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By Jon Rappaport
Author of the LOGIC AND ANALYSIS COURSE
In this piece, I'd like to focus on one factor. When governments spend more than they have, they become debt-based governments.
This is like saying, if the river rises over its banks there will be a flood. It's so obvious, why bother to mention it all?
Well, because many people don't really understand what debt means. It means, among other things, that you can't keep borrowing indefinitely to pay off what you owe.
In other words, at some point, the lenders are going to dry up. They're going to run screaming into the night and they won't leave a forwarding address for you. You owe too much. They don't want to have anything to do with you. If they were bookies, you would have already had your knees cracked with a baseball bat.
Governments, however, have some kind of misplaced faith that, if they keep funding programs "the people want," the day of reckoning will never come. They can allot money for this and that and this and that, and because this and that are deemed to be worthwhile, it doesn't matter.
If you try to figure out where this attitude came from, you won't find it in the Constitution. You'll find clues in the notion that politicians get elected by promising goodies, though.
A close analysis indicates that "freedom," which is delineated in the Constitution, is not the same as "free stuff."
We now see that governments all over the world are realizing they can't live forever as debt-based entities.
So what's next?
I believe we will observe a growing Voice that asks for a global currency. One currency for all nations. This is no revelation. It's been coming for a long time. However, it helps to have a debt crisis that seems to require the one-currency-fits-all answer.
And in the process of shifting to a single planetary currency, there will be "debt eradication." This will be folded into the plan-because somehow the insupportable financial obligations of governments have to be dealt with.
Such a plan will have to involve corporations. Why? Because companies like Goldman Sachs presently underwrite government debt. Meaning? These companies guarantee that the bonds which governments float, in order to keep borrowing, are, well, OK. The bonds are "good." The bonds are safe. The bonds can be bought without an unacceptable risk.
And what on earth gives Goldman Sachs the idea that such bonds deserve to be guaranteed? I asked several "experts" that very question. The answer I got was this: Governments tax the people; the taxes keep rolling in; governments have a reliable income stream.
That's it? That's the answer? It didn't add up to me, because, despite raking in money by taxing citizens, governments are spending far more than they should. In fact, that's why they have to keep issuing those bonds.
It seems to me this is yet another one of those crazy schemes, like selling mortgage-backed derivatives, that lasts as long as people don't ask too many questions. It's a rain-soaked cliff waiting to collapse, and people are still spreading out blankets and having picnics on the cliff, and developers are building condos and roads there.
The shift to a single world currency would be a complex affair, and banks, investment houses, national treasuries, governments, and tons of lawyers would have to work it all out.
Something would have to be done to accommodate the global currency-trading markets, too, where presently gargantuan sums are flowing every day, as gamblers speculate on the value of the dollar versus the pound, the yen versus the dollar, and so on. That whole market would be destroyed if these national currencies disappeared.
No doubt the one-global-currency scheme has been on the drawing board for some time. Major players have been working on how it would be accomplished, and who would get what payoffs.
Insupportable government debt and the inability to provide the panoply of government services would be one reason given for The Great Money Revolution.
It's a little like this. You're out on a field where you play baseball on a regular basis. Your team is losing every game, on and on. So one day, in the fifth inning of a game, you take your bat and your ball, and you say, "This is a bad thing. Baseball is bad. We have to make a change. We're not going to keep score the same way anymore. We're going to have a new game…"
A few people call you a bad loser. And you say, "You're wrong. I just want to make things more fair, more equal."
We already have a model for debt eradication. The IMF, the International Monetary Fund. It tends to go into Third World countries and relieve a bit of pressure on their monstrous government debts-with conditions attached. These governments will basically have to sell off many of their functions, like water and electric utilities, to outside corporate interests. Privatization. In the process, rates are hiked. Government budgets are downsized.
It's possible that a new world currency would entail some of the same "austerity measures," from Nome to Tierra del Fuego. A general lowering of the standard of living. An ever-widening gulf between the rich and the poor.
And of course, with the institution of one global currency, money would become much easier to track and tax. Money would become much more "public." Or to put it another way, only favored individuals and groups would be able to fly under the radar and transfer and launder billions and trillions.
I make all these points to illustrate how far such a plan would bring us from the notion of Constitutional government laid out at the beginning of the American Republic.
That long road has been paved and constructed with debt. Debt becomes the reason why the road to a Brave New World has to end up with an overall global management system that is both economic and political.
Therefore, as many have pointed out, those men who long for exactly such a global management system would conclude: Any strategy to pile insupportable debt on governments is a good strategy.
Under the rubric of "more free services for more people," debt is easy to create. Along with war, it's a slam dunk.
You may have noticed that, in America, more and more people are talking about limited government these days. People are realizing that the Framers of the Constitution weren't just whistling in the dark.
