It is their explanation for why things go wrong, however, that I find most illuminating. Both Schumpeter and Sowell write about “intellectuals” who have academic credentials of some sort but are lacking in knowledge that would make them particularly valuable to the market. Incapable of commanding significant wealth and status through voluntary market mechanisms, these intellectuals resent the wealth of more-successful people. As a result, they envy and resent the entire market system that has failed to reward them as they believe they deserve to be rewarded.

Others have also explored this theme. Another Austrian, Helmut Schoeck, wrote the book that is widely considered a masterpiece of sociology, Envy: A Theory of Social Behavior (Der Neid: Eine Theorie der Gesellschaft). You can go back even further, if you like, to the Tenth Commandment’s proscription on “coveting.”

Intellectuals who consider inequalities in wealth evidence of injustice often seek political remedies. These take the form of legislation and, more often, regulation. In the process, of course, they are able to portray themselves as heroic opponents of injustice. If they have sufficient support, they are also able to acquire significant power, wealth and status. We know from experience, however, that these intellectuals rarely consider their own wealth evidence of injustice.

In Europe, these intellectuals have been far more successful in the past than in America. For this reason, American intellectuals in academia, politics and media have for decades told us that the U.S. is woefully unsophisticated and behind the times. In fact, economists have shown consistently that quality of life is higher for Americans at all income levels than it is in most European nations. It is difficult, however, to compete with a movement that has had, until recently, a near monopoly on pulpits, podiums and programming.

That’s all changed. Not only has the United States seen Keynesian policies on steroids crash and burn, but the European model has been revealed as the house of cards that it is. For decades, governments have propped up living standards by borrowing to appease voters. In effect, nations have consumed at artificially high levels by sending their children the bill.

Naturally, governments run by these intellectuals have tried to raise taxes to support their habits. Many succeeded, but then discovered the reality of the Laffer curve. Taxes necessarily transfer resources from the private tax-generating sector to the public tax-consuming sector. At some point, taxes depress economic growth, which reduces government revenues. This point is usually much lower than the critics of capitalism assume. Moreover, their targeting of the wealthiest individuals is most damaging to the economy. The wealthiest are also those with the most money to invest in the innovations that create all net new jobs.

So we’re seeing tax recipients rioting in Greece and elsewhere. These riots will spread, but it will do no good. The money doesn’t exist to support the intellectuals’ schemes, no matter how bloody their tantrums. Times will get hard enough to create a generation that hates the intellectuals who promised that everybody would be able to retire young with no worries.

We are in the midst of a historic transition. The intellectuals got their way. Now the consequences of their ideologies are going to be painful enough to allow market reforms. That’s how self-equilibrating market mechanisms work.

This is all very good news for North Americans. Canada, by the way, is way ahead of America in learning the limitations of government. America, however, is learning quickly. Three years ago, the intellectuals were gloating that they could use the forthcoming economic downturn for their advantage. The public, they predicted, would blame free markets and give even more power to the planners.

That, as you know, has not happened. Despite the orchestrated efforts of the Occupy Wall Street crowd and other fans of socialism, the American public is far more wary of government than it is of business:

An overwhelming 64% of people surveyed said big government was the biggest threat to the country, compared with just 26% who said big business is their gravest concern and 8% who picked big labor.

Government debt schemes are failing. This is creating remarkable opportunities for investors. It amazes me, in fact, that more people don’t understand this.

On those rare occasions when I watch financial shows, I’m always surprised by the never-questioned assumption that up markets are good and down markets are bad. This is nonsense.

The name of the game for investors is “Buy low, sell high.” Given the inevitable fluctuations of the market, we know that markets have always gone through this sort of big cycle. They always will.

If this were not the case, “Buy low, sell high” would be nearly impossible. Sure, selling high is more fun, but you can’t do it if you haven’t bought low. This seems awfully obvious to me, but it’s clear that most people just don’t get it.

We are at an incredible historic juncture. The world is, once again, realizing it has been duped by fast-talking political scam artists. This is not a new story. In fact, we’ve actually gotten off pretty easy this time. By necessity, market-killing programs will be cut back, freeing investors and innovators to create wealth once again. This liberation of capital will come just as the greatest scientific revolution in history swings into high gear, delivering extended healthy life spans and new levels of wealth. I know it doesn’t always feel like it, but these are wonderful, extraordinary times.

Someday, some younger investor is going to say something to you like this: “You were so lucky to be investing back then, when prices were at rock bottom but the whole world was changing for the better. I’d be rich too if I were investing in those days.”

In fact, they will probably be wrong. Most people never see the big picture while it’s happening. This type of once-in-a-lifetime situation is always easy to see in hindsight. When you’re living through it, though, it takes real character and vision to grasp the opportunities.

Regards,

Patrick Cox

The Ongoing Recovery from the Folly of Intellectuals was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

What happens to high-spending credit-dependent states when the market loses confidence in them has been evident in cases such as Ireland, Portugal and Greece? Among the big financial calamities of 2011 were notably government bond markets. Perversely, some of the big winners of 2011 were also government bond markets.

Market participants have so successfully been conditioned to believe in state bonds as safe assets that when some sovereigns go into fiscal meltdown it only serves as reason to buy even more bonds of the sovereigns that are still standing, even though their fiscal outlook isn’t much better. While the fate of Greek and Italian bonds should have cast serious doubt over the long-term prospect for Bunds, Gilts and Treasuries, it only propelled them to new all-time highs. Strange world.

All policy efforts are now directed toward keeping the overextended credit edifice from correcting. After decades of fiat money fuelled credit growth, the financial system is in large parts an overbuilt house of cards. The system cannot cope with higher yields and wider risk premiums. Those would accelerate the pressure toward deleveraging and debt deflation and default. “When they stop buying bonds, the game is over.”

They still bought bonds in 2011

2011 was another strong year for gold. Despite a brutal beating in the last month of the year, the precious metal produced again double-digit returns for the year as a whole if measured in paper dollars: up 10 percent. I believe that gold will continue to do well, as it remains the essential self-defense asset.

Amazingly, Treasuries did almost as well as gold (+9.6%) and TIPS (inflation-protected Treasuries) did even better. German Bunds benefited from the disaster in other euro bond markets. They pretty much matched Treasuries in terms of total return (currency-adjusted they did less well as the euro declined slightly versus the dollar). This is entirely unjustified because the EMU debt and banking woes will put considerable additional strain on Germany’s public finances. UK Gilts did better than gold and Treasuries, despite rising inflation in the UK, weak growth and a public debt load that is only ever going up.

This cannot go on for long. Bonds are fixed rate investments with finite maturities. The price gains of 2011 have lowered the yields to maturity, in some cases markedly so, and thus diminished the chance of additional gain. Does that mean reversal is imminent? No. Maybe the notion, or better the myth, that the bonds of the United States, the United Kingdom and Germany are risk-free assets can somehow be maintained. Maybe yields can decline even further. Who knows? Personally, I doubt it.

In the case of the US, the fiscal situation seems beyond repair. The Congressional Budget Office publishes its own projections on the long-term fiscal outlook. These are based on some overly rosy economic assumptions and still make for rather grim reading – hundreds of billions of dollars in deficits every year forever. The true path for the U.S.’s public accounts will certainly be much worse. The U.S. has now acquired a habit of running budget deficits to the tune of 10 percent of GDP year after year (more than $1.5 trillion in 2011) and there seems to be no end in sight. There is presently no deflation in the U.S. Neither does the TIPS market expect any. Yet, investors seem happy to hold U.S. government paper at what are certainly negative real yields. Investors are practically paying the U.S. government for the privilege of funding its out-of-control spending.

I have long maintained that government bonds are a bad investment because the endgame for them will either be outright default or inflation. In both cases, as a bondholder, you lose. The outcomes are either default or default. The idea that these debt loads could be elegantly inflated away is nonsense. They are already too big for that. So either you face outright default or, if authorities try to inflate, hyperinflation and currency disaster, and then default. In either case, you will not be repaid with anything of real value.

