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The Reality of Gold and the Nightmare of Paper

By: GE Christenson | Wednesday, September 4, 2013

Since Nixon "temporarily closed the gold window" in 1971 all currencies have been created as debt, not as asset backed real money, like a gold Double Eagle.

 

Year US National Debt in $Billions
1913 3
1971 398
2013 16,730

 

The value of the debt backed paper is supposedly based on the face value, yield, duration, and the probability of repayment. Examples:

If I lend my (hypothetical) broke, unemployed, and irresponsible friend $1,000 on an unsecured note, and he is unlikely to repay the loan, then the loan has a value of approximately zero.

If you lend the government of Greece $1,000,000,000 on an unsecured note, to be repaid in 10 years, I suspect the value of that debt could be near zero sometime in the future.

If you loan the US government $1,000,000,000,000 by purchasing 10 year T-Notes, you probably think the value of those notes is near face value. Let's hope so, but consider:

Caveat: This paper money machine is a beneficial servant to the political and financial elite. Examples that come to mind are: hedge fund managers, central bankers, national politicians, investment bankers, military contractors, oil company executives, venture capitalists and others. The paper money machine will not be changed easily.

Reality for the rest of us: The paper money machine seems to be a destructive monster that sucks the economic life blood out of most people, including wage earners, retirees, savers, the unemployed, disabled, and essentially everyone in the bottom 90% as measured by income and total assets.

If something cannot go on forever, it will stop. If Ponzi financing, paper money, budget deficits, and exponentially increasing debt cannot grow forever, they will eventually stop. The collateral damage will not be pleasant.

This is why it makes sense to convert some unbacked paper and digital currency into real money - physical gold and silver. Store it someplace safe - outside the banking system and possibly in a country other than where you live.

Physical gold and silver are for savings and insurance, not trading. Paper currencies that are certain to decline in value are for everyday transactions and convenience, until they are no longer useful. Don't confuse paper currencies or debt based paper with real money. Gold will remain valuable, while debt based paper can disintegrate easily and quickly.

A few questions to help clarify thinking and future actions:

Repeat: This is why it makes sense to convert some unbacked paper and digital currency into real money - physical gold and silver. Store it someplace safe - outside the banking system and possibly in a country other than where you live.

Read: Gold, Silver, and the Sins of the Past
Read: Silver: The Noise is Deafening!

 

Author: GE Christenson

GE Christenson aka Deviant Investor
www.deviantinvestor.com

GE Christenson

I am a retired accountant and business manager who has 30 years of experience studying markets, investing, and trading futures and stocks. I have made and lost money during my investing career, and those successes and losses have taught me about timing markets, risk management, government created inflation, and market crashes. I currently invest for the long term, and I swing trade (in a trade from one to four weeks) stocks and ETFs using both fundamental and technical analysis. I offer opinions and commentary, but not investment advice.

Years ago I did graduate work in physics (all but dissertation) so I strongly believe in analysis, objective facts, and rational decisions based on hard data. I currently live in Texas with my wife. Previously, I spent 20 years in Barrow, Alaska, the northernmost community in the United States, 330 miles north of the Arctic Circle.

Copyright © 2012-2014 GE Christenson