Man, if you have a retirement account I bet you’re getting a bit nervous these days. Markets are tanking, the economic news is anemic at best, and everyone can feel the long winter ahead. So why is everything falling apart….again? I thought we were good, what happened to “The Recovery”? Guess what. It was a hoax.
As of this October 5th writing the Banksters have America the balls. The Dow is in negative territory year over year and has fallen below the “Recession Average” mark more than two years after “The Recession” supposedly ended. The job market is absolutely pitiful; the real unemployment rate is hovering at the 20% mark while the cost of everything is exploding. I was in the store the other day and went to buy some basic shredded wheat cereal only to find out the price had gone up by nearly a dollar in just two weeks. The vice is squeezing and it’s starting to hurt.
There is a glimmer of hope out there, but it’s being co-opted by ‘other interests’. The “Occupy Wall Street” protests, which started as a small gathering in the financial district of New York, spread like wildfire this past weekend. Now there’s “Occupy Los Angeles”, “Occupy Boston” and even an occupation of my hometown, “Occupy Denver”. As a self-proclaimed Dethroner of Banksters, I do like the fact that people are getting pissed off and trying to fight back (peacefully); however, as a staunch American (and therefore Free-Market Capitalist), I’m a bit worried about the message these protesters are trying to send. Now, from my research it looks like these protesters are comprised of several different groups, but it seems that the mainstream Bankster-friendly media is concentrating on two sects only: The Socialists and the Commies. Even worse, the big celebrities are calling for rich peoples’ “heads to roll” (Roseanne…lol) or saying, quote, “There is a bigger problem than that [The Federal Reserve]….it’s Capitalism, Capitalism is the problem and it needs to go!” (Michael Moore…hahahaha). Trust me people, Capitalism isn’t the real problem, it’s Crony Monopolism. With that said, it’s obvious that people are getting pissed, which overall is probably a good thing. We just need to remember that we’re not after the guy who employs 12 people at his small business and pulls in $200,000 a year; it’s the Banksters who steal hundreds of millions (billions…trillions??….) that we gotta bring to justice.
With that little update let’s get into the meat of this article: Using physical silver and physical gold as a hedge against rapid dollar devaluation. That may sound a bit daunting, but I promise you, it’s a very simple concept to grasp. Let’s first start with dollar devaluation: What is it and why is it important? Well, if you’ve read my first few articles (The Basics, Dethrone the Banksters, Who Are The Banksters?) then you already have a good sense of the meaning of the term, but I’ll try and explain it in a little more depth.
When the United States Treasury wants to spend a dollar it has to borrow from the Federal Reserve. The Fed then creates a “Federal Reserve Note” which, backed by the full faith of the US Government and Fed, becomes a US Dollar. Yes, you heard it right, a private banking cartel controls the issuance of our currency, and our government has to borrow from that entity in order to spend. If that doesn’t sound weird enough, get this one: More than 95% of all money in the United States is actually created by commercial banks in conjunction with the Federal Reserve System. Pretty much every mortgage, every car loan, every credit card, and every bank transfer was created from thin air. Of course, it’s much more complicated than this, there are some controls and there are some requirements, but the gist of the story is that the Federal Reserve has full power and authority over our country. I don’t think that’s a good thing.
So why isn’t having a privately run central bank controlling the money supply a good thing? Well, besides the issue of insider trading and Crony Monopolism, the long-term trend for such a system is the overproduction of money and a vicious business cycle. Instead of a nice, steady growth curve you get a series of booms and busts that, in the long run, are less efficient and more dangerous. There are some economists who can make an argument that a central bank is necessary to prevent market volatility, but that’s just theory. In the real world, you get a Tyranny headed by men hell bent on turning the United States into a post-Industrial wasteland, because humans are kind of evil and the most evil ones always try to get to the top. If you haven’t read a history book, go to the library. Anyway, you also get inflation, and inflation isn’t a great thing either.
The issue with inflation is twofold. First, inflation affects the poor much more than it affects the rich, particularly when it’s the prices of food and energy that are skyrocketing. Simply put, a $1 increase in the price of a box of cereal is much more painful to someone making $40,000 a year as compared to another person who is making $100,000 a year. Or $10,000,000. The problem only gets exponentially worse as you go down the socioeconomic ladder. People on food stamps start to rob and riot when that box of shredded wheat goes up in price. People in Africa just die. The second problem with inflation lies in the fact that it can’t always be predicted so that volatility must be priced in for every asset. Obviously this can get a little technical, but let’s just say that the uncertainty posed by inflation has a cost which the economy must bear somewhere down the line.