“Let them eat bonds!”

But are default or inflation and then default really inevitable? What if the present scenario continues forever? This seems to be the new “hope”. It is not a pretty scenario in that it involves the ongoing confiscation of wealth from bondholders but it seems to be less drastic than default or hyperinflation. Could we not work off the excessive stock of debt by suppressing bond yields below (moderate) inflation rates for an extended period of time? Of course, we cannot rely on the self-sacrifice of the bondholder, although he appears rather willing of sacrifice at present. So the government will have to use all its might to force bond-investors into accepting zero or negative returns for an extended period of time. After all, the state is the territorial monopolist of coercion and compulsion. It makes the laws. And controls the banks.

In a state fiat money systems banks must ultimately cease to be private, capitalist enterprises. Many banks have already been fully or partially nationalized. The remaining private ones are under tight, and ever tighter, regulation by the state. Should it not be easy for the state to force banks to invest more in government bonds, even at low or negative real returns? Should it not be possible to redirect whatever saving and credit there is from the private to the public sector?

Such a strategy has been outlined – not advocated- by Russell Napier of CLSA. He calls it ‘repression’. It ultimately involves rather draconian market intervention in order to continuously force the diversion of capital from private use to public use at artificially low levels of compensation. At some stage it will require capital controls.

But let’s face it: most of what we have experienced over the past three years in terms of government intervention would have been simply unimaginable only five years ago. We should therefore not be surprised if market intervention becomes ever more heavy-handed and is used increasingly to favour the funding of the public sector.

That such a policy will be implemented, and ever more boldly, I have no doubt. In fact, I predicted it in my book. See chapter 10 of Paper Money Collapse – The Folly of Elastic Money and the Coming Monetary Breakdown, in particular pages 226 -228. I called it ‘the nationalization of money and credit’. It is a phase in the crisis but it is not an endgame. Where I disagree with the above mentioned writers is the following: Repression, to the extent that it works, will not reduce government debt, and besides, it won’t work.

Consider the recent environment: Certain governments have been able to borrow directly from their central banks via quantitative easing and in the bond market at low or even negative real interest rates. Does that mean they have reduced the amount of outstanding debt? Are such hugely advantageous conditions used to cut back the debt load?

No. The opposite is the case. Access to cheap credit, whether that credit was provided by the printing press, obedient bond investors or hyper-regulated banks, has allowed states to run larger budget deficits and accumulate more debt. Remember, we are not talking here about the workout of a debt-situation resulting from a war, a natural disaster, or some other one-off event. We are talking about the modern welfare state with its ever-growing commitments and increasingly out-of-control spending. Only cutting off the state from cheap funding will ever constrain it, not giving it access to more resources more cheaply.

We do not live in Paul Krugman’s parallel universe of Keynesian fiscal stimulus, where every dollar spent by the government magically translates into 2 dollars of real GDP growth. Here, on planet Earth, the constant shift of resources from private markets to the state bureaucracy weakens the economy. Shrinking the private sector and growing the public sector kills economic growth. In the perverse logic of the modern welfare state. This then requires even more state spending in the next period. As the economy continues to struggle, public sector outlays will grow while tax receipts will shrink.

‘Repression’, to the extent that it succeeds in shifting resources from the private market to the state, makes the crisis worse. It must lead to more debt, more capital misallocation and a weaker economy. We will not save our economy by trampling on the remaining bits of functioning capitalism and by confiscating more resources from the private sector. ‘Repression’ is self-defeating.

Additionally, it won’t work. Private wealth-holders will not sit on their hands forever while their hard-earned savings are being confiscated by the state. If banks become mere tools to fund the state and thus provide zero or negative real returns to shareholders and depositors, shareholders and depositors will pull their money from the banks.

But there is no alternatives for the depositors, is there? Of course, there is: Gold.

As the enemies of gold in the establishment financial press never tire of reminding us, gold pays no interest and no dividend. Because of storage and insurance costs, it is a ‘negative carry asset’. But in an environment of ‘repression’, so are government bonds and bank deposits.

With zero or negative returns guaranteed on supposedly ‘safe’ government bonds and bank deposits, ever more investors, including small savers, will turn toward gold which has the additional advantage that its upside is practically unlimited – its price can double, triple or quadruple (all of which I expect) as long as paper money debasement continues (which I consider a near certainty).

Of course, a determined state will counter any evasion of controls with more controls. Maybe we will see taxes on gold investment or even restrictions on trading and owning gold. Via capital controls the country could be locked down. All of this is, of course, hugely destructive for the economy and ultimately self-defeating. I expect that we will see quite a bit of this stuff in coming years. Try and be prepared!

But this will not be part of the solution. It will make matters worse. And it means that the endgame is still either voluntary default or hyperinflation and default. ‘Repression’ or ‘nationalization of money and credit’ is a policy of desperation. It is not a solution. It won’t be the endgame.

Regards,

Detlev Schlicter

Paper Money Collapse

When the Bond Buying Stops, the Game Is Over was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

How do I know these things? Larry Reed, now president of the Foundation for Economic Education, and I visited this country for a full week during that volatile year of 1985. In those days, the superpowers had somehow decided to choose this little country as its theater for one of the last showdowns of the Cold War.

The U.S. said that the communists had taken over at the behest of the Soviets and they were exporting their revolution around the region. The Soviets said that the U.S. was trying to topple a democratically elected government by funding death squads. Remember Oliver North and all that? The drama was intense.

We went there to see what was going on. From the American press reports, we had every expectation of finding a civil war and communists battling it out with freedom-loving rebels. What we found was very different, indeed. We ended up meeting with leaders on both sides of the great issue of the day, but they weren’t dressed in battle gear. It was more like a political squabble of the kind that you find on Capitol Hill every day. We met with high-ranking officials in the current regime, as well as opposition leaders like Violeta Chamorro, who was later elected as president.

Before leaving on the trip, I had read a wonderful book by New York Times reporter Shirley Christian. It was called Nicaragua: Revolution in the Family. Her detailed report documented how what appears to be a revolutionary environment on the outside is actually a fairly normal tug-of-war between two ruling factions. Ideology plays very little role in reality beyond serving as a pretext of sorts. When one side gets control, it does things to hurt the other side, and so on. In other words, politics as usual.

I was amazed to hear this. This was a far cry from the language you were hearing from Washington at the time about how this was the battleground of the great Manichean struggle of our epoch. But it wasn’t just budding Cold Warriors like me who got taken in. There were first-world political pilgrims from the left who got sucked up into the theater and came to Nicaragua to experience the new egalitarian utopia as well. These people provided the main amusements for the week.

And so everywhere we went, we bumped into literature majors from the United States, seminarians from West Germany, women’s rights advocates from the U.K. and assorted Hollywood gadabouts who came to mix their labors with the liberators now in control. We all lived together in downtown Managua in a hotel that catered to our every need. So much for the workers and peasants. We truly lived like kings for a week.

Breakfast was amazing, with juices from all over the region. I’ve never seen anything like it since. The coffee was beyond-belief great, so strong that it had to be cut with hot fresh milk. You could eat a gigantic lunch and pay only a buck or two. Dinner always seemed to feature entertainment of some sort and the local liquor, which, I learned from experience, is rather dangerous for inexperienced drinkers.

My favorite bar was not far from the capitol building. I don’t recall the name, but at the time, I just called it the “communist bar.” That was because that’s where all the communists hung out to drink nearly every evening. Again, they were all from the United States and Western Europe, and they would sit around talking about the great utopia being built before their eyes. There were pictures of Che, Castro and Lenin on the walls. The reading material was Soviet Life magazine, and I would swear that some of the issues dated from the 1950s. Larry and I would flip through them and laugh uproariously at the pictures and propaganda. I don’t know whether this junk was brought in by the students or shipped directly by Moscow, but as I think about it, the former scenario is more likely.

