We are going into dangerous economic times. The U.S. dollar is at an all time low against other currencies. Oil is stubbornly hovering near $100 a barrel. We will surely hit $4/Gallon gas this Spring. Wages are stagnant. Food is going up, as are all commodities.
The US consumer is tapped out. The sub-prime defaults making the news now are just the beginning. Now defaults are occurring in prime loans, in car loans and credit card payments. Citibank, is technically bankrupt, and if it wasn’t for the overseas investors buying up US assets for pennies on the dollar, the headlines would be much worse.
The economy is bad and will get progressively worse. But if you get your news from the “Main-Stream-Media” you are told inflation is only about 2.5% and everything is just running along fine.
That is a lie. The economy is not fine.
The US economy is being held together with string & kleenex. When the Federal Reserve meets on the 29th and 30th of this month, they will cut interest rates. I believe they will cut them by 50 basis points. They will cut the rates in a futile effort to paper over the sins of Wall Street and help keep the markets up.
The cutting of interest rates is NOT a good thing for you and me (OK, if you have a net worth over ten million dollars, it probably *is* a good thing, but I am guessing most of my readers are worth somewhere south of that).
By cutting rates, despite the MASSIVE MONETARY INFLATION, you are signaling to the world that the U.S. dollar really is toilet paper. Sooooooo the cost of all commodities goes up, the spending power of Americans goes down, and a vicious downward spiral continues. Here is a good discussion:
Oil is near $100 a barrel. This is not because oil has gone UP as much as the value of the dollar has gone DOWN.
As someone who used to work on Wall Street, I am well aware that a lot of money can be made from stocks, bonds, options, real estate, derivatives, etc. So please do not misunderstand me. I am not saying that buying gold bullion is the only way to get “rich.” In fact, I don’t think gold is going to make you rich at all. No, in the period of economic instability we are now entering, I see gold as the only way the “little guy” can PROTECT THE WEALTH HE HAS!
I think it is OK to participate in retirement plans, provided you use conservative investments. The reason is, the tax advantages of using 401k’s and IRA’s help counterbalance the depreciated dollars your paper investments will generate.
I do find it amazing that hardly anyone bothers to calculate their “Real Rate of Return” for their investments after you factor in inflation. The current rate of inflation is running so high (and likely to get worse) it makes no sense to hold dollars beyond what you need for an “emergency fund.” If you have extra cash sitting in CD’s, money market, or stuffed under the mattress….cash it in and buy GOLD.
Here is what an investment in Gold vs. an Investment in the DJIA would have returned since 2001:
Now, I know what your thinking……”Gee that is great that gold has gone up, but I missed out on the rise and now gold is at record highs, so I shouldn’t buy….”
Gold is currently near it’s record highs in nominal dollars. However, if you factor in inflation, gold would need to trade at $2,200 an ounce to match the high made in 1980.
I might add that in 1980, America still had a manufacturing base, personal savings rates were much higher, and trade deficits were much lower. In 2008, our economy is a hollow shell of its former self. We are the greatest debtor nation on earth. We spend billions we don’t have for an endless war in the Middle East, we offshore technical and manufacturing jobs and, until only very recently, disguised the dramatic lowering of our living standards by the magical liberation of “home equity.” We leveraged ourselves ever deeper into debt by treating our homes as giant ATM machines. The last time the personal savings rate for the average American was this low was in 1933.
If I have persuaded you to buy some gold bullion, you might ask “how do I buy gold?” This is a valid question. There are several ways to buy gold.
One way is to buy shares in gold mining companies or mutual funds that specialize in gold. The idea being that as the price of gold rises, the shares of these companies that own gold reserves increases.
Another way is to buy “collectible” gold coins. These are coins that are valued not just for their gold content, but also for their rarity and collector or “numismatic” value.
I don’t like either of those methods. If you buy mining stock shares, you need to do research and ensure the company is legitimate and that their assets and liabilities are what they claim they are. Plus, if the Govt. outlaws the private ownership of gold (as they did in 1933) you are pretty much screwed. In the case of collector coins, you need to spend a great deal of time studying the value of collector coins or you can easily be fleeced by an unscrupulous coin dealer.
The easiest, safest, and most effective way to buy gold is to buy US Bullion American Eagle and American Buffalo coins. These are coins that have a stated weight and purity of gold. They can be bought and sold throughout the country. American Buffalo coins come in one ounce weight and they are 24kt pure gold. American Eagle coins come in different weights. You can buy them in 1/10th, 1/4, 1/2 and 1 ounce weights. They are 22kt gold and the additional alloy makes them more durable than the softer 24kt American Buffalo coins. Theoretically, a one ounce American Buffalo coin *should* cost more than a one ounce American Eagle coin, but the reality is the price is usually about the same.
The price for these coins is determined by the market price of gold plus a small “mint premium.” So if gold is $900 an ounce, you may have to pay $950 for a one ounce coin. The $50 “mint premium” represents the cost of turning the raw gold into a pure and properly sized coin and also a small profit for the coin dealer. When you go to sell your coins to a dealer, you will be paid the market price for bullion. Thus you need the price of raw gold to rise above the price you paid for the coin in order to make a profit. Huge Wall Street firms may do “day trading” in gold, but that is NOT a game for the private individual. You should buy gold with the goal of holding it as a hedge against inflation.
Almost any city should have a coin dealer that you can buy gold bullion coins from. If you can’t find a local dealer, here is a reputable firm you can buy from online:
I prefer to keep my OWN gold coins safely stashed away. I DO NOT recommend storing your gold coins in a bank safety deposit box. The reason is simple. In 1933 FDR and your loving Govt, by executive fiat, made owning gold illegal. Citizen’s were not allowed to open safety deposit boxes unless an IRS agent was present. Any gold they had was seized and they were paid what the Govt. decided the price was – not the market. Read more about that here:
The Republicans and Democrats are currently tripping over themselves to destroy our civil liberties in the name of “safety.” Do any of you really think the Govt. would not resort once again to outright theft in the event of a crisis (real or created)? Keep your gold where YOU can get to it….but the Govt. can’t! And don’t think for one minute that if the Govt. outlawed the ownership of gold, your hidden gold coins would somehow be rendered worthless. If the economy gets so bad the Govt. resorts to desperation measures (like seizing private gold) then your cash will likely be devalued “funny money” and the only REAL currency will be the black market in food, medicine, cigarettes, liquor and GOLD!
Here is the new “Bush coin” which illustrates my point:
Also…..PLEASE GET OUT OF CONSUMER DEBT! CUT UP THE CREDIT CARDS, QUIT BUYING CRAP YOU DON”T NEED TO IMPRESS PEOPLE YOU DON’T KNOW!
Seriously…..debt serfdom should be avoided like a turd in a punch bowl.
“The rich rule over the poor, and the borrower is servant to the lender.” Proverbs 22:7
Finally, spend seven minutes to watch this video…..It tells the story better than I can: