Saturday, December 05, 2009

THE GOLD FALLACY - ANOTHER CON!

I have yet to figure out the "buy gold" as a hedge or investment logic,
while stating it is a better investment than the Dollar. I have difficulty with that statement.

If the Dollar crashes - as it well might with the huge shove off the cliff Oba-Hussein is giving it with his insane fiscal and financial policies and actions,(too many to list here) with WHAT will people buy your gold?

With worthless Dollars? Which you can then use to paper your walls? You won't be able to buy much with it and a wheel barrow of currency might still buy you a load of bread. (As was the case with the Wehrmacht Germany, which started printing only one side of a banknote to save printing time and enough to meet demand and distribute enough currency on a DAILY basis).

So! You have bits of yellow metal you cannot eat, maybe trade perhaps at a small fraction of the amount you paid for it, so what is the true value of your gold?

And for the most part, you do not even have the little yellow chunks or yellow coins. You have “ownership” of a mythical metal that if everyone who had this piece of paper asked to receive the gold they “own” the companies which sold it to them could not find enough metal to provide they buyers with what they have bought!

In practical terms (other than gold jewelry or actual bullion or coins you have on hand) you are exchanging a potentially worthless piece of “cloth” paper (US currency being printed on a cloth hybrid) for a phantom piece of equally worthless paper you cannot cash in for the gold it supposedly represents.

Advertising states gold has never been worth nothing.

That would not be true if the Dollar crashes. Gold would (on paper) be worth huge amounts of then WORTHLESS Dollars. With which you could not buy anything, pay your mortgage or rent, nor buy food or goods you need.

It will not be much use as a barter item. Why would anyone in their right mind give you anything in return for the bits of yellow metal, they will not be able to use for anything? (Industries needing gold to manufacture items would have long gone out of business).

By that time (Dollar crash) BARTER will become the only stable form of trade. You might be able to exchange a warm sweater for something you need much more readily than a piece of “useless” (by then) piece of yellow metal.

Or to barter your skills and services for something or service you may need.

The other likely interim step (already started in one township) is to print local Scrip (money equivalent) that represents the barterable services or items. This local money will ONLY be usable in the very local area and among local merchants.

If you want a good over view of this situation, go back to Roman times and see how money/coins were minted and how some were worth more than others and often only in a small local area.

Crooks would shave precious metal off coins (as they have in the USA from silver and copper coins), others (including local rulers) would contaminate the purity of coins they put out, to save money from their treasuries etc., etc.

Our crooks would print copies of local Scrip and put the value of this local trade into turmoil very quickly.

Retailers would no longer use cash registers but have boxes to store items they receive in trade. Change for a barter item worth clearly more than needed would be given with an item from this storage box.

This is the “fun and games” part of the Dollar crisis whereas the REAL tragedy will be in the potentially tens or scores of millions who die hungry and in the streets because they have nothing to barter, nothing with which to feed or clothe themselves and under THOSE conditions no government (local, national or any other kind) will be able to support the food, shelter, health or other basic needs of those multi-millions of destitutes.

Already, even now, Oba-Hussein’s moronic policies have created food lines, which have increased to such an extent in many parts of the country where the charitable, church or government organizations are being strained to accommodate the needs.

Food stamp requests and qualifiers have also increased to a startling exponential degree and printing them has become a notable budget cost item.

All of this is being hidden by the LameStreamMedia to protect the Oba-Hussein-Khomeini administration that either from sheer lunatic stupidity or ON PURPOSE (this thought arising from “can they really be that idiotically incompetent?”) so we - as a nation - largely continue in denial.

And yes, with the choice of the weirdo czars and unbelievable administration top dogs, self-serving Congress and Senate, put in charge of America, they ARE probably a mix of morons and intentional destruction of our capitalist society for a Socialist - even Marxist replacement that suits Oba-Hussein’s philosophy and world view.

America HAS to be destroyed to achieve that philosophy. Into a global Islamic Caliphate under Allah and horrific UNMODERNIZED, unbending customs and laws from 1,400 years ago, or into a Socialist/Communist type of global government under the United Nations. In both instances national sovereignty cedes to the overarching Allah or UN philosophies.

And, noting once again, how Obama emulates the policies of the Islamic Mullahs in Iran (which has just shut down the Internet in the country to impede forthcoming demonstrations being organized, Oba-Hussein has plans being formulated (by “private company” outside Internet expertise sources with desks inside the Obama House) to be able to shut down the Internet inside the USA and sever our ability to communicate with each other, should push come to shove, in "opposition” to Obama policies.

