-- Published: Tuesday, 5 August 2014 | Print | Disqus
By Bill Holter
"Money as we know it...will simply disappear". Could this really happen? I think that it can and believe that it will in some fashion. This is a huge statement and one that certainly needs some explaining. Before getting to this, I want to relate to you a couple of questions I received this past week and pass along a quote that is very pertinent, and in my opinion almost an exact roadmap to what we will soon experience.
First, I was asked by a new client, "I don't understand, if the markets and banks close, how will I sell my gold and who will have money to buy it?". This is a good question with no set in stone answer because once panic sets in there will be so many parts literally moving at the speed of light. Let's look at a couple of historic events to get a little bit of perspective. After Archduke Ferdinand was shot in 1914, World War I commenced and our (U.S.) stock market was closed for nearly 6 months. Money in the U.S. back then was either gold coin or "dollars" which were receipts for gold coin, "money" still circulated even though the stock market was closed. Stocks circulated privately between individuals as certificates were signed over from one party to another in exchange for a real item or a service.
Another historic event was back in May of 1931 when the Austrian bank Credit Anstalt failed. This was a black swan event in a series that led to many banks around the world folding and what drove the U.S. and world economy deeper into depression. A description of the affair after the fact by Lord Revelstoke (Barings Bank) was; "It was amazing, how, in a fortnight, the credit system we had spent decades building......collapsed". Our banking system saw many failures and was closed for a time but again, money remained and still changed hands. But remember, "money" was different back then, it was "real" whereas today it more resembles Monopoly money.
Back to the original question, "how will I sell my gold and to whom"? Gold (and silver) "ARE" money themselves. They are a store of value, they have "worth" on their own as opposed to dollars, euros, yen or any other paper currencies. The paper currencies have "value" because a government "says" it has value and enforces what they say with legal tender laws. Gold and silver need not be "sold" for currency, they may instead be exchanged for goods or services during a time of stress. Actually, the part of the question that asks "who will have the money to buy it?" can be answered in one word, "you". YOU will have the "money" that may be retained or "spent" at your discretion, worrying about who will accept it during a crisis and after is not necessary.
Americans have become so brainwashed over the years regarding "money" and you can't blame them. It has been a full 50 years since our coins had any silver in them (49 years for the 40% silver clad). Americans think of dollars as money when the reality is that dollars are a currency. Americans constantly think about "making" more dollars yet forget that if the inflation rate is 10% then this is the amount needed each year just to stay even. The thought process of buying low and selling high with silver and gold is simply wrong because what would you be selling for? More dollars?
As you know, it is my opinion that we have upcoming a financial panic (and probably a global war) that will close many markets and banking systems. I also believe that some sort of new currency(s) will be introduced. If I am correct and we wake up one Monday morning to a closed financial system, then how smart will it have been if you bought gold at $300 and sold it for $1,900 and were still waiting to "catch the bottom" to load up again? My answer to the question is this, if you are "buying" gold in the hopes of making a "profit" in dollars, forget about it. This thought process is so wrong minded because your "goal" is incorrect. Thinking in this manner means that you want to "use" gold as a tool to accumulate more dollars. The odds of the dollar remaining the world's reserve currency is virtually zero and the odds that the dollar even remains a currency may be less than 50%. What is absolutely clear is that the purchasing power or "value" of the dollar will be far lower in the future.
Taking this thought process one step further, your gold in the future WILL be "worth more dollars" but there is a caveat and I'm not really sure how to put it into words but I'll try. "Your gold will be worth more dollars but you won't want to have the dollars". In my opinion, there are 3 main avenues that the dollar can go. First, we can go through a series of market caused devaluations, second, we can go the route of official devaluations or finally we might see the dollar actually go away so to speak. The dollar could be replaced by some other currency with a "BUT" attached ...but, any new currency brought forth must have the "confidence" of the public. The time honored way to do this by the way is to back the new currency with gold.
I guess the best way to wrap up the above is to say that yes, more dollars are better than less dollars but there will be a point in time when NO dollars will be best. No one knows when this point in time will be but trying to guess or outsmart the markets (or those pulling the strings) is foolish. I say this because all it will take is being wrong for just the one day when markets and banks are closed with you holding a bag full of dollars instead of gold. You will have no recourse or any way to correct the mistake and it will follow you (and your heirs) for the rest of your lives.
Getting to the title itself, "money as we know it will simply disappear" can be looked at from several standpoints. First, money(s) can simply collapse in value and be replaced, I think this is certainly a possibility for several if not many today. The deeply seated meaning of the title however is that since "money" today is debt based, should we see the event where debt begins to cascade into default...it will take currencies and their values with it. We live in a world today where debt is considered "wealth". It's crazy I know but this is the current thought process. The debt edifice if you will, or the debt ratio's all over the world are higher than they have ever been before. The risk of one debtor defaulting and "spreading" (forcing) other debtors to default has never been higher. Since currencies themselves are based on debt, should (when) this happen "money" will just disappear. "Money" in banks, insurance companies, pensions, you name it will simply go up in a puff of smoke.
To finish, gold is "different". Gold cannot "evaporate" or go up in a puff of smoke (unless held by a custodian that goes bankrupt with YOUR gold on their books), gold will remain and it will retain or even increase in value. All currencies have counter party risks, gold does not. Gold is your only way to "get out of the game" before the game ends and to arrive for the beginning of the next one. Holding gold will allow you to transfer your current wealth from here to there, holding dollars will not. Think of this from a "relative basis", roughly only 1 American out of 100 owns or holds any gold or silver other than jewelry. Said another way, 99 out of 100 have counter party risk and their wealth is based on and depends on the solvency of someone else, only 1 of 100 do not have this risk. Money will "disappear" for several reasons and from many different sources, not allowing YOUR money or wealth to be a part of the disappearing act is the name of the game!
Regards, Bill Holter
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-- Published: Tuesday, 5 August 2014 | E-Mail | Print | Source: GoldSeek.com