself an Austrian School economist. He once had the privilege of brokering gold for Mrs. Ludwig von Mises. His web site is coloradogold.com