One night we went to a movie. I was a smoker at the time, so I experienced that singular pleasure of blowing smoke up in the air during the movie and watching it mix with the light of the projector and create a beautiful film noir ambiance. I recall thinking that this was a pleasure that I could never experience in the United States. Maybe there is something to this communist idea after all! (Kidding.) I’ve since learned that smoking has been banned in theaters, and tragically so.

We hopped into a cab after the movie. Larry and I were in the back seat and two jaded-looking women were in the front seat. I tried to make small talk about how good the movie was. One of the women shot back at me: It was a terrible movie, but exactly what you would expect given how American imperialists send their cast-off flops down here to exploit the workers by extracting their money. Silence followed this stern lecture. I piped up again, innocently saying that, even so, I thought the movie was pretty good. She grunted extreme disapproval of my opinion, and we rode in silence until we got back to the hotel.

The next morning at breakfast, I met Gary Merrill, the former husband of Bette Davis who had starred in many films at his height, including Davis’ smash hit All About Eve. He was wearing a dress. I asked why. He said that he could do this in Nicaragua because it was a free country where the human spirit was liberated thanks to socialist control. I asked if he considered himself a communist. “All I know is that this works,” came the reply.

We had a charming meeting overall, but he said that he had to go because he was meeting with some government officials. That meant that he needed to change out of the dress and into a suit. I asked him why he must give up his freedom when meeting with government officials. He responded that it was just an intuition he had that he would make a better impression in a suit. Good intuition! We met with Gary several more times on that trip, and I can’t but have the fondest memories of his good cheer.

Later that day, we decided to do some sightseeing of government buildings. We were taking pictures like crazy at the ministry of defense building, asking all the soldiers and guards to pose. Some thug came up to us and told us to stop. We resisted a bit and suddenly found ourselves under arrest. They took Larry’s camera and planned to ruin all the pictures. But they never figured out how to open it. They gave us our equipment and let us go. The benefit from our point of view: We had a cool story to tell!

Looking back on the event, I’m realizing that the fastest way to get arrested in Washington, D.C., would be to try to get as close as possible to the Pentagon with a camera and take pictures of all the guards. You would probably be held for slightly more than a few hours!

On this trip, I also learned something about currency exchange. The government in those days tried to keep tight control on the rates. There was a government rate that you got at the hotel and the airport. And then there was the market rate that you could get on the streets.

You didn’t have to look far to find a currency exchange dealer. There were kids that seemed as young as 7 and 8 years old, budding young entrepreneurs. They were everywhere outside the hotel, and no one bothered them. Their math skills were absolutely amazing. They could figure the exchange rates on any amount in a matter of seconds.

How did they know the market rate? It is a bit mysterious to me, but they must have run back and forth to each other in some kind of cooperative/competitive arrangement, perhaps arbitraging with the dealers around the block or the other side of town. It was hard to say, but there was no question that they were the masters of the craft.

I think about this when I hear people object to the idea of competitive currencies in the United States. People say, oh, it would be so confusing and no one could figure it out! Perhaps there would be a learning curve, but surely over time, the math skills of the typical American could rise to the level of a peasant Nicaraguan child. It’s a tall order to be sure, but it is possible.

Much to my disappointment, we saw no bloodshed, death squads, gulags or secret missile stashes. All the communists I met I could have also met by visiting the local university. And the government officials were pretty much like those you would meet anywhere: greedy, lazy, puffed up and useless. Everyone knew this. I assume the same is true today.

A few years later, the “dictator” of Nicaragua submitted to a democratic election and was tossed out. Later on, long after the Cold War ended and everyone stopped caring about this country, he was re-elected. Nothing much changed either way.

“Most Americans,” writes investment guru Chris Mayer, “would be surprised to learn Nicaragua is the second-safest country in Central America, behind only Costa Rica. “The World Bank ranks it as the easiest country in Central America, Panama excepted, in which to start a new business. Or that in ‘ease of doing business,’ Nicaragua ranks well ahead of such perennial darlings as Brazil or India — or even neighboring Costa Rica. A recent IMF report said that Nicaragua was the Central American country that best protected investors’ rights.”

I can believe that. It is certainly among the most beautiful places I’ve ever visited, and I would take a week here over any visit to the Old World on the Continent. The food is better and cheaper, and the people seem far more insistent on and appreciative of their core freedoms. People say that going there now reminds one of how few freedoms we have remaining in the U.S.

How history turned on a dime: Our country is looking more and more like the nightmare that the U.S. said it was stopping from taking over Central America. Today, Central America is the beneficiary of a glorious benign neglect, whereas the “freedom fighters” finally got their way in the United States and brought us a tyranny that Daniel Ortega would never have dared impose even at the height of his power.

Nicaragua and the Cold War Political Theater was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Now, with precious metals prices on the cusp of possibly the biggest price explosion in centuries, fake gold and silver products are becoming a booming industry say Global Piracy & Counterfeiting Consultants:

We have read about one Chinese counterfeiter openly bragging about producing 100,000 fake U.S. Silver Dollars per year, and that’s just one counterfeiter. At this point, we are telling all investors of gold, or silver coins and/or any type of precious metal bar to only buy from a reputable U.S. dealer, that has an established track record, and a money-back guarantee. We fear this Chinese counterfeit gold, or silver coins, or bars, could be a multibillion-dollar-a-year business, and we greatly fear many innocent investors could be taken to the cleaners…

Based on our research, some of the Chinese counterfeit coins are of such high quality, it is not uncommon for even experts to be deceived. We think its smart for every investor to have gold, or silver; our big worry is pretty simple: What if they invest 10% or 20% of their net worth in what are counterfeit precious metal coins that are basically worthless? We would call this a disaster for the investor, and our big fear is there are probably tens of thousands of investors in the United States who have been duped. Even worse, once again, for all intents and purposes, the U.S. federal government is a no-show — once again…”

The world needs to come to grips with the largest counterfeiter in the world, the fact that 10% of China’s GDP is a direct result of counterfeiting. If it’s not knockoff pharmaceuticals that can kill people, it’s high-tech smart phones, or electronics. Our new worry is pretty obvious related to Chinese counterfeiters bankrupting innocent precious metal or coin investors with what could be their life savings. At what point do consumers in the United States, Europe, Japan or the rest of the world say no thanks to any more Chinese products, given its uncaring attitude about flooding the global markets with counterfeits or fakes?”

Source: GPCC via prweb

Gold and silver remain one of the few alternative investment methods to preserve wealth during crisis scenarios like inflation or government instability, but taking extra precautions now is absolutely essential to ensuring your wealth is protected when it comes time to sell.

Don’t assume that the dealer you are working with is legitimate, and even if they are, it is possible that they themselves have been duped by a counterfeit.

Those investing in gold and silver assets, especially if you are committing a large percentage of your net worth, should consider some safeguards.