Other Articles of Interest
The Keynesian Race to Bankruptcy
By Gary North
Confidence in the euro is falling because it is becoming clear that the region's commercial bankers have made the same sorts of bad decisions that American commercial bankers made after 2000. They loaned money to debtors in Eastern Europe who will not be able to repay. These loans were collateralized by real estate, which rose. Real estate prices in Eastern Europe are now falling. The bubble has popped…. Read more
A Brief History of Money
by Jason Hommel
In all of history, wherever paper money has been issued, its value has eventually gone to zero. Its intrinsic value is nothing, and the dollar is no exception. The value of silver and gold is timeless, and cannot go to zero. They are metals that will always be precious and will hold value… Read More
Deficit Financing" and Inflation
Ludwig Von Mises
I assume that you know how the banking system developed and how the banks could improve the services rendered by gold, by transferring assets from one individual to another individual in the books of the banks. When you study the development of the history of money you will discover that there were countries in which there were systems in which all the payments were made by transactions in the books of a bank, or of several banks. The individuals acquired an account by paying gold into this bank….Read More
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Quote of the Day
"As a very important source of strength and security, cherish public credit. One method of preserving it is to use it as sparingly as possible, avoiding occasions of expense by cultivating peace, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it; avoiding likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertions in time of peace to discharge the debts which unavoidable wars may have occasioned, not ungenerously throwing upon our posterity the burden which we ourselves ought to bear."
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Gary DeMar response to Congressman Anthony Weiner accusation of Glenn Beck and other conservatives of fear mongering to get people to invest in gold.
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The people who are now defending limited government are, in fact, willing to discuss these First Principles. But the other side is doing everything it can to avoid that discussion.
Why? Because a fundamental debate would open up the, yes, underlying philosophy by which these Big Government advocates operate. The debate would expose the various levels of transference-in which freedom becomes free stuff. And free stuff becomes un-payable debt. And un-payable debt becomes the familiar face of friendly fascism.
I mention this because governments invest money they drag in from taxing the citizenry. Through pension funds, for example, they are major investors in the stock market. Do we know how well such investments have been performing? Is it possible that some state governments are swimming in cash and are falsely crying poor? If that turned out to be the case, then the notion of "insupportable government debt" becoming the lever for a new currency would take on additional meaning. It's an issue that shouldn't be ignored, and I don't see governments releasing comprehensive financial reports that any citizen can read and understand.
Jon Rappoport is the author of LOGIC AND ANALYSIS, a course for high school students and adults. He has been working as an investigative reporter for 25 years. Nominated for a Pulitzer Prize early in his career, he has published articles in LA Weekly, Spin Magazine, Stern, CBS Healthwatch, and other newspapers and magazines in the US and Europe. At Amherst College, where he graduated with a BA in philosophy, he studied formal logic under Joseph Epstein, a revered professor of philosophy. Mr. Rappoport can be reached at firstname.lastname@example.org His websites are www.nomorefakenews.com and www.insolutions.info
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Gold And Procrastination
By Gary North
Beginning in late 2001, I began recommending that my readers buy gold. I have continued to make this recommendation every year since then. When I first made it, gold was selling for under $300 per ounce. Today, it is above $1,200 per ounce.
I wonder what percentage of my readers have taken my advice and put a minimum of $10,000 in gold coins. I would like to think 80%. I hope it is at least 4%.
Some people have bought IOU's to gold issued by some firm that promises to pay investors fiat currencies. The payment will be made in digital money, not gold.
The commodity futures market is a system of IOUs. Overall, about 1% of these contracts result in actual delivery of physical commodities. Gold is no different. People who buy IOUs to gold are buying promises to pay fiat money, not gold. Read the contract. See if the company is allowed to substitute fiat money for gold.
There are a few thousand local coin companies in the United States. Most of them deal mainly in stamps and baseball cards, not gold bullion coins. Collectors are their main clients. There are usually people with interests in specific coins, not gold coins as such.
The few American companies that specialize in selling bullion gold coins have a few thousand clients each. This, in a nation of 100 million households.
In a crisis so severe that (say) 10% of these households decide to buy a single one-ounce gold coin, there is no way that they will be able to do this. There will not be enough telephone lines and salesmen to take their orders. There are not enough salesmen to take orders from a million homes.
In other words, there is no way that a gold coin standard could come into existence fast enough to solve the problems created by mass inflation, let alone hyperinflation. When the crisis hits, it will be too late.
There would be no way for the United States Mint to produce enough gold coins to meet demand. Whenever there is a big move in gold's price, the Mint stops delivery of coins to dealers. The Mint says that it does not have enough blanks to produce enough coins to meet demand. This is marginal demand, not a million people trying to buy one coin.
The Mint has no incentive to buy new presses and new blanks -- planchets -- for the coins. The Mint does not pay its employees a commission for coin sales. Most people's jobs there are protected by Civil Service. What if demand is short-term? What happens then to the career of some senior officer who ordered the new presses? In contrast, nothing negative will happen to anyone's career for not buying new equipment.
Think of Europe, Australia, and the Chinese middle class. What if 10% of them wanted to buy just a single one-ounce coin? The same problem exists in every nation. There is no distribution channel large enough to handle what I would call marginal demand. Such demand is marginal in terms of the net worth of buyers. It is marginal in terms of the number of investors in all asset classes. But it is not marginal in terms of the number of new buyers of gold coins. It would short-circuit the distribution system.