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By virtual decree, Unions have been exempted from listing their slush funds, their spending etc., so that they can act as a thug/bully strong-arm for the Obama administration. And Soros is funding effrots to appoint left-wing Secretaries of State so that they will help control and refute accusations of fraud by the Democrats.

WAKE UP AMERICA

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by Don Loos


Thursday, the Obama Administration announced that it will rescind rules requiring the disclosure of financial information for Big Labor slush funds and front groups. And, the Obama Administration is giving you only 11 (eleven) days to comment!

At least they are consistent! Just as they did for union conflict-of-interest disclosure reporting that SEIU’s Andy Stern may be ignoring and just as it rescinded union-boss perk disclosures, the Obama Administration continues to rollback union financial disclosures.

It is not surprising that Obama’s Secretary of Labor Hilda Solis would rescind these financial disclosure rules since she is the former treasurer of the Big Labor funded American Rights at Work (ARAW) lobbying and political group. These disclosures would reveal much about the group’s expenditures on behalf Big Labor’s agenda; the very types of expenditures Solis would have signed-off on as ARAW Treasurer.

Union officials have fought these financial disclosures since 2003. One of the AFL-CIO lawyers involved in opposing these disclosure requirements was Deborah Greenfield. Now, Greenfield is the Obama Administration’s Acting Deputy Solicitor of Labor and Director of the Office of the Secretariat. As Deputy Solicitor, Greenfield oversees these regulations.

This looks like the same old Washington insider influence that Presidential Candidate Obama, President-Elect Obama, and President Obama promised that he would not allow.

But, there is more. Not only are Solis and lawyer Greenfield potentially violating President Obama’s declared prohibition against conflicts-of-interest, there are many more union insiders at the Department. The Senior Advisor to Department of Labor Secretary Hilda Solis, Mary Beth Maxwell, greatly benefits from this rescission because she was the Executive Director of ARAW. ARAW’s financial activities while Maxwell was in charge are currently due to be disclosed.

However, in eleven days these ARAW financial disclosures will be lost forever. (And prosecutions will become impossible)

http://biggovernment.com/2009/12/04/obamas-labor-department-gives-big-labor-and-its-front-groups-another-gift/

5 comments:

Zeke said...

I have yet to figure out the buy gold as a hedge or investment logic.

Well lets see. I bought in at $418. Does that help you understand the "investment logic". I read several books, one was by James Turk and another by Addison Wiggens called "Financial Reckoning Day".

They both claimed that the US budget was unsustainable, that the govt's only way to deal with it would be to print money, and that subsequently dollar would go down and gold would go up. Hmmm. Seems they were right. I'm sorry I didn't have the opportunity to educate you at the time.

While stating it is a better investment than the Dollar. I have difficulty with that statement. If the Dollar crashes - as it well might with the huge shove off the cliff Oba-Hussein is giving it with his insane fiscal and financial policies and actions,(too many to list here) with WHAT will people buy your gold?


You are misunderstanding the nature of the crash. There are three levels of dollar crash that are possible. Each is worst than the last. But each is much less likely as they get worse.

Crash Type 1: Gradual but sustained loss of value of the dollar. This is esentially what we are dealing with now. The dollar is declining, not just fluxuating. You have no doubt heard the fact that the US Dollar has lost $95% of it's value since the creation of the fed. It may well lose the next 95% in 1/2 or 1/3 that time.

Holding gold has largely proved to be a good strategy to protect yourself from this. The dollar was worth 1/20th of an oz of gold when the fed was formed.

If two men decided to leave $100,000 to their grandkids on that day, one in paper and one in gold the results today are quite amazing. The paper dollars are worth $100,000. A box of Gold at $20/oz, bought 5,000 oz's of Gold, which at $1000 an oz is worth $5,000,000. That's what we mean by "hedge".


Crash Type #2 is a faster failure of the dollar, including a formal devalution, cancelation of outstanding currency, revaluation "New Dollar" etc. These types of events are unknown in American history, but are pretty common worldwide. For instance Mexico so iflated the Peso that they were evetually voided and replaced with New Peso, which had three zeros lopped off.

Again, gold held up splendidly. If you held it through the entire episode you can today sell your gold for New Pesos and get full value for it. Six oz's of gold will buy you a brand new Yamaha dirt bike. Six of the old 1000 Peso bills (if traded in before they fully expired) will get you you six New Pesos.

Enough to buy a bottle of cheap tequila.

Also, at any time you could probably find a way to sell your gold for full value of some other currency like Swiss Francs, Euros, US Dollars, etc.

Crash Type #3 is the only scenario where gold *might* become useless. That is a total worldwide collapse of *ALL* major currency systems. This is essentially the EOTWAWKI or Road Warrior scenario.

(Yet even in this secnario I suppose gold and silver will be the basis of the new currency, or a barter currency, as they have been for 5,000 years of human history)

Zeke said...

So we can see that Crash Type 1 is already happening, and may be speeding up (dollar losing more relative value per year than what we are used to). Crash Type 2 is what some are saying will happen, but it doesn't in anyway mean that the Euro, Yen, Yuan, Canadian Dollar, etc will also all be worthless. Gold works in a Type 2 Crash.

So! You have bits of yellow metal you cannot eat, maybe trade perhaps at a small fraction of the amount you paid for it, so what is the true value of your gold?

True in a Road Warrior world cans of Tuna and rounds of .308 maybe better barter goods than gold.

I suspect thought that gold will still have some value. But who can say. It's very hard to predict this as the last experience we had of this type was circa 475 and the fall of Rome. (Gold held it's value continuously through the Dark ages though.)

And for the most part, you do not even have the little yellow chunks or yellow coins. You have “ownership” of a mythical metal that if everyone who had this piece of paper asked to receive the gold they “own” the companies which sold it to them could not find enough to provide they buyers with what they have bought!

I assume you mean the major ETFs. These ETFs are run by some of very large financial services firms, like Barclays, AMEX, etc. I have satisfied myslef that they are not lying about their holdings, and are doing what they say in their prospectus, which is keeping gold holdings as close to 100% as possible.

Of course finanical fraud is always possible. Holding physical gold is better.

I hold a bunch of physical and a bunch of paper. I think it is unlikely that the largest exchanges in the world would allow the GLD, IAU and other top gold ETFs to be frauds. It would be a very complex scandal; GLD lists the serial numbers of the bars they hold. But, it is possible. So is this all just made up? I doubt it. Seriously.

Buy if is a concern of yours then I'd urge you to go 100% physical.

In practical terms (other than gold jewelry or actual bullion or coins you have on hand) you are exchanging a potentially worthless piece of “cloth” paper (US currency being printed on a cloth hybrid) for a phantom piece of equally worthless paper you cannot cash in for the gold it supposedly represents.

FALSE. The Gold ETF's I bought can be sold anytime. Today I would get about $1150, a huge profit over the price I bought in at. That would cost me $7 in Scottrade fees.

You are projecting a doomsday scenario, but there isn't really any reason to believe your sceario is correct. Certainly each day that the markets remain componsed for ETFs is another day I'm right and your wrong.

Zeke said...

This is the “fun and games” part of the Dollar crisis whereas the REAL tragedy will be in the potentially tens or scores of millions who die hungry and in the streets (blah, blah, bah) ....

I suspect this is quite unlikely. Before we got there mortgage payments would be suspended, and sheriffs would stop evictions.

The USA grows a LOT of food. So the dollar failing won't change that, we'll figure out some new currency. Maybe use Canadian dollars?

Anyway. I understand that many people who have thought about gold and decided that they would not use it as a hedge are very, very ANGRY that they made this large mistake.

Hell those of us who bought in wish we bought more! But that doesn't change the facts.

Thus far in the 21st century Gold has been the investment of the decade. It has performed exactly as some predicted it would.

Don't get mad. Don't jump off the deep end and project that Mad Max's world is around the corner. It's (as you point out) not the world, it's the USA, with the inept policies of Obama, that is going to suffer.

Gold can help you survive financially better than most things. Many of the other gold bugs I know *do* have months of food laid up and plenty of ammo. Some have even relocated to smaller, more secure areas. If you are like most Americans once you do this you'll still have a considerable amount of savings.

Consider gold, either physical or ETF, for some percent of that.

Good luck!

Zeke said...

Advertising states gold has never been worth nothing. That would not be true if the Dollar crashes. Gold would (on paper) be worth huge amounts of then WORTHLESS Dollars. With which you could not buy anything, pay your mortgage or rent, nor buy food or goods you need.

It will not be much use as a barter item. Why would anyone in their right mind give you anything in return for the bits of yellow metal, they will not be able to use for anything?