• Work with multiple dealers who have been in business for several years. Like any investment strategy, diversifying your eggs into multiple baskets will protect you if one of them happens to fall. In this case, buying different products from multiple dealers, all with solid reputations, will prevent you from losing your entire investment in the event one of the dealers was duped by counterfeiters. While not exactly ideal, it’s better to lose just a portion of your investment than all of it
• Trust, but verify. Buy from one dealer and get your investment appraised by another. If you’ve invested $5,000.00 into precious metals, paying an additional $100 to have another dealer (most will take a look for free) verify the quality of the assets you purchased is not a bad idea. If you were sold a fake, you can then take immediate action against the offending dealer (as opposed to waiting five years only to find out you’re holding a worthless metal)
• Understand dimensions and weight. One of the best ways to determine if your asset is legitimate is to know what dimensions it should have (circumference, thickness, weight). Every government-issued coin, and even privately issued rounds or bars, should have manufacturer dimensions available either online or by simply giving them a call (otherwise go with a different product). Get a digital scale and a caliper and take measurements. Even though fakes can come close to the real thing, the densities of gold and silver are unique, so if a particular bar or coin shows an inaccurate weight or dimension, you’re likely looking at a fake. It may cost you a couple hundred dollars to acquire the appropriate tools, but if you’re investing multiple thousands of dollars into these investment, then we’d consider the cost of doing business. Take the time to learn about your investments (it won’t take long) and you can save headache and heartache down the road
• Gold and Silver Acid Tests. Gold and silver have unique properties when mixed with certain chemicals. While not exactly ideal, because you’ll have to ‘damage’ a tiny portion of a particular bar or coin, an acid test can be one of the best tests to perform in order to ensure you have a legitimate precious metals product. You don’t necessarily have to go through and test every single one of your 1-ounce Silver Eagles, but testing a few coins out of each batch wouldn’t hurt.
• Try pre-1965 silver products. They call it junk silver. Chris Duane of Don’t Tread On Me refers to it as Constitutional Silver. Half dollars, quarters and dimes minted prior to 1965 contain 90% silver and are worth well more than their face value. While Chinese counterfeiters may be producing silver eagles, bars and other mints in mass quantities, they will likely shy away from U.S. coin products for a couple of reasons: 1) Why mint a fake quarter when you can mint a fake Silver Eagle worth significantly more? 2) Minting fake U.S. coins is a federal crime, and while the Chinese may not be worried to much about being investigated by Secret Service, pressure from the U.S. may force China to act against counterfeiting, something the Chinese knockoff artists would like to avoid. Pre-1965 silver coins, in our opinion, are the only option for those making purchases on auction sites.

Counterfeits will always be a concern when you’re dealing with assets worth as much as $2,000 an ounce, but you can take steps to protect yourself. Don’t let the fact that counterfeits are out there dissuade you from making a good investment decision. Just do your due diligence and don’t let emotion overcome logic.

Regards,

Mac Slavo

Fake Silver and Gold Flood Global Markets was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Incidentally, people shouldn’t feel guilty about saving more, notwithstanding the handwringing coming from mainstream economists. As I explain in my book, everybody can increase his or her standard of living through saving. In other words, it’s not the case that if Alice makes a better future for herself by saving a higher fraction of her income, then there must be some Bruce out there who is going deeper into debt and will suffer a lower standard of living in the future. Society really can save and invest “on net,” in the sense that everybody can obtain claims to a growing stockpile of capital goods that make workers more productive.

In the current recession, it’s actually more important than ever that people save more. Contrary to Keynesian warnings, if households and firms save more, they will actually speed the general economic recovery.

Develop Multiple Streams of Income

When people hear the advice to save more, they typically think that they should stop going out to lunch and, instead, bring a bologna sandwich to work or school. Although one obvious way to save more each month is to reduce frivolous expenditures, that’s not the main thing I have in mind.

If a person really wants to start socking away a lot more each month, the best avenue is to boost his income, not cut spending. Particularly for young people (my target audience), there may not be that much room to cut. However, there’s no limit on how much (in principle) someone can earn.

Don’t misunderstand me. By all means, if a 22-year-old with no steady income is making huge payments on a sports car and rent in a posh neighborhood, then, obviously, it would be very prudent to move to a cheaper place and to switch to a boring vehicle with 80,000 miles on it. Yet even after plucking such low-hanging fruit, everybody — especially young people — should start brainstorming about how to bring in more income.

Notice here that I don’t simply mean someone who currently works in an office should consider working nights as a waitress. In fact, that’s not primarily what I have in mind. Instead, I think young people should consider a host of entrepreneurial ventures. Rather than looking for other bosses, young people should become their own bosses, at least in a few limited areas.

To some people, this suggestion may sound intimidating. But notice that plenty of young people are entrepreneurs, and they don’t even realize it: Anybody who babysits or cuts lawns for neighbors is an entrepreneur. Such kids have to find customers (usually through word-of-mouth) and provide a service for which they get directly paid. That’s what an entrepreneur does.

When I have mentioned this recommendation in public settings, sometimes students ask me what sorts of businesses they should start. The short answer is, “I don’t know; that’s what you need to figure out.” The entrepreneur looks around and identifies a product or service that people currently lack but would be willing to pay for, in such amounts as it would be worth the entrepreneur’s money and effort to provide it.

The reader should keep in mind that I’m not saying a person needs to brainstorm until finding “it,” the fantastic idea that will eventually make someone rich. On the contrary, it’s worthwhile doing all sorts of different ventures, so long as each one is self-contained and doesn’t threaten to absorb too much time. It may take a lot of trial and error to gain the skills, confidence and knowledge of customer demand before finding something really profitable.

As with all of my recommendations in this article, generating multiple sources of income is always a wise thing. However, in the present environment, it is critical. Even someone who currently has a “good, steady job” can’t be sure of his position even a year from now. A young person who inculcates that weekend business now can expand the business in the unfortunate event of a layoff.

But if that same young person, who has always (say) thought of starting a dog-walking service, tries to do so next year, when the unemployment rate shoots up to 12%, she will be competing with that many more people. It’s much better to get a fledgling business established now, during the weekends or other days off, so that the owner will already have a solid base of customers when the economy slumps again.

To reiterate, my advice is not to try to save more by looking at the monthly budget and saying, “Well, this is how much I make, and so if I cut back here, here and here, then I can afford to put aside $250 more per month.” No, I would much rather a person say, “If I cut back here, I can free up another $100 per month. And if I cleaned three houses every Saturday, then after expenses and treating myself to a nice dinner every weekend, I could save an additional $600 per month.”

Sell Your TVs

“Everybody — especially young people — should start brainstorming about how to bring in more income.”

The most succinct tip I can give, in order to find ways of generating new income, is to sell every TV in the house. I got rid of my TV during one of my frequent moves in grad school. At first, I went through psychological withdrawal, but now it would sicken me if someone put a TV in my house. I can’t imagine how much it would destroy my productivity. People can still watch their favorite shows on the computer.

Build up at Least a Month’s Worth of Expenses in Cash

Now, if a person is saving more each month, the obvious question is: How should those savings be used? I think the first step — and no, I’m not trying to sound like Dave Ramsey — is to accumulate at least a month’s worth of cash. (Depending on the person’s preferences and habits, it could be best to put this cash in a can in the closet, in a bank checking account or in a bank savings account.)

The point of doing this is to get out of the habit of living paycheck to paycheck. Such a lifestyle is bad for (at least) three reasons: Most obvious, it leaves a person vulnerable to even a minor setback. If there is an unexpected expense, or if the person gets laid off, then, obviously, a small cushion of cash would be crucial.

Yet beyond this obvious justification, there are two other reasons that building up at least a one-month window of cash balances is a vital, immediate step. First, it frees up more time, especially for a person who has followed the earlier steps and is now earning income from several sources.

Rather than having to run to the bank every time a new check comes in the mail, and rather than having to go online and check the bank balance every other day to make sure nothing is going to bounce, a person with at least a one-month cushion can better afford to let the paychecks and bills accumulate, and then deal with them in one fell swoop. This allows for the person to spend more time focusing on the business(es), rather than stressing out about cash flow.

The other main reason the paycheck-to-paycheck mentality is destructive for the entrepreneurial person is that the person is more prone to goof off whenever he’s done enough to “get through the month.”

But once that critical threshold has been extended past the one-month barrier, there is little difference between having enough to pay for one month versus two or three months. Once a person takes it for granted that he will have money left in his checking account even after paying all his bills for the month, that surplus will mysteriously begin to drift upward with each passing month.

Tithe or Give to Charity

It seems counterintuitive, but when a religious person tithes (or when a nonreligious person gives to charitable causes), there is somehow more money each month with which to work. For tithing — in which a person is supposed to give a specific percentage of income to the church — I think it’s because the practice forces a person to stay on top of his finances.

More generally, by focusing attention away from oneself, things become clearer, and it’s easier for a person to do the “responsible” things like avoiding impulse purchases and doing the extra work needed to bring in more income.

This last point is crucial for people who are suffering from depression and are in a financial hole. Part of what keeps them there is that, deep down, they don’t think they deserve to live stress free like the other people they see around them, who somehow have their acts together and don’t let bills pile up on the kitchen table. By bringing in the church (or a charity that the person really respects), the depressed and financially beleaguered person can stop dwelling on self-loathing and, instead, focus on helping others.

Eliminate Variable-Rate Debt as Quickly as Possible

If a person already has a decent amount of cash on hand, I think the next goal should be to eliminate variable-rate debt as quickly as possible. The most obvious example is credit card debt rolling over at an APR that moves with the prime rate. If the dollar crashes, as many Austrian economists fear, we can expect massive jumps in interest rates. This will wipe out many people who thought they were doing just fine the month before.

Note that “eliminating” variable-rate debt doesn’t have to mean paying off the balances. Using a new balance-transfer promotional offer, for example, might allow a person to lock in a fixed rate for a year or more.

I have written about the pros and cons of credit card use. Unlike my other suggestions, this particular one — namely, to quickly get out of variable-rate debt — is based on our current situation, in which I believe there is a real danger of interest rates spiking with little warning.

Acquire Some Physical Gold and Silver Coins

Once a young person has accumulated at least a month’s window in cash and has neutralized variable-rate debts, I think an excellent outlet for some of the saving each month is the acquisition of gold and silver coins. These don’t need to be collector’s items; in fact, my favorite thing is “junk silver,” because if the Big One [inflationary disaster -- ed.] comes, it will be easy for other Americans to recognize U.S. coins that were minted before the 1960s and have an easily verifiable silver content:

From an Austro-libertarian perspective, the other great benefit of buying at least some physical gold and silver is educational: This is what genuine, market-produced commodity money feels like.

Conclusion

The above tips are mostly common sense. Except for the warning about variable-rate debt, they are good ideas in any setting. Yet they are particularly important, especially for young people, in our present environment.

In closing, I want to stress that I am by no means a role model in this arena. I can write with confidence on the above matters precisely because I have seen firsthand what happens when you don’t follow those guidelines. If you want to keep your hair, you will give serious consideration to my recommendations.

Regards,

Robert Murphy

Robert Murphy is an adjunct scholar of the Ludwig von Mises Institute, where he teaches at the Mises Academy. He runs the blog Free Advice and is the author of The Politically Incorrect Guide to Capitalism, the Study Guide to “Man, Economy and State With Power and Market,” the “Human Action” Study Guide, The Politically Incorrect Guide to the Great Depression and the New Deal, and his newest book, Lessons for the Young Economist.

My Advice To Young People was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

This flies against policy (our policy) of never buying anything except that which can be paid for at the time of purchase – and even though I know full-well that we won’t really own the land, just as we don’t really own the land we have (or the house that sits upon it) because owners don’t pay rent in perpetuity to the government, which we, like all “owners” must (in the form of annual property taxes) if we wish to continue to be allowed to remain on the land (and in “our”) house.

Anyhow.

We did this deed as a way to hedge against what I am increasingly convinced is coming – the destruction of the dollar, followed about five minutes after this becomes common knowledge by the final implosion of what’s left of the American economy.

Land – physical land – is a good way (perhaps the only way, in a major economic crisis) to keep at least some of your wealth intact and more importantly – if you act in time – a way to transfer the value of fiat dollar-denominated assets into something tangible, of real value.

Gold, of course, is another way to do this but it has a major disadvantage: It is only valuable as a sort-of proxy for wealth; that is, it has value only as long as someone else who has something you want is willing to trade you what he has for the gold you have – which means that he (the owner of the item you want) must believe he will be able to then swap the gold he gets from you to some other person who has something he wants, something that’s not gold. Put another way, gold is fungible only if there’s a still-operating economy.

If the worst happens and the system really does experience a catastrophic collapse, the value of gold may collapse along with it – at least, for awhile. Until civilization re-assembles itself. But in the meanwhile, what will you do with your gold? It is pretty to look at but you can’t eat it and outside of a few specialized industrial applications that won’t matter during a period of crisis, it is useless.

Land, on the other hand, not only has tangible value (like gold) and is fungible (also like gold) because you can always convert it into gold or trade/sell it for something else you value – but perhaps much more importantly, in a time of real crisis, land can give you life.

Literally.

You can grow food on land – which could mean the difference between life and death, when the system runs off the rails and Costco and Safeway are looted to the linoleum. Which – count on it – is sure to happen the moment the masses get a whiff of the dollar’s imminent collapse. And you can hunt on land, too – assuming enough acreage.

But the number one advantage to land, as I see it, is physical distance between yourself – you and your family – and the latter-day Golden Horde that is already in the process of forming itself up. (Witness the so-called “flash mobs” of “youths” in Wisconsin, Philadelphia and other places.)

Just as it is harder for a thug to assault you from 20 yards away than when he’s right up in your face, you stand a better chance of making it through what may be coming if you and yours are not in the immediate vicinity (or path) of the rampaging mobs. They may not even notice you – and more significantly, you will enjoy a greater likelihood of noticing them before they notice you. In old-school cowboy lingo, this means getting the drop on them. And that can be the difference between life and death as much as having some food and other supplies stored up to get you through a few months of hard times.

In the most extreme eventuality – minions of the Clover State [the Clovers are the authority-worshiping apologists for any action by the state, no matter how egregious--ed.] coming to round you and yours up for “relocation” to a FEMA camp or god-knows-what-else in the immediate aftermath of a SHTF-type scenario – you have the option of just…disappearing. Of going off the grid, into the heart of darkness. It will not be easy. It will certainly not be pleasant. But it is much more pleasant than the alternative.

I am in my 40s now and like most people in that age bracket, I like my comforts. I enjoy having my motorcycle and car projects; even doing the chores around the place that need to be done. But if the S does H the Fan, I will do everything in my power to make it through to the other side of whatever’s coming, which will hopefully be something better than what we have now. But above all else, I will not Submit and Obey. If they come for me and mine, if they are not willing to leave us be in return for us extending the same common decency toward them – well, then we have options.

Because we have some land.

If you are reading this, there is still time for you to do the same. I hope you will consider it – and I hope you can make it happen.

Meanwhile, let’s hope for the best and that all we’ll be doing next summer is cutting the grass…. .

Regards,

Eric Peters

http://epautos.com/2011/08/17/a-not-car-column/

Eric Peters is a Washington, D.C.-based automotive writer and frequent contributor to the Detroit Free Press and Detroit News. He has written for the Wall Street Journal, Investors Business Daily and Washington Times, among others. In his free time, he enjoys working on old cars and currently owns a 1964 Chevy Corvair Monza coupe and 1976 Pontiac Trans-Am equipped with a modified 455 V-8.

Land More Valuable Than Gold In A Total Meltdown was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Having thus be-clowned themselves, they went on to elaborate: gold prices are volatile, gold doesn’t pay a yield, it depends on a “greater fool” for capital gains, central banks are net sellers, it doesn’t beat inflation, Warren Buffett hates (and does not understand) it, and you can’t eat it.

Oh dear. The gold price in dollars is volatile because the US dollar is volatile. An ounce of gold has almost always bought you a nice suit at any time in history. The volatility in the gold/dollar exchange rate is all on the dollar’s end. And that’s because the supply of dollars is always increasing. Also, the futures exchanges have been pretty active boosting margin requirements on gold contracts. That’s made for some larger-than-normal price moves. But the value? Rock steady over time, baby.

And that’s the point. Gold isn’t really an investment. It’s money. And it’s money that holds value well over time. You only worry about capital gains if you’re investing in gold. If you’re buying money, you’re more focused on preserving purchasing power.