I am a believer in owning gold coins. That is to say, I do not trust the IOUs except as speculative vehicles to make fiat money. These IOU's are not IOU's for gold. They are IOU's for digital money. There are vastly more IOU's written for gold than there is gold ready to deliver: probably 100 times more. Here, I am speaking of gold bullion bars. As for bullion gold coins, there might as well be none, as far as the average guy would be concerned in a currency crisis.
If an outfit has a bonded warehouse with segregated gold accounts, fine. But will the firm deliver physical gold? Find out.
This is why procrastination is unwise. The person who procrastinates thinks, "I can always buy some coins." He will not be able to. He thinks, "I can beat the rush." He can't. He will get the urge to buy gold when millions of other people do, too. The panic will hit far more people than there are coins available.
Anyone who knows the gold coin market can tell you this. I have watched it since 1965. I see the same retail sellers today as then . . . and not many more.
Camino Coins in Burlingame, California has been around since about 1960. Investment Rarities in Minneapolis began in the early 1970's, as did Monex. Franklin Sanders (the Moneychanger) began in 1980. Don McAlvany has been selling coins for over 30 years. Then who are the new kids on the block? There aren't many. Of those who sell coins and deliver them, there aren't any. (I am not speaking of companies that say they buy coins and store them for a fee.)
This is a cottage industry. It's not like Wall Street, where hedge funds come and go. This is what we would call a mature industry. "Geriatric" is closer to it.
If there were widespread interest in buying gold coins, there would by now be a developed supply chain. As gold has risen from $257 in 2000 to today's price, companies would have come into existence to meet demand. There has been no increased demand. Gold goes higher and higher. People read about it, but they do not take action.
An American waits to buy gold until his brother-in-law buys gold. Few people are early buyers in any market. But, in the case of gold, almost no one ever becomes an early buyer. To buy gold is to short the dollar. To buy gold is to conclude that Congress will eventually ruin the currency. This means that the promises of Congress are not reliable. Very few Americans can bring themselves to believe this. So, they remain on the sidelines.
NO EMOTIONAL RESPONSE
The amazing fact is that tens of millions of Americans know about gold. They have seen the price rise, and they have sat on the sidelines. They have not connected the rising price of gold with a profit opportunity. They have not thought, "I really ought to get in on this." Higher and higher gold's price goes, but emotionally, this fact does not register.
This is equally true in Great Britain. A decade ago, as Great Britain was selling half of its gold hoard at under $300, gold got a lot of attention. It was the end for gold in the world's monetary system, the experts said. The Chancellor of the Exchequer, Gordon Brown, issued the order to sell. This was big financial news. Brown's decision has cost the Bank of England something in the range of $10 billion, but nobody in Great Britain has cared. The issue is not on anyone's radar screen, despite the fact that the British electorate goes to the polls this week to decide Brown's political future. His recorded comment about some woman's supposed bigotry has cost him millions of votes. But his liquidation of half of the nation's gold is a non-starter, and has been for a decade.
Here is a unique situation. An investment asset keeps rising, but investors pay no attention.
What is the problem? There is a war on gold, and the government and central banks are behind it. They tell people that gold is a loser's investment, that there is no shortage of gold at yesterday's price, that gold will soon fall. Worst of all, it doesn't pay interest -- rather like excess reserves at the Federal Reserve these days. But that has not kept commercial banks from piling up $1.2 trillion of excess reserves.
People do not mentally connect their lives with gold's price. If they had bought gold in 2000, they would be buying more today. Why? Because they would understand that gold's price is important for their future. But they did not buy gold in 2000, so its price is a kind of curiosity for most people. People do not invest in curiosities.
In India, gold is not a curiosity. It is an integral part of the culture. Gold jewelry serves as a dowry gift. Fathers begin saving money to buy their daughters gold from the time the daughters are born. This makes the price of gold a topic of intense personal interest in India. The price of gold impacts millions of families' net worth. It does so far more than the price of stocks impacts American families' net worth.
An Indian in a village may not be literate, but he knows about gold. He may not have any idea how the futures market works, but he knows how the gold market works. He does not accept an IOU for gold as a substitute for gold. He does not provide his daughter with an Exchange Traded Fund (ETF) certificate for gold on her wedding day. He could not be fooled into thinking that an ETF in gold is the same as gold. He would regard such an assumption as ludicrous -- something that Americans might believe in, but not anyone with common sense. What is common sense in India? "He gets my money when I get the gold."
The poor villager did not attend Harvard Business School. He does not work for Goldman Sachs. He imagines that businessmen might write IOU's for gold when they don't own any gold. Then they might take the money obtained from the IOU and use it to buy something else. When presented with the IOU, the debtor might plead poverty. He might declare bankruptcy. He might disappear. He might pull a Lehman Brothers routine. The villager, not being a sophisticated man, is not taken in by Harvard Business School grads, with their computer models.