Homework time. Trust me, it’s not that bad just give it a try. Let’s say the inflation forecast is between 3% and 6% (made up numbers, it will actually be much higher). That’s a huge, huge range that has major financial implications for everyone involved in any type of transaction, be it the Fortune 100 companies who produce the slag or the Walmart Masses. If you’re a bank and you’re looking to lend to a small business, you’re going to have to know that you have a very good chance of making a profit on your loan. Not only do you need to make enough money off the loan to offset the potential interest your money could be earning somewhere else, you have to make sure that your returns outstrip the price increases that take place year over year. You may turn $100 into $105 and think you got a nice five percent return, but if now takes $110 to buy what a hundred could have bought last year, you’re actually down 5%, not good. If you were the underwriter and were considering a loan at a 7% interest rate, would you prefer to base your analysis off of a forecasted inflation rate of between 3%-6%, or would you rather work with a forecast of 4%-5%? Without much more technicality, know that the underwriter will prefer the tighter range and, in the long-run, less economic productivity will be the result of a wide- inflation estimate.
OK, wake up. I know it sounds pretty boring, but that part was important. If you didn’t get it or just glazed over because you saw numbers, go back and re-read it until you understand it. It’s not too hard, please prove to me that America is still smart and we’re not going to be taken over by China. Anyway, obviously I like this stuff, but I also know you don’t want a straight up economics lesson so we’ll tone it down a bit. Let’s just say that there are many reasons why a system that inherently leads to inflation (The Federal Reserve System and Friends) is, to some extent, destructive to the economy. The “good” part is that the Fed has a lot of really smart people working for it, and these guys are able to keep the inflation range relatively tight and stable, which can negate some of the ill effects. That’s not really the case, but let’s just assume that from 1913 to 2008 the Fed was awesome and was the sole reason for the success of America. I’ll write a full article on the Fed soon, don’t worry, it ain’t getting away that easy.
So what changed in 2008? The Bailouts of the MegaBanks of course. As part of the Bailouts the Federal Reserve unleashed a near unlimited supply of dollars upon the world. I believe the sum is $27 trillion, give or take a few trill. This ‘financial assistance’, coupled with record low interest rates, is an absolute perfect storm for inflation. The Keynesians at the Fed and the MegaBanks argue that this release of money prevented a total financial panic and collapse; I say that the massive abuse of the fiat money printing press only pushed the collapse down the road by four or five years and the only way to keep the house of cards from falling will be to have another Bailout. Then another. Then another. Each one will bring more and more economic destruction through inflation, while at the same time companies and governments will have to continue drastic cuts in labor and spending. They love squeezing you from both sides don’t they? Cut off your revenue, increase your food’s price. Eventually these bailouts and the subsequent inflation will allow them to literally own our entire country for pennies on the dollar…who knows what the number of dead and destitute will be.
To illustrate this point let’s look at a hypothetical scenario involving a wage-earner making $20/hour at the start of 2012. Again, for those of you who hate numbers (why??) don’t worry, this is simple, don’t freak out because you see an excel table.
I’ll walk through this for you. As you can see, column B represents the $20 per hour that our worker is making. When I name column C “Cost of Goods” I treat this as an approximation of how much it costs our worker to pay all bills (rent, auto, gas, food, utilities) per hour of work. Please note that I am NOT including taxes, that’s a whole other beast but let’s just say that, at this point, the greater the taxes the greater the economic destruction that will take place. Taxes are necessary for basic government function, but if you’ve ever had the pleasure of dealing with the DMV or other government bureau you may agree that government isn’t very efficient. At this point, raising taxes will be very detrimental. Anyway, I digress….think of the Cost of Goods like this: If you bring home a check for $1,000, and after paying all of your necessary bills you have $250 left, you’re pretty much equivalent to our hypothetical worker because a quarter of your income is available for ‘your pittance’, which is represented by columns D and E. This first table has our worker’s wages going up by 5% per year which sounds nice; however, the fact remains that his pittance is being slowly eroded away because the Cost of Goods is going up by 8% per year. After four short years our poor worker has had his discretionary income slashed in half. That’s less money for Junior’s college fund, less for that vacation, less for retirement. Now let’s take a look at the next able:
Ouch. Now we’re down to 3% available for savings and ‘discretionary spending’ after four years, that’s not good.
Uh oh, negative numbers aren’t good. This is the dreaded ‘increasing increase’ that they warned me about at Purdue (not really I made that up). On this graph the inflation rate is actually increasing every year instead of staying stable…prices increasing at an increasing rate is not good. After four years our brave little worker is actually unable to pay his bills. This isn’t the end of him, yet, he can always cut out cable, stop dining out, and downgrade his car to a bus ticket, but eventually he’s going to be all squeezed out.