Gold doesn’t have a yield? Someone should tell the boys at Wells Fargo that 10-year US Treasury yields went negative in real terms this week. Investors are so terrified of the debt super volcano upon which asset prices are built, they are paying rent to Uncle Sam in order to park their money in bonds.

By the way, this willingness to lose some of your capital in exchange for the illusion of safety and liquidity, in the short term, is probably going to be the catalyst for a violent stock market rally. All that money will come out of bonds and into stocks. After all, you have to beat inflation somehow, don’t you? This is how artificially low interest rates destroy savings (negative real yields) and encourage speculation in equities.

The claim that central banks have been net sellers “in recent years” isn’t backed up by any facts. But in any case, the Bank of England sold all its gold in May of 1999, near the bottom of a 20-year bear market in gold. Peter Costello, who was Australian Treasurer at the time, beat Brown to the punch when he sold two-thirds of Australia’s gold reserves in 1997 for the handsome price of $306.60 an ounce.

This was at the height of political efforts to eliminate gold’s role in the financial system. Costello said as much. He said gold, “no longer plays a significant role in the international financial system.”

You’d expect politicians to say that. You’d expect them to want it to be true. A gold standard was the only check on the permanent expansion of government debt in the early 20th century. That’s why it was abandoned. With a gold standard, the Warfare State and the Welfare State are not possible. Get rid of the gold standard and discredit gold as money and you can expand the role of the State to your heart’s delight.

Central banks are the largest holders of gold bullion in the world. Politicians sold gold because they’re stupid, ignorant of monetary history, and think only in terms of election cycles. Most central bankers, Ben Bernanke notwithstanding, recognise that gold is money. Its role in the world’s financial system is growing, not shrinking.

Warren Buffett doesn’t like gold? So what. Buffett is an investor. Gold is money.

You can’t eat gold? Is that so? Well, you can’t eat dollar bills either. You can always sell gold and silver for local currency and buy food, which you can eat. Being a medium of exchange is only one property of money. Just because you can’t yet use gold coins to buy a Big Mac doesn’t mean gold isn’t money or isn’t useful. Claims to the contrary are ignorant.

We asked Diggers and Drillers editor Dr. Alex Cowie what he thought of the Wells Fargo report. He wrote back:

“They forgot that you can sell gold and buy a room, a hot meal, or an ‘efficient’ jacket, hat and gloves with the proceeds.

“Their mixed salad of an argument was full of holes, and didn’t mention the epic growth in Chinese gold demand that is completely reshaping the market. China is the biggest importer of gold now, and these imports are about to double.

“The reason China and the rest of the world is buying gold is that the financial system is corrupted with debt, bailouts and defaults.

“And who is Wells Fargo’s number one share holder?

“None other than Mr Warren Buffett: the world’s biggest gold hater. Interesting that the bank’s analysts are now quoting him, like lovesick schoolgirls.

‘Do something for me,’ and [the gold] says, ‘I don’t do anything. I just stand here and look pretty.’

“Damn right. It does look pretty.

“It also does something that Wells Fargo hasn’t done too well in the past. It preserves wealth.

“There’s no one to stuff things up with gold. No bungling bankers, no corrupt politicians, no bail outs. And this is why it doesn’t need to pay interest – there’s no counter-party risk to compensate for.

“As the Octogenarian of Omaha points out – there is very little gold in the world. It would in fact fit into a couple of full size swimming pools. This scarcity is exactly what makes it valuable.

“So as the European and US debt crises continue to unravel in the coming months and years, and more and more Euros and Dollars are printed to plug the shortfalls, gold’s scarcity will be more and more valuable.

“So next time you are saving money up to buy some ‘shelter, food or efficient clothing’, buy some gold to do it with.

The Wells report concludes that:

“Gold is a commodity that should be held as a part of a larger, diversified allocation to commodities that is frequently rebalanced. We do not believe that gold should be utilised as a cash-equivalent, no matter how enticing the price returns have been in recent months.”

It’s clear Wells thinks gold is an investment speculation. That’s why they think it’s in a bubble. If the Wells’ bankers treated gold like money, not a financial asset, perhaps they’d allocate a lot more of their cash to it. But oh well.

In fact, that’s part of the problem. The idea that you can build wealth in a balanced way through a uniform asset allocation strategy is crazy. A sound portfolio would rebalance assets annually. That’s a nod to the fact that none of us can predict the future and you don’t want to have all of your wealth concentrated in one asset class, or in one risk.

But what assets should you really have in your portfolio if we’re entering a credit depression? Will stocks generate the same returns over the next 20 years as they have for the last 20 years? You’d think not, given that global credit is due to contract in the years ahead, not expand like it did for the last 20. Stay tuned…

Regards,

Dan Denning
Daily Reckoning Australia

You Can’t Eat Asset Allocation Either was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I truly do enjoy your insights on the Whiskey & Gunpowder posts. These ideas are very much in tune with what is going on. But why do you and others insist that Social Security is somehow an entitlement? No matter what the immoral politicians did in stealing our contributions to the Social Security Trust funds, the fact of the matter is that I paid in all of my working life. And furthermore, so did my employers and this too distorted what I should have earned. This money, well over $300,000, was paid in and now I expect it to be returned, even if it is way more worthless now. You act like somehow this should be ignored and the State owes me nothing for my contributions. Bull shit, my man!

Dear patron, those funds you put in aren’t just “stolen into” the Social Security. They’ve been stolen out as well.

They’ve been used to pay earlier “investors.” That’s why we keep referring to this scam as one of the Ponzi sort.

If you were an early contributor, congratulations! You’re going to do a lot better than anyone coming after you. But you still probably won’t do as well as Ida May Fuller, the very first recipient of a Social Security check in the U.S. She received her first check for $22.54 on January 31, 1940. She continued to receive checks till her death in 1975.

Ida May only had to pay into the newly minted system for a mere three years. Her total payments came to a scant $24.75. (To be fair, her employer had to match that amount.)

Here’s the chart of her contributions and covered earnings as prepared by one Larry DeWitt for the SSA.

By the time of her death in 1975, however, Ida May had collected $22,888.92 from Social Security monthly benefits. Now THAT is an investment strategy. Warren Buffet, eat your tax-shilling heart out!

Like most successful investment strategies, however, it required some timing. In fact, since it’s a Ponzi scheme, the only real way to win was to be first in line or as close to it as possible.

In the case of Social Security, aside from being early to the party, it also helps tremendously to refuse to die so you can collect as long as possible. Ida May lived to be 100 years old and managed to collect monthly paychecks for 36 years.

Let’s review. Ida May put in $24.75. Ida May collected $22,888.92.

Total amount invested: $24.75

Total return on investment: $22,888.92

She got that money because a lot of other people were forced to “pay it forward” by means of their own involuntary contributions. They were forced to fund Ida May with the “contributions” (handed over on pain of imprisonment) ostensibly being put aside for their own Social Security payouts later on.

This is the very definition of a Ponzi scheme. Returns of earlier investors are paid for with funds from later investors. And this Ponzi scheme has a twist: It’s an offer you can’t refuse. You can’t opt out (unless you’re Amish). Contribute or go to jail.

Again, your Social Security funds are gone. They have already been handed over to your parents and grandparents. There is nothing there for you. The money you expect to collect from this scheme will have to come from your children and grandchildren.

Two wrongs don’t make a right last time we checked. The government stole your money. Would you have them steal from your children’s money…and your children’s children’s money to make up for it? Do you subscribe to the Warren Buffett school of morality wherein more theft is a fine way to cover up past theft and misallocation?

Not to put too fine a point on it, but I really don’t think you’re going to make out with this federally-instituted transfer scheme as well as dear Ida.

Ponzi Social Security Pays It Ever Forward was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Back to spending beyond our means again. Back to buying more iPads. Back to more public work projects.