So, the villager is protected by centuries of tradition. He learned from his father what stupid people do with their money. His wife still has her dowry, unless the family had to sell it in an emergency. There is no FDIC in India. There is no line of fiat money credit to India's non-existent FDIC from Congress. The Indian understands that a dowry in gold, not an IOU from a bank, is reliable in good times and bad.
The Indian has an emotional commitment to gold. So did his father. So did his grandfather. The American does not.
The American trusts the promises of the Federal government. He is emotionally committed to the Federal government. He is convinced that a political promise from Congress is better than gold. He believes in his heart of hearts that the Federal government would never break its word. Social Security will be there in his old age. So will Medicare.
The Indian peasant has no comparable faith in civil government. He has seen it in action for too long. He does not trust the Indian currency. The currency is useful for buying gold.
An Indian father makes his purchases when he can. He pays attention to price. He may think, "I will buy gold when the price falls." Then he does exactly that. The American thinks, "I will buy gold when the price falls." He thinks this again and again. He never buys any gold.
THE TEA PARTY MOVEMENT
The Tea Party movement is not yet serious. How do I know this? Because most of the members of the Tea Party movement refuse to buy gold coins. How do I know this? Because I can call a coin store and get through. I can order coins. If the Tea Party people were buying coins, the coins would sell for a big premium over the bullion price.
Anyone who says he is a member of the Tea Party movement who does not have at least a one-ounce gold coin is not serious about the threat of Congress to his future. He believes that Congress will come to its senses. He believes that politics will roll back Federal spending. But the killer Federal expenditures are Medicare and Social Security. They, all by themselves, will bankrupt the U.S. government. The Tea Party movement has not demanded the abolition of Medicare and Social Security. Thus, it is still living in fantasy land, deficit-wise.
Tea Party members think their efforts will be successful in rolling back government spending, yet Medicare and Social Security are sacred cows, to use a concept imported from India. Tea Party members are supposedly at least 10% of the voting population, with another 15% sympathetic to it.
Until these people finally realize that Congress will not change, that the Federal deficit will escalate, that this Federal debt will absorb more of the nation's capital, they will not call a coin dealer and order gold or silver coins.
They have faith in the political system. But the size of the deficit testifies against such faith. Until these people face reality and buy some coins, they will remain sheep to be sheared.
They will wake up at some point. When they do, they will try to contact a coin dealer. Unless it is a local dealer that makes its money selling baseball cards, they will get busy signals.
The Mint will declare a holiday. The coin premiums above spot (billion) price will go to 30% or higher.
There is no way that every member of the Tea Party movement can buy just one one-ounce gold coin.
The coins are not there.
In a panic run-up of the gold coin premium, existing holders will be buying more. They will call a dealer. The dealer will get back to them . . . maybe. Who do you think a dealer will call back? A new buyer who may only want one coin, or an old client who is ready to buy 10 coins, 20 coins, or more?
The newcomers will want in, and they will not be able to get in. What effect will this have? Mania.
It's when people are told, "You cannot buy" that they get frantic.For as long as they can buy, they don't buy.
Then, when they are told they cannot buy, they will pay anything. That is when you do not want to buy. Only you will.
You must prepare yourself for this. The only self- defense strategy I know of is to buy when you can and sit tight (or even sell) when you can't buy.
From the S&GS Mailbox
There are some inquiries that we receive repeatedly from our customers. We respond to these questions individually, but we felt that some of the answers might be informative for everyone.
One of the first hurdles you will encounter as an investor in physical precious metals is that of trying to decide 'which product should I buy?'
To decide this question, you need to answer the question, "Why am I investing in precious metals?"
Some common answers:
1) To preserve my wealth
2) To grow my investment
3) To collect as a hobby
4) To have an alternative 'currency' in the event of economic disaster
5) To hedge against inflation
There are no 'wrong' answers, but your objective will determine what product(s) you select.
Precious Metals as a Store of Wealth & Hedge against Inflation
Generally speaking, all precious metals, regardless of size, shape, form, etc. have been a traditional store of wealth throughout history. Gold, silver, palladium, etc. all have high intrinsic worth. Silver, more than gold, has high industrial value, which has grown exponentially in recent years due to the application in clothing, technology, medicine, and other uses. (see Many Uses of Silver) Also, during period of fiat currency devaluation and inflation, precious metals provide a 'safe haven' against the volatility of paper money.
Products - all types suitable, driven only by investor preference, and price points.
Precious Metals as an Investment
Depending upon the market at any given time, they have not always been a means of growing an investment. We are currently experiencing a bull market in precious metals, however; one whose end no one can predict with 100% accuracy. Most experts agree, however, the likelihood of it continuing for several years.
With the ongoing printing of excessive amounts of paper money, many economists believe this will cause currency devaluation and hyper-inflation, both of which will cause investors to lose money in one way or another. During these periods, silver and gold increase in value - which is really only a reflection of the devaluation of paper fiat currency.
For example, if an ounce of gold is worth $1000 in fiat currency today, and tomorrow the value of fiat currency decreases, the value of gold must rise just to maintain its value in relation to the fiat currency. This is, essentially, what happens during inflation. It's the paper fiat currency that is fluctuating in value, NOT the precious metal. This is also why governments are anxious to suppress the price of precious metals; because they are a canary in the coal mine reflecting the truth of what is happening with fiat currencies and the confidence of investors.
