Paradigm Shift

October 25, 2002

I live in, and love…Colorado. Colorado depends on tourism for a lot of its income, and in fall and early winter, hunters arrive with their orange jackets, so that other hunters don't get shot, instead of an elk or deer. Some farmers place orange signs on their livestock that say "COW." However, not only in Colorado, but every other place in America, hunters are shying away from elk and deer, because of CWD, or "Chronic Wasting Disease." Scientists say it is not transmissible to humans, but I am not sure. There has been a definite paradigm shift, in what hunters hunt, and what careful people eat.

Paradigm shifts have taken place hundreds of times in the last 75 years. Few want standard shift cars any longer, other than Jeeps or large trucks. Few will buy a car without air conditioning. Power steering and brakes are common. A paradigm shift has taken place in the way we get around. Frozen and instant foods, microwave ovens, built in ice makers, Tefflon, and a host of other things have occurred in kitchens, which has caused paradigm shifts in cooking.

Double glazed windows, efficient furnaces and insulation, plastic siding, and many other features of homes have changed the habits of builders, causing a paradigm shift in the housing industry. All occupations, walks of life, hobbies, and practices have paradigm shifts as new developments happen, inventions are marketed, or threats surface. How many people do not have a computer now? Few. How many people didn't have a telephone, even 60 years ago? Few. How many didn't have a car 70 years ago? Few. Times change things, which causes paradigm shifts.

Gresham's Law states that bad money drives good money out of the marketplace. Gresham's Law causes a paradigm shift, because people always want good money, and especially when they realize some money is better than others. Bad money buys little, and good money buys a lot. In Argentina today, land can be bought for as little as $30 US dollars an acre. The Argentine Peso is bad money. The Japanese Yen is bad money, since a yen is worth less than a US penny. The Euro may overtake the US dollar in popularity, since is supposed to have 15% backing in gold, and is now in almost universal use in Europe. The Mexican Peso is worth less than dime US. Make you feel good that you are saving in dollars? It shouldn't. The fact that other paper monies are declining faster than the dollar, is no reason to be smug and satisfied, because they are all going down, causing a paradigm shift in the way people save. It is not a torrent yet, but the shift has begun, and will grow as the currency presses continue to operate 7/24, turning out billions of pieces of paper with ink on them, that are backed by nothing.

Precious metals dealers, who have been doing this for a long time, as have I, remember the late 1970's and early 1980's well. Jimmy Carter was the President, hostages were being held in Iran, Dennis DeConcini, a viper Senator from Arizona, cast the tie breaking vote to give away the Panama Canal, and the prime rate was 13%. If you wanted to borrow money from a bank, 21% interest was common. It was, as Charles Dickens said, the worst of times. Bunker Hunt was trying to corner the world's silver supply, and there was panic everywhere. Gold and silver were so high, that people were selling their flatware, closing their savings accounts by the millions, and buying gold and silver. Talk about a paradigm shift! That was it. It has begun again.

A very observable paradigm shift has begun, in the way people save their surplus assets. When people call me and say, "I have never done this before, so you'll have to talk me though it," or, "I have closed my savings account and am placing all my money in gold and silver, how do I do it?" a trend has begun, as it should. Many of those who are now getting out of dollars, tell me they got out of the stock market in time, and they did very well. They were smart enough to realize that a huge bubble had been created, and it had to burst. People around the world are beginning to realize that bubbles are being blown with paper monies, which will burst eventually, as some have already. These thinking, logical people, are getting into gold and silver now, while prices are low. The higher prices go, the more will do it, as the masses always act too late, it seems. Silver is below cost of production in 95% of the places in the world, and if it can be produced for $4.50, it is with slave wages. Gold can be produced at current prices, in some places, but not too many. If all the gold and silver mines in the world were open, they couldn't begin to fulfill the needs of buyers. If even 1% of the world decided to get out of paper money and into precious metals, due to limited supplies, the price of gold may be $20,000 an ounce. There just couldn't possibly be enough. With so little around and being produced, and so much wanted, prices will go through the roof again, just like in 1980. More and more people are beginning to realize what a total fraud paper money is.

Gold and silver owners, use their paper money to live their daily lives, just like everyone else. We buy groceries, cars, go to the movies, paint our house, take vacations, and do all of life's joys and drudgery with paper money. We just don't save in it. We save surplus assets in gold and silver, or other tangibles that aren't dependent on a government for purchasing power or value. Nothing that is tangible, be it the living room sofa, home, car, antiques, or gold and silver, are dependent on a government for value. Tangibles are things you can use, sleep in, travel in, or store wealth in, and are just physically there, with no permission or dependency on government. Think about it. Is a roll of wallpaper dependent on government for its beauty, or desirability? No, as it is an item in itself, the product of tree cutting, paper making, gluing, and printing, which has no government promises in back of it.

Paper money denominated things are secure only in dollars, not buying power. Financial advisors are all wet, when they insist that government bonds and securities are safe. Safe in the number of dollars? Yes, but the dollar is not a safe saving instrument, because the purchasing power of the dollar continually goes down. Get back to 1980 again, to see what has happened. According to the US bureau of the census, the average cost of a new car in 1980, was $7591. This is the average, not a stripped down or luxury one. This means that we have had 400% inflation in 22 years, or the dollar has lost 3/4 of its value in 22 years. If you had placed your dollars in a savings account, CD, or government bond in 1980, you would have increased the number of dollars you have, but the loss in purchasing power would be unbelievable. Assume you placed $1,000 in a savings account or bond at 3% interest. After 22 years, you would have $1916.10. Taxes would be due on the $916.10 "profit," while the dollar would be worth a fourth of what it was, or a loss of over $2,000 in purchasing power, before taxes. Interest rates are no where near 3% now. The same comparison can be made with most other products, such as real estate, food items, gasoline, clothes, shoes, furniture, etc. Saving in dollars is silly, even though the actual NUMBER of dollars may increase, but even after adding the new dollars earned through interest, the net result is a loss. Taxes must be paid on the so called "gain," which is no gain at all.

As more and more wake up to the utter fraud of paper money, it will be 1980 again, in spades. Gold's peak in 1980 of $850, multiplied by 4 would be $3400, and silver's $54 would be $216 per ounce in today's diminished buying power dollars. Will it be a good idea to sell gold and silver when they reach $3400 and $216, which would be comparable to 1980's peak? Yes, if the economy is still holding together, but not if every other price has quadrupled, as this would mean you have hedged yourself well, and preserved your assets, but selling then, with all other prices having quadrupled, would be throwing your hedge away, while inflation still rages. If prices have only doubled, and gold and silver quadrupled, it might be wise to sell, and I wouldn't discourage it.

There will always be an unlimited supply of fiat, paper, unbacked "money," whereas there will always be a limited supply of gold and silver, making it a wonderful way to store wealth, hedge against inflation, and avoid taxes. Protect yourself, and get into the paradigm shift early. Avoid the rush and high prices, which always result when the masses get wise.

The Federal Reserve Bank of New York holds the world's largest accumulation of monetary gold.

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