What a huge relief it is to get that silly spending cap out of the way.

Or… is it?

The deal making its way through congress would provide for an immediate $400 billion increase in the borrowing cap. Then they’ll kick in an additional $500 billion cap increase this fall.

That $900 billion increase in borrowing is supposed to be matched by cuts to agency budgets over the next 10 years. (We’ll believe it when we see it. More on that in a second…)

But first, the deal also creates a “Super Congress” (two words that typically are not found so close together). The do-gooders will appoint six “no-tax-increases-Republicans” and six “no-Medicare-or-Medicaid-entitlement-cuts-Democrats” to this group. Their goal is to find $1.5 trillion in cuts by November.

But what does this plan really accomplish?

Well, despite us waiting for the phone to ring, Congress didn’t seem to ask our opinion. But we’re happy to provide it to you, of course…

Aside from averting an over-due and necessary U.S. default, well… the deal does… NOTHING.

Our so-called “leaders” cut under $1 trillion over ten years. That works out to be about $90 billion per year… while we’re running $1.5 trillion deficits.

And best of all, because of the non-recovery we’ve had, the politicians want to wait until we’re on more stable footing to make any of those cuts. So NOTHING will be done for at least one year.

Laughable, I know.

All that posturing… supposed arguing… back door dealing… for a piddly 5.7% spending cut of this year’s deficit… and not until 2013 at the earliest!

And just for fun, what impact does Moody’s (you know, the rating agency that was so good in correctly forecasting the housing bust) think the deal will have on the U.S. credit rating?

CNBC reports, “the agency was likely to affirm the government’s triple-A rating if it raised the debt ceiling, but it could place a negative outlook on the country if it feels the plan to reduce the deficit doesn’t significantly change the country’s debt situation.”

So, let’s get this straight…

Moody’s plans to affirm the debt rating of a country that just completely admitted that it can’t pay it’s bills (without more borrowing, of course) and just agreed to spend… MORE?

Oh stop it, my ribs hurt!

One thing is clear to me…

Nothing has changed since the fiasco of 2007-2008. Except, of course, for increasing the likelihood and severity of the next recession.

Federal and state debts are climbing. Jobs are disappearing. And any evidence of even meager growth is a result of government intervention and massive misallocation of assets.

And top it all off, the credit rating agencies continue to look the other way.

At some point, however, the music will stop. You can’t forever spend more than you make in your personal life… and neither can the government.

Eventually, creditors will balk – no matter what the rating agencies say.

Eventually, foreign countries and banks will refuse to lend the United States money.

When that happens, no “debt deal” from congress will be able to save you.

Instead, it’ll be just the opposite. Without foreigners lending the United States government money… my guess is that they’ll turn to YOU for the money.

You’ve probably read the news about weird new state fees popping up. From sewage fees, to streetlight fees… even huge hikes in parking fees in state parks, states are already in trouble. And they’re already reaching for your wallet to pay their bills.

But when it really gets nasty will be the day that the feds can’t borrow money.

What happens then?

Consider this…

Americans have some $4 trillion saved in 401K plans and another $8 trillion in IRAs and pension plans, 95% of which are invested in the equity markets, mainly stocks and mutual funds.

If the U.S. government forces investors to invest 50% of their IRAs in government bonds, that would raise $6 trillion.

You may think that the U.S. government would never seize control of a portion of your IRA.

But I’m urging you to think again.

Eight countries have raided retirement plans since 2008, including France, Poland, Ireland, and Hungary.

Could it happen in the U.S.?

Well, that’s what today’s Whiskey shot is all about.

Below Terry Coxon discusses steps you can take to protect your retirement nest egg while giving your retirement a boost.

Amazing Power

By Terry Coxon

Imagine discovering that your dog can fly. As soon as you’d gotten over the surprise, you’d start wondering why you hadn’t noticed years before. Then you’d start thinking about the money you could make with such a talented canine.

That’s the experience I had with IRAs.

IRAs seemed so plain and ordinary. Good to have, comforting at times, but dull, like chicken noodle soup. Nothing special and nothing to get excited about. IRAs ran on AAA batteries and had about as much power… or so I thought.

Then what a surprise! I learned how an IRA can be a powerhouse for accumulating tax-free wealth. I don’t mind admitting I’d been blind to the potential that was right in front of me for so long – I had so much company in not noticing. Even today 67 million Americans have an IRA, but not one in a thousand understands all the good things he can do with it or how powerful it can be for building and protecting wealth.

Here’s a sample of what the rules allow you to do with your IRA (and that most investors haven’t a clue is possible).

Gold. Buy gold coins for your IRA and store them privately at home. You can even hide the coins in a jar of canned peaches and keep them in your refrigerator if you think that’s the safest way to handle them. It’s all within the rules.

Rentals. Your IRA can own an apartment house and be a landlord. And you can be the rent-collector and pick up those checks every month – tax-deferred income for your IRA.

Bigger rentals. Want a bigger apartment house? If you decide the terms are right, your IRA can use mortgage financing for a rental property.

Operating business. Follow the rules carefully and you can run a motel, restaurant, bio-science lab, specialty store or any other business and let your IRA pick up most of the earnings. Running a business is demanding, but the work is a lot more enjoyable when a big chunk of the income is tax deferred – or even tax free.

Foreign real estate. Your IRA can buy an apartment in Buenos Aires or farmland in New Zealand. It’ll be waiting for you if you ever need to go there.

Equipment leasing. Do you have experience selling or servicing heavy equipment, trucks, airplanes, medical equipment or anything else that users often want to lease? Your IRA can be the lessor while you put your knowledge to work helping your IRA earn the lease payments – income for your IRA to add to its growing pile of tax-deferred cash.

Private lending. Your IRA can earn high returns lending money on well-secured first and second mortgages. That’s what the smart banks do, and they collect far more than the sad returns they pay to IRA investors who buy their CDs.

Rehabilitate property. You can buy and manage the rehabilitation of a run-down dwelling, apartment house or office building and let your IRA reap the financial benefit.

Seize bargains. You can show up at foreclosure sales (there are plenty of them these days) and buy property for your IRA at distress prices. You might do the same thing on your own, but you’ll enjoy the profits more if they’re protected from tax by your IRA.

And those are just examples. Whatever investment you’d like to make and whatever business opportunity you’d like to pursue, there is a proper way for your IRA to collect most of the benefit. That means more of your earnings are tax-deferred – and with a Roth IRA the earnings can be tax-free.

Unnoticed

Maybe you’re wondering how a secret that big could be a secret at all. The answer is pretty simple.

As a matter of law, an IRA must have a custodian. It’s the custodian that holds legal title to whatever is in your IRA. But the custodian doesn’t have to accept any investment it doesn’t like. It can just say “No.”

Most custodians are attached to a bank, stockbroker, mutual fund complex or insurance company. Not surprisingly, those captive custodians are ready to let your IRA buy whatever the bank, stockbroker, mutual fund complex or insurance company is selling – and nothing else. That’s what keeps the handcuffs on most IRA investors and why most financial institutions like to tell just part of the IRA story. (The rest of the story is in this Report.)

Better Than “Self-Directed”

A sizeable minority of investors have slipped out of the ordinary-IRA handcuffs and moved to a so-called self-directed IRA. They’ve placed their IRA with a custodian that doesn’t sell investments and that will consider accepting any investment.

That’s better than what most IRA investors have, but not nearly as good what you could have.

The key word is consider. With a self-directed IRA, the investor must get the custodian’s approval at each step of every transaction. That means extra work and trouble for the investor. It means delay, which means the risk of missing an opportunity. It also means uncertainty, since the custodian can always say “No, we don’t do that.” And when the custodian of a self-directed IRA finally does sign off on an investment, the starting bell rings for heavy fees that will keep draining the IRA’s value.