Products - all types suitable, driven only by investor preference, and price points.
Precious Metals for Collectors
Those who collect coins as a hobby do so with the anticipation that their value will rise due to the various market factors that are involved. This is known as 'numismatic' value and is driven by year of minting and how many coins were produced, condition, quality (proof or burnished), popularity and other factors. Numismatics is the study or collection of currencies… So this type of investor would prefer legal tender as opposed to bullion. These coins carry higher price points than bullion; and in an economic crisis could be used, like bullion, for barter. Their 'numismatic' value, however, in such a situation may become a moot point, and the investor will have paid more up-front to obtain them.
Products - Silver and Gold American Eagles, Canadian Maples, African Krugerrands, French and Swiss Francs, etc. according to investor preference.
Precious Metals as Alternate Currency
Depending upon the circumstances and situations, most precious metals can be used in barter. Larger denominations are just more difficult to use due to their higher value and challenges making 'change'. They are also heavier to carry around. Some rounds or bars are more recognizable due to their popularity, some are more popular due to their attractive design work. All reputable pieces should carry the assay value and denomination (e.g. 1 troy oz, .999 fine silver)
Products - 1 troy oz & fractional pieces, divisible bars & rounds will do best.
PRODUCT PROS & CONS
Pros: Varying Sizes from 5 oz - 1000+ oz bars.Lower cost
Cons: Less attractive, harder to liquidate or use in barter situations. Can be made into coin/bars by a mint, but subject to minimums.
Pros: Varying sizes from 1 oz - 1000+ oz. More attractive, more usable in barter due to recognizability. Divisible designs more usable in barter.
Cons: Not as commonly used or as recognizable for currency as rounds. Slightly higher cost over ingots.
Pros: Varying sizes from 1/10-5 oz. More attractive, more usable in barter due to recognizability. Fractional pieces & divisible rounds good for barter. Prices are competitive in the marketplace. Lower priced than Legal Tender Rounds. Many designs available for investor preferences. Most common, recognizable.
Cons: Slightly higher priced than ingots. Fractional pieces higher cost due to strike fees
Denominations of less than 1 oz are known as 'fractional' pieces. When a mint makes a coin or round, they strike a blank round of silver or gold with a die. Mints generally charge a fee per strike to make a coin. If they are making 1/2 or 1/4 or 1/10 rounds, they are striking 2, 4, & 10 blanks (respectively) per ounce instead of 1 blank per ounce. Therefore, the cost of production of fractional pieces is higher.
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Quote of the Day
A government which robs Peter to pay Paul can always depend on the support of Paul.
George Bernard Shaw (1856-1950)
This Week's Video
The National Inflation Association
Affiliate of the Week
I am preaching to the choir. What I have found over the years is that the choir pays less attention to the sermon than the walk-in does.
The walk-in has a reason for walking in. He has a problem he is grappling with. He wants a solution. He walks in to hear if the pastor has a solution.
The choir has heard it all. "Nothing new here!" The choir is content. Things are going great for the choir.
Then disaster hits. The choir thinks, "I had better go to the pastor to talk about my problem." At that point, there are no openings. People have to schedule an appointment.
Being in the choir lets people find out about problems. It does not usually lead them to begin to solve these problems. "I've heard that before" is the great producer of procrastination, until the day the crisis hits. Then it is the great motivator. "I knew! I knew!"
Too late . . . at 2% above spot price, anyway.
Why Are People Buying Silver And Gold?
By Jason Hommel
Many people today are cashing out their CD's to buy silver and gold. Why?
The CD's pay next to zero interest, and gold and silver continue to head up by 20-30% per year.
Most of our gold and silver buying customers have completely lost faith in the government's ability to "run" the economy, but more than that, there is a real fear of the government today, that it will turn dramatically totalitarian and that we will lose nearly all of our freedom.
The best time to own gold is when the government starts taking more of your money. Silver and gold ownership prevents government from confiscating your wealth through inflation, and more and more people see the inflationary threat of massive $2+ trillion deficits, which are being met by printing more money.
A typical first time customer comes into our coin shop at the JH MINT, and says, "Hey this place looks really nice!" We designed it to look a bit upscale, with plenty of room to hang out, with nice couches to be able to sit down to talk.
They typically say, I've been doing a bit of research online about silver and gold, but I really know nothing about silver and gold, so what can you tell me?
To answer in person, I must get to the point quickly, as other customers will soon come in next.
So I like to show them, and let them hold a gold coin, and let them compare the heft and weight compared with a silver coin. Gold is twice as dense as silver, and the difference is easily discerned when you hold them. A 1 oz. gold coin is just a tad thicker than a half ounce silver coin, which is a bit thinner, and much, much lighter. Since silver is 1/2 the weight, a similar sized silver coin, gold plated, would be about 1/4 of the weight of a gold coin!
