Glenn Beck recently detailed the overall supply of dollars in circulation from circa 1900 until the present. To be blunt, our savings is devaluing rapidly. Do you know how to protect yours?
We have all known what the bailouts would do to the strength of the dollar, but the speed that this hyper-inflation locomotive is moving should have us all a bit unsettled. Everyone except our government has well understood that if we double our supply of dollars, we effectively cut our savings in half.
And this is precisely what has happened. In August of 2008, just a few months ago, there were approximately 800 billion U.S. dollars in circulation. Then, with the stroke of a pen, that supply doubled on the heels of the bailout. Our government committed to rapidly moving to 1.5 trillion dollars in circulation. Now with the new bailout, we’ll add another 819 billion dollars for a total of 2.24 trillion dollars in circulation.
So, we have moved from 800 billion dollars in circulation to somewhere around 2.24 trillion – a tripling of dollars in circulation in just a few months. So what we are essentially left with is savings that is worth approximately one third of what it was in August of 2008.
But this isn’t an instant reaction. On the contrary, the market has to realize what has happened, that all these extra dollars have been created ex nihilo, before it responds. Many of us have expected this to take many months, but we are in some cases already noticing an upward creep in food prices. And this is the beginning of the snowball effect.
Because the dollar is devalued, it takes more to purchase basic goods and services. Because it takes more to purchase basic goods and services, the dollars we have saved will simply have less value. As a result, any of our investments that are tied to the dollar are devaluing before our very eyes. This devaluation will directly effect CDs, savings accounts, bonds, T-notes, etc.; but it will also indirectly affect mutual funds, stocks, and other market investments as the dollar becomes weaker.
The best case scenario is that the dollar weakens and the relative purchasing power is halved outright. The only method for righting this raping of our savings is to decrease the supply of dollars to pre-illegal-bailout levels. This isn’t going to happen.
The worst case scenario is that the dollar loses investor-appeal on the global stage. In this case, the dollar is dumped as a reserve currency, and our fiat system collapses.
While it would be foolish not to have any dollars at all, it would also be foolish to merely sit and watch you whole pile of savings devalue. Tangibles, to include metals, land, preps, etc., should receive a large chunk of your retirement savings over the next week or so.
Or you can keep your dollars in the bank if you like. Good luck with that.
But there is an alternative. Precious metals have historically functioned almost inversely to the strength of the dollar. Simply stated, when gold is high the dollar is generally weak. When gold is selling cheap, the dollar is relatively strong. This is because the dollar is a fiat currency – that is to say its value is based on faith. Conversely, gold and silver have tangible value, meaning their value is in their substance. That’s not a bad substitute to a currency that is slipping away before our very eyes.
The problem is that there is a science to investing in gold and silver and most investors just don’t understand it. No problem. The remainder of this article will answer some basic questions that can get you started down the road to depression-proofing your savings.
Are metals a good hedge against inflation?
Most experts (if you go out and do your homework) will tell you “Sort of – yeah” – but it isn’t a perfect science for the short term. Metals don’t have a perfect track record against inflation at all times.
If you look at the dollar vs metals on a chart over the last century, you can’t always say, “Look! That guy made bank on investing in metals!” If that were the case, metals would spin out of control in terms of price that no one would be able to afford them. Nothing can climb rapidly in price forever.
However, metals are an excellent hedge against massive rapid inflation. Their value relative to goods and services doesn’t fluctuate much. The price goes up and down in terms of dollars, but that is a bit deceptive. The dollars are what are fluctuating, not the value of the metals. That’s because the dollar is not linked to anything of tangible value, and is subsequently subject to inflation, etc. Thus, when the dollar is strong, it takes fewer dollars to purchase metals (the price drops). When the dollar is weak, it takes more dollars to purchase metals (the price increases). So, if the dollar collapses quickly, 1/4 oz of silver will still be roughly equal in value to a loaf of bread (so long as the supply of bread remains the same), the same as it does today.
Are metals a good hedge against disaster?
They always have been before, and there’s no reason to believe that they won’t this time around. Paper monies have collapsed, but gold and silver have never collapsed. Again, gold and silver have international value. In the event that the U.S. goes through an economic crisis and recovers (and that’s a big if), those with gold and silver will have something to utilize in the new economic system.
What about the 13 pieces of silver for a donkey’s head as spoken of in the Bible?
This is a great question, because it is a textbook example of the Law of Supply and Demand. During the famine in Egypt mentioned in Genesis, scriptures tell us that an “ass’s head sold for 13 pieces of silver”. But what we are seeing here is simply supply and demand. Food was scarce, so scarce that people were paying exorbinant amounts of money for “an ass’s head”. That is a reflection in a drop in the supply of food. And according to the Law of Supply and Demand, a drop in supply is always accompanied by an increase in price. So it wasn’t silver that was dropping in value, it was food that increased in value.
What active laws should I be aware of?
In 1933, FDR confiscated all privately held gold, making gold ownership illegal. Although Americans are now allowed to own gold again, the law that FDR used is still on the books. What does that mean? Well, according to the law, coins with numismatic value can not be confiscated. Numismatics are any coins which derive 10% or more of their value due to their collectibility. Now whether or not any coin will retain any collectibility value in the event of a complete economic disaster is a question no one can really answer.
The trade off is that numismatics are protected from confiscation – at least under current law – but they will not likely retain that collector’s value in the event of economic turbulence. In other words, you will pay a premium for their collector’s value, but a recession or depression may render them worth only their bullion weight. On the other hand, you are getting what you pay for with bullion, but they are subject to confiscation. The key? Once again, diversification.
What types of coins should I purchase?
Again, I am not a financial advisor, but my humble recommendation: mostly bullion (the cost of the coin comes strictly from the mineral continued, not from collector value); American Eagles, Canadian Maple Leaves, and South American Kruggerands.
Because these coins come from countries that are fairly well trusted around the globe – i.e. they don’t usually put led in the middle of their coins – these coins are generally very liquidable. I have heard anecdotal stories of Mexico and China dilluting the purity of their gold or slipping led inside of a very few number of coins.
But in the end, diversification is the key. Get some bullion from a number of different countries. Get some “junk silver” (old silver dimes, quarters, half dollars, etc.). Perhaps get a few numismatics. Hell, buy something minted by a private corporation. But just as we diversified our stock portfolio, we should diversify our metals portfolio.
How do I go about purchasing metals?
Go online and find yourself some local coin dealers. Ask them what their standard mark up is over spot. Sounds like this: “Hey Joe, what’s your mark up for silver bullion coins?” (Note: Only call him Joe if that’s his name).
A good dealer will tell you up front. If he can’t, he should be able to tell you how he sets his price. Then, make sure your dealer isn’t set on keeping your personal information. You should be able to drop dollars on the counter and walk away with metals (so long as its under $10k).
Once you pick the dealer with the best prices who doesn’t mind that you’re “paranoid”, just ask him what bullion he has on hand. Sounds like this: “Hey Joe, what types of gold bullion coins do you have on hand?” Although dealers are less likely to have a large stock on hand currently, they’d normally have some Maple Leaves, Eagles, and Kruggerands, and perhaps some from another country or private mint.
In the end, the gamble is between placing your savings in currency-based investments, such as; bonds, certificates of deposit, savings accounts, money market accounts, government securities, etc.; or in tangible assets such as gold and silver. Given the fact that the federal government has just debased all existing dollars by two thirds, the answer should be relatively simple.
Source by Eric Martindale
Depression-Proof Your Savings
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