Watch Your Money Disappear

January 16, 2010

I know a lot of funny jokes. They are so funny that one of my friends has confessed that he has nightmares of ending up in the same old people's home as me, listening to me tell those jokes over and over again. I continue to reassure him that he will have Alzheimer's disease by then and as a result he will always be laughing and asking me to repeat them. He now worries that a cure for Alzheimer's will be found before that time.

But there is another friend that fears being in the same old people's home with me for a different reason. He is addicted to paper and regularly tells me that my doom and gloom prognostications about the economy will be nothing more than temporary downturns. He laughs off the possibility of gold and silver being the last men standing when currencies everywhere bite the dust. His fear is that he will live through the sunset of his life, with me next to him, reminding him every day that paper money in 20_ _ hit the wall and that gold and silver went all the way up to #!*!#*

You see, the prediction about the price of gold and silver in the future is really a prediction about the future of paper currencies. When paper currencies were not around there was no meteoric rise in the value of gold and silver as was the case in 1970-1980 and then 2000 to date. No one bothered to make predictions about the future "price" of gold and silver because gold and silver WERE the price. Price stability, therefore, was by and large (with few exceptions) the feature of those times. So what must be pushing up the paper price of gold and silver is the continuous production of paper currencies.

A Rembrandt or Picasso retains value not only because of its value as art but also because you cannot have more than one original. If more than original could be produced what do you think would be the value of the 2nd, 3rd and 4th "originals"?

The existing stock of above ground gold increases by around 1.5% per annum. But the increase in paper currencies floating around the world resembles an out of control popcorn machine. You have all seen the graphs so there is no point in re-producing them here.

Are you still willing to place your trust in paper over precious metals? Keep reading.

It has been said many times that paper currencies are mere promises. Don't fool yourselves. They are not even that. But what are promises? I would like to offer the following very incisive answer by Hannah Arendt as it seems to say a lot more than any legal definition.

"Promises are the uniquely human way of ordering the future, making it predictable and reliable to the extent that this is humanly possible."

Please read the above again and again and then relate it back to what governments everywhere have delivered to their citizens as a result of profligate spending and manic printing. It is clear that the future is not at allorderly or predictable and institutions both private and public have become unreliable. It is clear that paper money is a promise with a use by date. The longer you delay spending it, the less you will be able to buy with it if it remains in the form of a paper dollar.

But why do governments print money? The short answer is because they can. The long answer has two parts. Firstly, they know that the vast majority of people are too stupid to notice what happens to the value of their EXISTING dollars. Secondly, the spending produces a short-term euphoria amongst the masses and a corresponding lift in the government's popularity.

The following quote (author unknown) sums up the situation:

"Are Americans getting stronger? Fifty years ago, it took two adults to carry ten dollars worth of groceries. Today, a five-year-old can do it."

Imagine working for half a bottle of wine per day and that the boss pours the half bottle in your barrel each afternoon. You drink a little to survive but also leave a little more each day to survive on in old age when you no longer work. Little do you realise that the boss is gradually adding more water to the wine and like the proverbial frog you boil in the pot without protest. Every time you get suspicious, he gives you a little more "wine" to settle you down but the result is the same.

Whilst credit was cheap and freely available and people were in rapture over their increasing house prices and stock portfolios and falling plasma TV prices, no one really complained about the overall fall in the dollar's buying power. As soon as jobs disappeared, lines of credit dried up and house prices jumped off the cliff, everyone realised that the wine in their barrel might not be as good as gold but instead may be just water with a hint of wine. For those that have retired, they have now realised that not only is their barrel full of a liquid that is mostly water, they have also discovered that the government has been siphoning the barrel to keep other fools happy as well.

Instead of realizing that governments are cannibals who have us in a slowly simmering pot, we instead wear the dopey smile of someone in a Jacuzzi. If you doubt this then you only have to consider how gold and then silver have gradually been withdrawn from circulating currency and that before long even copper and nickel will be removed from the coinage of the USA.

And then one day even the paper dollar will disappear as everyone will be given the same card that food voucher recipients are given. Money will become just an electronic pulse. The disappearance of your money as a store of value will be well and truly complete.

The government will sing the praises of "fantastic plastic" as being much more efficient, cheaper to administer and more difficult to counterfeit. Don't buy the phoney baloney unless you honestly believe that WEALTH can be stored in a computer's memory.

Long term reliance on paper money (regardless of the medium) for financial security is a one way ticket to oblivion. Bernanke may be a student of the Great Depression but he has certainly not mastered it. Financial excesses can be reversed only through painful liquidations or as Professor Fekete has beautifully said, "constant prosperity through credit is no more possible than constant peace through heroin."

Economics not only suffers because it is not a science, it fails periodically because it is a victim of man's proclivity to print money, steal and wage war on the one hand and to avoid pain and discipline on the other.

The present economic mess will end badly either through a protracted illness or a massive heart attack. The only important question is, "what will emerge from the ashes the day after the collapse?" Regardless of what emerges, you can sure that gold and silver will be in the driver's seat.

 

PETER SOULELES B. Com LLB

Sydney Australia

16 January 2010

The California Gold Rush began on January 24, 1848 when gold was found by James W. Marshall at Sutter's Mill in Coloma.

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