Well when the Zimbabwe dollar crashed and went to zero, WORTHLESS, you could take your nice shiney gold coins and trade them for very worthwhile South African Rand, at the attractive world price for gold.

Again, only a End Of The (ENTIRE) World As We Know It (EOTWAWKI) scenario results in worldwide disruption in the use of gold as a currency hedge.

(... more of your ranting about gold being worth less than a used sweater at the EOTWAWKI deleated)

The other likely interim step (already started in one township) is to print local Script(money equivalent) that represents the barterable services or items. This local money will ONLY be usable in the very local area and among local merchants.

What's your point?

Is your "local script' scenario more or less likely than the Swiss Franc, South African Rand, Euro and Japanese Yen remaining tradable currencies?

Go back to Roman times and see how money/coins were minted and how some were worth more than others and often only in a small local area.

Funny thing. Regardless of what they were worth then they are all worth something now. Leaving aside the considerable historical value any gold coin from that period is worth $1150 an oz in metal (melt) value. (The silver coins are worth about $17.50 an oz in melt value.

Aren't you proving the gold bugs right with this example?

Crooks would shave precious metal off coins (as they have in the USA from original silver coins), others (including local rulers) would contaminate the purity of coins they put out, etc., etc.

Again, what's your point? Clipping coins was made much harder with the advent of the corregated edges that our coins have. Today all bullion coins are sold in standard weights. Highly accurate scales can be cheaply had. This isn't 1600.

You are way out there, buddy. You are imagining bizzare post-modern apocolytoo world. I'm not there, in seeing that.

I see the US Dollar falling, but most of the world humming along. This is the history of modernism. Individual countries screw up, they destroy their currency. It's bad for people in that country (except those who saw it coming and bought gold) but the rest of the world barely notices.

The Mexican Peso crashed and was radically devalued and then revalued (1000 old = 1 New Peso).

The Argentinian Peso was devalued by 66% in one day by the government to boost the economy in the 1990s.

The Zimbabwian dollar inflated at over 10,000% and became worthless. It was withdrawn. All Zim. dollars went to ZERO.

Look FARS, these are not scenarios from zombie movies, these are real life events that all happened in the last 20 years. And THEY WILL happen again.

In every case individual ownership of physical gold would have allowed the owners to retain 100% of the wealth they held this way. (And trading accounts outside of the national jurisdiction with Gold ETFs would have been just as good.)

Alan Peters said...

Hello Zeke,

Good comments and well worth publishing though in our opinion we are hurtling to the worst of the scenarios outlined and there are a few main thought channels that you may have ommitted from your analysis:

1. You view matters within the current global situation where if one country like Zimbabwe fails and crashes, the other countries of the world would not crash because of this and in fact, the value of gold (or silver) remains in place because of the other economies, which continue despite or regardess of Zimbabwe's internal monetary crisis. It is no more than a pimple on the guerkin.

2. You discuss very short term profits from owning and selling gold.

A really bad situation (toward which we are being rapidly moved by the Obama administration) happened within some people's lifetimes in Wehrmacht Germany, where it required a wheel barrow of money to buy a loaf of bread.

Thus receiving money for gold would no longer make sense.

If you bought your gold for $1000 (to round up numbers), your single loaf of broad would cost you ONE MILLION (devalued) DOLLARS

So buying one loaf of bread would wipe out all your gold holdings - paper or bullion. So in the end your gold is without any true value.

It will take a while till the devaluation goes that deep, but go there it most likely will and away goes teh value of gold and a bit later a warm jacket has more value than your yellow bits of metal.

3. Every premise in your analysis is anchored on America as it is today and perhaps a bit of a downtrend.

The reality of the TRILLIONS of debt into which Obama has already plunged us and the ADDITIONAL trillions coming at us down the pike with his healthcare, cap and trade and other unfunded spending programs, the German Wehrmacht scenario in America is almost a given.

And at that point, the rest of the world economy follows and crashes with America. All the Central banks together would be unable (and in their minds insane) to bolster the dollar by buying it.

Despite indications of this intentnion, Japan and China have not divested their dollars yet for this very reason that it would come back and bite them.

Finally, gold or silver, like dollars are a commodity and vulnerable to supply and demand.

Unless some miracle and I mean miracle shows up, we ARE heading for the Mad Max scenario you so lightly slough off. It may take a decade but it seems to be EXACTLY where we are heading under the Obama administration.