Let me point out that in all three of these examples we assumed that our worker was going to get a 5% raise every year. Not only is that not very realistic because of the shitty economy, it doesn’t even take into account the possibility that Mr. Worker’s company lays him off. Sure, he’ll get unemployment for awhile, but that won’t give him as much money to start with anyway so he’ll be squeezed out even quicker. America’s nuts in a vice.
OK, so what the heck are we going to do about this? Well, I’ll leave the big picture talk to future articles, but for all of us as individuals I would like to introduce my friends physical silver and physical gold. One of them I own and one of them I wish I owned (and will try to buy soon). Gold is…well…the Gold Standard of wealth, and silver is the poor man’s gold. It’s been this way for more than 6,000 years of human history, are you really going to listen to those bums at the Fed who say that gold and silver are no longer money? That’s the whole illusion; they decree that their Federal Reserve Note is king and gold and silver are no longer money. You believe this because they wear fancy suits and are from Harvard.
Obviously there are some benefits to using paper and electronic currency. For one, it is much more efficient to store your wealth in a bank account as opposed to stashing your life savings under your bed. It’s also a lot easier to spend using a debit card instead of a gold coin. If you want to buy something at the gas station for $4.43, you can just swipe your card (or EBT) and you’re good to go. I think it’d be a little tougher with bar of silver. So when we’re talking about everyday purchases in a ‘normal economy’, paper and electronic currency is the way to go.
The problem today is that the paper and electronic currency market is under siege and on the verge of implosion. The lost production and revenue from a decimated labor and financial market have combined with an ever-accelerating increase in the price of essential goods and services, and the whole thing is denominated in paper and electronic. If all of your income and savings is held in paper or electronic Federal Reserve Notes (or some other currency, hopefully not the Euro), you will be completely wiped out when the ponzi scheme collapses. The funny part is that the ‘old’ currency market, silver and gold, won’t be affected by rampant inflation and the collapse of the fiat money system. Which means it will totally outperform any stock or bond you can buy today.
How does that work? Well, it all depends on where you put your faith. Do you put your faith in 6,000 years of human history or do you trust the men behind the curtain? The question boils down to this: Did the introduction of the Federal Reserve Note change the economic law that equates gold and silver with money? Ben Bernanke thinks so, Ron Paul doesn’t. I think you know who I believe.
If you want to preserve your wealth at this highly inflationary and volatile time you need to buy physical silver and gold. There is only a finite amount of these resources; they can’t be created out of thin air like a fiat currency. Here’s another simple example: Let’s say that gold is priced at $1,500 per ounce and a dollar is worth, well, a dollar. Now let’s say that 5 years down the road it takes two dollars to buy what one dollar used to be able to buy. This means that the value of you dollar has been cut in half. Any money in your bank or retirement account is worth half of what it used to be (not including interest or capital gains you accumulated over those five years…but if you didn’t know, those rates are near 0% right now, if not outright negative). If that happens, how much will an ounce of gold be worth? It’s a little more complicated than this, but a good estimate is $3,000. That’s right, the gold holds onto all of its purchasing power in an inflationary environment. You’re not going to get rich off of gold, but you’re not going to have your wealth eroded away year after year.
If you want to shelter what little purchasing power you currently have you need to buy physical gold and silver. Purchasing ETFs or gold and silver stocks do not count; without going into another tirade, know that this ‘paper gold and silver’ is nothing but part of our favorite paper and electronic ponzi scheme. When the full collapse hits full force you’re not going to be able to get gold or silver in exchange for your paper and electronic certificates, trust me. Remember, the Banksters want to squeeze us from both sides by cutting off our revenue and raising our costs. Anything you can do to hedge against dollar devaluation is a much better investment than your Roth IRA’s “Lifecycle Fund”. One last point: The MegaBanks (especially JP Morgan) are heavily SHORT gold and silver. Long story short, this means they are trying to keep the price down as much as possible to keep their scheme going. Essentially this means that for every dollar you spend on physical gold and silver you are costing the MegaBanks two, three, even five or ten dollars. You buy it, they lose money. Another plus of Silverrrrr and Golddddd Silverrrrr and Golddddd
That’s about it. This was a long one and it took a lot out of me but hopefully you’ll find it useful. If you don’t want to buy silver and gold because you’re still too worried that ‘no one will accept it’ at least consider buying some storable food and water and emergency equipment. It’s pretty dumb not to. Remember, spread the word about this blog if you think I make valid points, there’s a lot of garbage information out there I’m trying to fight the good fight. This weekend I’m off to the Federal Reserve Board in Washington D.C. to help kickoff the “Occupy the Federal Reserve” movement. It’s time to point out that it’s not “Wall Street” or “Capitalism” that is ruining our country, it’s the Banksters!