Don StottEveryone has faith in something. Absolutely everyone. Most of us have faith in our parents, if they still live, as they were our guiding lights when we were growing to adulthood. We have faith in our wives, if all goes according to the way we want things to go, and faith in our husbands, with the same proviso. We have faith in our religious convictions, and faith in simple things we often take for granted. Faith the car will go when we turn the key, that it will rain to nourish plants, trees, and lawns, are ever so nice to have faith in, even though we in Colorado have not nearly enough rain and snow this year. Faith tells us that this will end, and normal amounts of moisture will return soon. Hebrews 11:1, gives a pretty good description of faith, and no, this is not a Bible lecture. Faith then, is believing something will happen, or is true, even though we may not have evidence of it, or even proof of it. Faith means, we just hope it is true, or will happen. It is possible that faith can be lost, betrayed, or proven to be false or unreliable at times, and when this happens, it can not only cause consternation, but bankruptcy, loss of credit, or even a home or life.
For far too long, the entire world has placed faith in pieces of paper with ink on them, known as currencies, bonds, futures contracts, checks, stocks, and similar instruments. This faith has often been betrayed by the creators of these instruments, namely world governments, and producers of these pieces of paper with ink on them. If you have faith that the sun will rise, there is good reason for that trust. A simple astronomical knowledge will assure you that it will be there tomorrow morning, even if obscured by a cloud cover. Trust in mates grows stronger with each year of wedded bliss, and conviviality. Trust in your hoot-o-mobile in the driveway comes from regular maintenance. Trust in government, has always seemed to me to be a real toss-up. Trust in other paper instruments can also be risky.
Government cares not a whit about much more than itself. Politicians are about the most dishonest bunch of creeps that ever lived, and are mostly interested in re-election to those posh DC offices, adulation, power, and staff. To that end, the politicos always vote to give their constituency lots of access to the public trough of government handouts. A class example is the eternal farm bills, which will give farmers largess for not growing. This has been going on for decades. I remember back in the late 1940's when a farmer could put his land in a "soil bank," and get checks for doing nothing.
The sad thing, is that by trusting government, you are on shaky ground, and your faith may be devastated by actions of that government. As examples, look around the world at all governments. All are in over their heads with debt. All are printing their respective currencies to pay their bills, and thereby the currencies becomes worth less and less. Mostly those two words become the one word…worthless. It has never failed in history, since Guttenberg invented the printing press. Every single news show or newspaper is full of stories of government giving millions, hundreds of millions, billions, etc., to any and all. Dollars, issued by the US government have lost 95% of their purchasing power since 1940.
Other paper instruments have gone into default endless times in the past, and the recent NASDAQ crumble cost Americans, it is estimated $5 trillion dollars. Would suckers have bought, had not they been urged to do so by unscrupulous stock brokers, CNBC, and Merrill Lynch? Bonds, which eventually were titled "junk," have cost peoples of America and the world, endless trillions of their currencies. So much for "money" and bonds. Bank accounts have proven worthless far too many times to count, when the bank goes down. The FDIC has less than 1% on deposit for its insured banks. Put a lot of trust in banks? Think twice.
I suppose what I am trying to say, is that all paper instruments, of whatever vintage, denomination, origin, or persuasion, are only as good as what backs them. Faith, is what we place in these instruments, usually because of their history, track record, or supposed backing. Examples of paper instruments are futures contracts on precious metals. It is estimated that there are 80 million ounces of "paper silver" promised on silver futures contracts. This silver does not exist. Suppose silver went to $10, and this is still not high enough to profitably mine it, in America anyway. Suppose everyone decided to take delivery? The silver does not exist, and neither does the gold for gold futures contracts. Will the COMEX and others simply say, "Sorry, we are bankrupt?" Their silver, or even equal dollar obligations, will be impossible to meet if silver goes anywhere near where we think it will go, as far as future contracts are concerned. An individual and corporation can easily go bankrupt, leaving creditors out in the cold, with nothing. Enron has done it, as have hundreds of thousands of corporations and Joe Doe credit card holders. The dollar has gone to virtually nothing, and savers in dollars have been left out, if they saved in dollars. The same with other currencies everywhere. So, in what can one have faith? What can we have faith in, with all the betrayals and failures? To me, it boils down to physical things, tangible things, and even eatable things, shootable things, and barterable things. I hate dollars, and have never had a savings account. Any extra dollars go into more silver, gold, antiques, unregistered guns, trips, or whatever my taste may fancy, but NEVER, will I save in dollars.
Every single piece of financial paper in history, has proven unreliable…if you think about it. I have a collection of wonderful old railroad stocks that have exquisite engravings and designs on them. All have proven worthless. I have various currencies from lots of places, and most are, or are close to worthless. What should we place faith in, then? Physical things, I say. Things one can touch, fondle, admire, use, eat, defend ones self with, barter with, and enjoy. Precious metals futures contracts seem to work very well, till their logical payoff in metals, or even dollars becomes so huge, that the issuer of these instruments says, "Sorry, I don't have the ability to fulfill my contract with you, and therefore I am going to declare bankruptcy." Do you really believe that gold and silver futures contracts would deliver the merchandise if metals go sky high? How can they fulfill contracts? What means does Joe Blow have to pay his Mastercard debt of $15,000, when he makes $250 a week? What means does Enron have to pay the hundreds of millions they owe to creditors, ex-employees, and holders of their notes? If a bond issuer goes belly up, and is broke, what means do they have to redeem holders' bonds?
Ah, but you say, "The government can print all it needs to print, so government bonds and money can't fail." Yes, believe it or not, there are those out there, who actually believe government can create, rather than destroy wealth. Hopefully, not readers of Gold Eagle. There are those out there that really believe government can protect you, rather than send innocents off to pointless wars, and have almighty screw-up agencies such as the FBI and CIA. There are those that have faith in government, pieces of paper with ink on them, and empty promises of future value and actions. I don't.
I had faith in the credit card system, and took credit cards for purchases, because if the machine said all was well and approved, I assumed it was. Untrue. No more credit cards for me, after I got stuck for close to $3,000. I don't trust credit card companies any longer. I trusted a new client for $4600, and shipped the gold before her check cleared, and lost $4600. I wait for clearance now, because it only takes a couple of days. We all learn by experience, and I hope those of you who have faith in the ability of futures contracts to deliver, aren't left out in the cold with worthless promises to fulfill. When metals prices indicate you should have a windfall, I truly hope you get it. History proves that when a party is obligated to pay huge amounts they don't have, they invariably go to the bankruptcy court. Be it credit card holders who have gotten far too generous with purchases, corporations who were poorly managed, or governments who were full of corruption…all went to the bankruptcy courts, debased currencies, or just disappeared from view.
Protect yourself. Back your gambling with physical. Physical gold and silver are actual wealth, and need no promises or backing. Food that can be eaten is of far more value than a wheat futures contract, and a loaded gun is far better than a police department, or government promises of safety.
I promised you a report on the book, " The Coming Collapse of China." The author doesn't convince at all. Far too much local lore, names, places, etc., which have nothing at all to do with China's condition. He doesn't once mention the phrase "WalMart." His reasons are that if China invades Taiwan, they will loose, corruption is high, banks are in sad shape, and commies rule with an iron hand. He mentions protesters, but it doesn't seem to me that with a huge trade surplus, China is ripe for "collapse." Not recommended!
June 1, 2002
Don Stott has been a precious metals broker since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com
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