Thus, the brass or copper core, gold plated, "authentic replicas" as sold on TV make a beautiful comparison to show how difficult it is to counterfeit gold.
So when they hold gold, they know it's something real, and real special.
People continue to ask, "Which is better, silver, or gold?"
I tell people, we like silver best, because it's a much smaller market.
World annual silver mining is about $10 billion, but world annual gold mining is about $80 billion.
But most of the silver market is consumed by industry, as silver is used in all sorts of electrical contacts and devices. In fact, industry consumes more silver than world annual mine supply, and the gap is being met by recycling.
So the amount of silver left over for investors is shockingly small, perhaps only $2 billion.
The silver story is surprisingly simple. The entire world once used silver as money, but today, no nation on earth has silver circulating as currency. This reduced monetary demand has created a very low price.
But silver remains a better store of wealth than ever, due to the increased scarcity, and the growing awareness of silver ownership as a way to make money.
Money is more than a currency or medium of exchange, it's also a store of value. As demand for silver, as a store of value, increases, so will the price, and this demand will continue as a positive feedback loop that will eventually destroy paper money.
But the real shocking fact of the silver market is that 99% of silver investors are getting scammed by paper silver, that is basically all fraud.
The proof of this is the BIS report, from the Bank of International Settlements, here:
The proof is in the numbers. The BIS keeps track of the derivatives of the banks worldwide. It shows that the notional value of "other precious metals" over the counter derivatives, which are mostly all silver, increased from $100 billion to over $200 billion in six months.
When the entire annual physical silver investment market is only $2 billion, and when the paper silver investment market increased by $100 billion in six months, there is only one way that can happen. The paper must be all fraud.
I asked several bullion dealing managers why people are buying precious metals:
Matt, at our coin shop says,
"Now more than ever, it seems that people are becoming increasingly aware of the growing instability of the dollar. With the national debt climbing, and the future of our nation's currency looking less bright every day, people are looking for ways to protect their wealth against inflation and the ever-crumbling banking system. After doing some research, most of them come to realize that purchasing precious metals like silver and gold is the most reliable method for storing their wealth in a way that will ensure that their hard-earned capital will retain its spending power and viability despite an economy with a future that is shoddy, at best."
Jim, at the coin shop, says:
"When most people think of precious metals, they think "gold." So when they consider purchasing precious metals, gold is the first thing on their minds, because they automatically associate it with something valuable. It's a cultural phenomenon that is ingrained into our everyday lives. Gold Record for recording artists. Gold Medals for Olympic champions. Everyday phrases like, "That guy is as good as gold," or "this is a golden opportunity." It's human nature."
K, at the Mint says:
"Most of our customers are buying gold or silver because they all know the government is going down the tidy bowl! Most of them choose to buy from us because of our growing reputation, they read me online, or they hear about us from family or friends, and they are hearing all of the horror stories about other bullion dealers on the internet not being able to deliver, or just taking forever. "
Dave, also at the Mint says:
"People are just cashing in their CD's because they know they will get a better return in silver and gold."
|So those are the basics, it's really simple.
I had an insight this week that I wanted to share with my readers, since you, like me, try to convince others to own precious metals, and we usually are ignored, scoffed at, or slandered. A common slander is that we are fear mongers.
Will the real fear mongers please stand up?
We live in an age dominated by banking. Bankers own the Fed, the Fed funds the government, and the government funds the schools. So who ultimately writes the schoolbooks? Bankers. A typical college textbook on economics is merely apologetics for central banking fraud. Thus, there is no need to overtly command propaganda to the media, when the media is trained correctly in college, they think silver and gold investors are "backwards", "fear mongers", etc. It is actually harder to convince a college educated investor to buy silver and gold than a person who has not paid to be brainwashed in college, where the kids are sleep deprived by final exam pressures and distracted by college parties.
So, we are called fear mongers. A "monger" is simply a salesman. It is said that we prey on people's fears, scaring them with visions of an economic meltdown that supposedly never comes.
But in truth, bankers are the fear mongers. Bankers play on people's fears. What does a banker do? He holds your money for you, primarily for two reasons. First, it's because you are supposedly not responsible enough to invest it wisely, that's the banker's job, so they just give you a small percentage in interest. Second, your money might be stolen if you keep it at home, which is supposedly not a very safe place, even though it's safe enough for you to sleep there in peace at night.
In truth, I have to convince my customers to be brave. I have to convince them that they are intelligent enough to wisely invest their money. I have to convince them that the safest place for their money is at home, in a vault that they can easily buy with a tiny portion of their own money.
The objection is always raised, "What if someone comes to my home and threatens me like in the movies?" I have to reply, that usually happens only in the movies!
Today, 20% inflation rates would be as if thieves robbed 100% of all the assets of every 5th home on the street, and got all their financial accounts, too, every year. Nobody should put up with that. Common robbery is far less common than that. Homes are mostly a safe place!
The most common robbery, therefore, is the inflation of the paper money in your wallet!