The arrangement just isn’t as self-directed as it looks. It would be more accurate to call it a May-I-Please IRA. Or a May-I-Please-Pay-More-Fees IRA.

That’s why I created a report called How to Rescue Your Retirement from Three Dangerous Threats. In it, I reveal a little known IRS loophole that can help you triple the returns in your IRA.

No your dog can’t fly. But your IRA can learn to.

Good luck out there,

Terry Coxon

P.S. If you’d like to take your wealth into your own hands, I invite you to click here. After the jump, you’ll learn…

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Amazing Power was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

A gas station in Ashland, Oregon, May 2011

…If you pay with un-debased U.S. currency.

One gas station in Ashland, Oregon, is accepting payment for gas in the old, un-debased version of the currency.

The more prices change, the more they remain the same. At least when the currency is sound.

A gallon of gas was nearing $5 per gallon at the time the above picture was taken. Two old 90% silver dimes were worth about $5.00 of the newer 0% silver dimes and quarters. If you’d saved your money in plain ol’ currency back before the Treasury pulled another fast one, you’d be able to buy about a gallon and half of gas for $0.20.

We often tell people to start saving their nickels. This is why. This isn’t a get-rich-quick scheme. It’s not even a get-rich-slow scheme. It’s a don’t-get-hosed-by-central-bankers scheme.

Note that for all the years that dimes and quarters were 90% made of silver, the price of gas was around two of those (mostly) silver dimes.

Also note that there is a red line that shows the inflation adjusted gas prices. When the currency was sound and stable and the dollar price of gas was stable, people were better able to afford gas. This is because prices were stable as incomes were rising, a condition that Keynesians generally can’t stand.

(And heaven forbid prices actually fall slightly while incomes stay the same or even rise slightly. That sort of “deflation” is to be stopped at any cost.)

But see what happens when the silver is removed from the coinage in 1964? The price trends up a bit. And then after the U.S. dollar is entirely cut from gold in 1971, the price of gas really started to move in dollar terms. There was a spike leading up to 1980, a slight drop and leveling off for years (for various reasons we won’t go into now) and then it was back off to the races.

In 1918, a gallon of gas was about two 90% silver dimes. In 1928 about the same. And in 1948. Fast forward to 2011 and a gallon of gas is still about two 90% silver dimes, despite the rise in price in terms of the debased currency that really got going in 1974.

Even with all the Hunt Brothers drama and attendant price drops after 1980, silver’s price movements in dollars looks suspiciously like that of a gallon of gas…

Source: SilverPrice.org

You see, a gallon of gas isn’t getting expensive. Your currency is getting cheaper. Has been for a long time, since the official closing of the gold window. The speed at which it’s getting cheaper appears to be accelerating, too, as the central bank creates unprecedented amounts of new cash–unbacked by anything commodity or productive activity of course–to inject into the economy.

Meanwhile, the REAL currency is doing pretty well. Largely forgotten the silver version of the currency is keeping its value relative to things you buy. A gallon of gas is still less than $0.20. Twenty REAL cents. Not the forgeries that pass for money in the minds of the unwary.

If you think that’s something, realize that a gallon of gas is just five or six cents in terms of the old dollar bills that were also gold certificates. (One pre-1934 dollar was good for 1/20 ounce of gold, or about 80 of today’s dollars.) That’s an even more impressive holding of value than the silver coins. (Though silver still stands to surpass gold as the winning bet for beating currency debasement.)

Even the lowly penny has gotten in on the act. Say you missed out on (illegally) hoarding gold before 1934…and then again (legally) with silver coins before 1964…if you’d diligently saved your copper pennies before they were replaced in circulation with that shabby zinc substitute, you’d have protected your purchasing power quite well.  The metal in about $1.25 worth of pre-1983 pennies would buy you a gallon of gas today, priced at about $4.75 of today’s dollars.

Again, roughly a $5 gallon of gas in today’s money is five or six cents of the old dollar gold certificate, twenty cents of the silver dimes, a buck twenty-five of the copper pennies. There appears to be a strong correlation between length of debasement and multiplication of purchasing power.

The dollar was partially debased in 1934, the gold it represented made illegal for private American ownership, then completely cut free from gold in 1971. Dimes, quarters and half dollars started being debased in 1963 and were completely de-silverized by the end of the year (40% silver-clad half dollars were available for a few years after that). The penny got the same treatment and was completely de-copperized during 1983.

The old gold certificate dollars are worth 80 times their face value in the current currency…Well, technically they are collector’s items and museum pieces; the gold they represented is what has value today. The old dimes, quarters and half dollars more than 25 times. The old penny only three times.

The same thing that happened to gold certificates, quarters, dimes and pennies is happening to the cupronickel nickel. The value metal in the five-cent piece is staying steadily above the face value of the currency in which it’s minted. Put another way, a five-cent piece is worth quite a bit more than five cents. About 35% more, or 1.35 times face value as of this writing.

We expect all these factors above in bold to increase over time.

A market for pre-1963 90% silver coins is well established. These coins trade for the aforementioned 25x-plus their metallic content. A market for trade has only just begun to develop for pennies like it has for old silver coins. It hasn’t yet for nickels. It will.

The government figuratively took the gold out of the paper dollar. They literallly took the silver out of the dime, quarter and half dollar, and the copper out of the penny. The nickel is the only thing the U.S. has left to debase. It will probably be getting around to doing just that very soon. So now would be a good time to stock up.

This is your last chance to protect yourself from dollar weakening (and perhaps dollar destruction) by merely saving your money in the right form. No premiums attached! Just go to the bank and exchange whatever dollars and cents you have for nickels. They will give you 100% of your money back in nickel form without taking a cut.

Go to any bank right now and hand them $100 and ask for nickels. The teller will gleefully give you back about $135 in metal (as of this writing). We suggest you do this as regularly as you can.

No, you can’t take advantage of that now by turning around and selling these cupronickel pieces (“nickels” are actually only 25% nickel and 75% copper) for an immediate 35% gain. Not yet. But that time is coming. It could take years, but we doubt it will be that long this time around. The pace of debasement is accelerating over time. It’s taking on the classic “hockey stick” form on the charts.

You should still be buying gold and silver because there is plenty of dollar debasing left to go. But you should also be gathering nickels because they are so damned easy to acquire (go to the bank and see) and because they insure against both dollar strengthening (which could still happen) and declining.

In the unlikely event that the dollar gets stronger over the course of the rest of your life, you have merely saved money that you can still use at face value. In the much more likely event that the central bank keeps printing up new money, the metal content of the nickels will continue to climb far above their face value.

When the metal value gets way above the face value, the Treasury will surely do what they always do: issue a new, debased version of the currency with a much cheaper metal (probably zinc). This could happen as early as next year. This opportunity will not last forever. We strongly urge you get on a program of regular nickel-gathering now.

Perhaps best of all, any substantial wealth is virtually theft-proof in nickel form. As I recently noted on the Whiskey Bar Panel: if you have $10,000 in nickels in your house, no one who breaks in is going to get more than about forty bucks of that. At least not without lots of time, help and planning.

Nickels have very low value per unit. So even a fairly tiny amount of purchasing power in nickel form is very heavy. Forty dollars worth is heavy and awkward enough to make the effort and risk to reward ratio low enough to deter most thieves.

Now if a devoted thief plans a competent heist…if he gathers accomplices and makes sure he has a reliable getaway car and plenty of loading time, then you’re probably out of luck. But I suspect that thieves with that level of skill and dedication would be targeting all the gold bugs, not the nickel-hoarders.

You should absolutely be buying gold, silver or both. Silver especially still looks like the best way to multiply purchasing power instead of just protecting it. But you should also hold some cash, just in case, and much of that cash really ought to be in a form that will do just fine whether the dollar goes up or down. It ought to be in nickels.

Regards,

Gary Gibson
Managing editor, Whiskey & Gunpowder

Gas Prices Don’t Move Much In Good Currencies was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.