I have to convince them that the silver and gold of 10,000 different investors, in 10,000 different vaults in 10,000 different homes, all owned by gun owners, who live in a nation that has 80 million gun owners, is far, far safer than pooling 10,000 different investors money into one place, guarded by just a handful of low-paid security guards. It's an easy sell, because the point is irrefutable.
Furthermore, if the government ever does make silver and gold illegal to own, it's those places that "hold" it for you, that will have to give it up to the government, or who will be let out of their obligations to pay you anything, because they don't have any silver or gold to pay you to begin with.
But note, I'm not the fear monger. I sell courage in the face of fear.
The bankers fear silver. The bankers fear their own bankruptcy. That's why they created the Federal Reserve in the first place, to bail them out in case of their own failures, so they would be able to continue their scams, even after they failed, rather than be shut down and be out of business after a real bankruptcy!
So, it's amazing that bankers and banker trained media slander precious metals advocates as fear mongers, when the bankers are the real fear mongers. Also, I'm amazed that it's taken me 10 years in this business to see this insight. How dumb am I? But then again, the bankers have been at this business for thousands of years. I've had to relearn and discover most of the timeless truths about precious metals by reading the Bible, or by thinking deeply about these things, or by reading what is available out there on the internet.
I treasure such insights, and I always appreciate hearing from my readers, even if I don't always have time to respond to everyone. "
'Rule of 72' Proves It Doesn't Pay to Save in America
By By Jim Traficant
American citizens are the most creative and industrious people in the world. When confronted with a problem, the American people seem to find a resolve that shapes a direct and intended response of successful action.
That takes me to America's current crises: Bankruptcy. Busted. Broke. You get the message. Forget all the hype of the mainstream media. There is no more free press in America. It's not necessarily a "controlled press," it's more of an "aligned press," joined at the hip with our central, federal government.
It's getting so apparent that I predict government subsidies to the mainstream print media to "insure a free press." Right. Who's kidding whom? The federal government needs this so-called "free press" to continue feeding America with self-serving propaganda.
Propaganda? Absolutely. You've read it right here in my column. I'll be direct: There is more government propaganda in America than any other so-called "free country" in this world. It's that bad, and it will get worse.
Having said that, let's return to our subject of last week. The national retail sales tax and the recommendations of two great Americans: Mr. John W. Osier and Mr. Ed Waggoner Sr.
Both of their views were painted in detail and worthy of your scrutiny and interpretation. I'm sure that most of you agree with most of their views, suggestions and ideas. I, too, agree with most of their positions.
I now present Mr. Waggoner's brilliant "Rule of 72." I present it to you exactly as Mr. Waggoner presented it to me in support of my proposed national retail sales tax.
Mr. Waggoner writes; "I've been an advocate of a national retail sales tax for nearly 40 years. I've enclosed my ideas that may be of use to you in your efforts to convince others of the efficacy of replacing the income tax with a national sales tax."
I presented most of Mr. Waggoner's ideas in my last column. However, I saved the Rule of 72 for your review and consideration.
Just what is Mr.Waggoner's Rule of 72?
The Rule of 72 is a simple mathematical theorem used to calculate the effect of interest or inflation on money. For example: you might wonder how long it would take for a $50 deposit in a savings account to double at a 3 percent annual percentage rate of return.
Divide 72 by 3. The answer is 24. It would take 24 years for a $50 deposit to double at a 3 percent rate of return. Again: How long would it take for the purchasing power of a $50 deposit in a savings account to be reduced by half? Let's say the annual percentage rate of return on the savings account is 3 percent and that the inflation rate is 10 percent. That means -10 percent plus 3 percent equals -7 percent.
The purchasing power of your savings account is being reduced by 7 percent every year. Now, divide 72 by seven. The answer is 10 years and three months. If you leave your money in the bank, in 10 years and three months, your savings will have one-half (50 percent) of its original purchasing power. This theft will be actually accelerated, of course, by whatever income taxes you are required-it's not voluntary-to pay on the meager, negative interest your savings may have earned.
Mr. Waggoner makes you think. Under our current system, it doesn't pay to save. As a result, savings have never been so scarce; thus the shortage of consumer loan activity necessary to drive a "capitalist" system. Now you may be able to figure out why America has become an absolute socialist economy.
Labor, folks, is the No. 1 ingredient of any successful and productive enterprise. Human labor can be mental or physical. Without a laborer, no production is possible.
The capitalist investor is also essential. The capitalist invests in the plants, factories and machinery necessary for the laborer to produce.
The capitalist and the laborers are partners in the economic economic struggle to form a system of free enterprise.
Under the Marxist system, the laborers and capitalists are adversaries, pitted one against the other.
Thus, to ensure the marriage of our laborers and investor capitalists, we should not tax neither. We should reward both.
There is only one way to accomplish that goal-the profit-oriented, economic system that has built America pursuant to the brilliance of our founders: tax consumption only.
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"I have unwittingly ruined my country. A great industrial nation is [now]
controlled by its system of credit. . . . The growth of the nation, therefore, and all activities, are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world."
Former President, Woodrow Wilson, commenting years later on his approval of the Federal Reserve Act
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Taxing consumption will encourage thrift and savings, as well as promoting recycling and conservation. The sales tax will discourage unwise spending, thus reducing waste of our natural resources.
In simple terms of economic logic, to tax production through personal and corporate income taxes discourages the very things we should encourage.
You see folks, the Marxist, "progressive" income tax on labor and investors has turned America into a Marxist, socialist economic colony. We've become a colony by adopting a system that has failed in every society where it has been applied. "
Cut the Bankers Out of Money-Making
from The AmericanFreePress.net
Like a drug dealer who just cut off one of his best addicts because he's broke, Wall Street recently announced that Greece's debt rating has been lowered to junk status. This means that if the Greek government wants to borrow more money from international bankers, taxpayers there will now have to pay a lot more, assuming they will be able to even get a loan.
Of course, it was Wall Street that enabled the Greek government to borrow so much in the first place. Then it helped Greece's leaders to hide their liabilities from everyone.
Why is this issue important to the United States? As AMERICAN FREE PRESS has reported in recent issues, this country is not that far behind Greece based on projected federal deficits and the U.S. national debt. According to some estimates, each American taxpayer is on the hook for $113,000 to cover the principal on all of Washington's commitments, including Medicare, Social Security and the wars in Afghanistan and Iraq-and that doesn't even include the interest that will have to be paid to international bankers for years to come.
The talk right now in Europe is for Greece to leave the European Union so it can lick its wounds as it tries to pay down its debt, which has miracu-lously grown from $40 billion when the crisis first hit last month to $158 billion right now-and growing. That debt will still have to be borne by Greek taxpayers- the very people who have been victimized and deceived by their own government and Wall Street.
As we see it, the only real solution to the problem is to rip up that paper debt and run Wall Street out of the country, a move Americans should also make before the bankers lay even more claim to the land our forefathers fought and died to free.
But how will Greece and the United States be able to pay their bills if they can no longer borrow money?
Whatever you may think of President Abraham Lincoln's conduct during the War of Northern Aggression, he had the right idea when it came to paying his war bills. Greece and the United States-really, any government in any country around the world-have the power to issue their own interest-free currency. How will the people avoid trading corrupt bankers for corrupt bureaucrats? The treasury can simply issue an amount of currency commensurate with that country's gross domestic product. No more, no less.
Would you rather have crooked bankers issuing interest-bearing money or politicians you can replace at the ballot box issuing interest-free money? "
Even Bankers Fear Rising World Debt
By Christopher J. Petherick
Last month, the bankers to the world's central banks issued a dire warning that official debt is threatening to topple economies around the globe. It's a shocking study that concludes U.S. and European governments are ready to collapse as did the nation of Greece recently…
Sovereign debt-the fancy term for direct loans, bonds and other financing accrued by governments around the world-is out of control in industrialized countries, says the Bank of International Settlements (BIS) in a new report. The situation is so bad, claims the global financial institution that is the "bank for the central banks," in the years to come the United States and Europe could be facing the same disaster that befell Greece two months ago.
In a study, "The Future of Public Debt," BIS's chief economist Stephen Cecchetti writes: "The aftermath of the financial crisis is poised to bring a simmering fiscal problem in industrial economies to the boiling point."
For the past several months, the focus has been on the sovereign debt of the so-called "PIGS" countries- Portugal, Ireland, Greece and Spain. But, according to BIS, trouble is brewing for the largest economies in the world, namely the United States, Japan, England and all of Western Europe. According to BIS calculations, by the end of 2011, sovereign debt for these countries is expected to rise above 100 percent of their GDPs.
In the years following World War II, total U.S. debt actually exceeded GDP, thanks to the frenzied borrowing spree carried out by President Franklin D. Roosevelt to "stimulate" the economy and wage war in Europe. It was only the unprecedented productivity on the part of middle-class Americans in the 1950s that outpaced U.S. debt and brought it back under control.
As AFP has reported on numerous occasions, this is impossible today, given that the global plutocracy has gutted America's working class, replacing the highly skilled productive jobs once commonplace in America with low-skilled service sector work or no job at all.
In its study, BIS specifically looked at bond markets. In February, investors around the world had a "come to Jesus" moment when it was revealed that Goldman Sachs had concealed a huge amount of Greek debt through complicated financial derivatives called interest- rate swaps. They responded by shunning Greek debt, forcing a crisis that required European nations to step in with a multibillion-dollar bailout. As a result, investors have become highly suspicious of governmental accounting.
Cecchetti writes that these suspicions are expected to start showing up in bond markets. "The question is when markets will start putting pressure on governments, not if," writes Cecchetti. "When will investors start demanding a much higher compensation for holding increasingly large amounts of public debt?"
Making matters worse, when Wall Street collapsed, pension funds took a huge hit. Governments now have to chip in even more to cover the promises that have been made to retired bureaucrats and other civil servants. With dwindling tax revenues and high unemployment, debt is the only way governments can fund liabilities.
"Rapidly aging populations present a number of countries with the prospect of enormous future costs that are not wholly recognized in current budget projections," writes Cecchetti. "The size of these future obligations is anybody's guess."