Selling dollars: Precious metals as the anti-investment

Industrial economies are a house of cards on the verge of collapse. Most investments made today are destined to be losers. Whether you agree or not, it is likely that you are increasingly uneasy or confused about the security of your savings. The average person seeking financial refuge might be inclined to sell some investment for cash or to delay a planned investment in favor of keeping the cash. This is normal. People all over the world think of their respective currencies as a baseline against which all investments are measured: if something purchased with X dollars is later sold for more than X dollars, the investment is a winner; if less, it is a loser. But this is a dangerous line of thinking that is going to get a lot of people into serious trouble. We must understand the true nature of and inherent danger in our currency in order to avoid disaster.

Wealth is made up of those things, measurable or immeasurable, tangible or intangible, which directly contribute to our well-being. Wealth includes food, shelter, security, family, and community. Money is one step removed from wealth. It is a store of value that facilitates the exchange of material things that make up wealth. The most common money is made of gold or silver, but any physical commodity that satisfies certain criteria can be used as money. Currency is a substitute for money that more completely facilitates the transfer of wealth, largely because, whether paper or coin, it is less massive than the money it represents. It has no significant inherent value. Properly managed, it is convertible to a fixed (or, at least, fairly stable) amount of real money and is therefore still only one step removed from wealth. Investments are two steps removed from wealth. They are purchased with material wealth or currency and may later be sold for greater or lesser amounts. (Certain investments, such as stock in a company with physical capital, may be a form of actual wealth, but this distinction is immaterial to the average investor.)

In the desperately unenlightened view, our dollars are considered wealth in that they themselves are necessary for well-being. This is obviously not true. More commonly, dollars are considered money because we tend to think of them as a stable store of value. However, the dollar's inability to buy a fixed amount of anything is becoming increasingly apparent in our daily lives. This creates a logical disconnect in our minds that is resolved by considering the cost of material wealth to be highly volatile. We maintain that dollars are stable; "food prices" and "gas prices" are out of control.

Of course, the dollar is not stable, nor is any other currency of which I am aware. They are fiat currencies, manufactured by fiat, or decree, of central banks (not governments). An increase in the supply of dollars causes all existing dollars to become correspondingly less valuable; the result is rising prices. Whereas the supply and demand of things like food, oil and gold are affected by blunt forces such as population and weather, supply and demand of currencies are affected by the politically-motivated decisions of the financial elite. Components of wealth and money are fairly stable in value; fiat currencies are not. And yet the common mode of thought supposes exactly the opposite.

Dollars are investments. They are two steps removed from wealth. If I exchange wealth (e.g. food or a house) or money (e.g. gold or silver) for dollars, those dollars may later be exchangeable for more or less wealth or money than I originally gave up--maybe a lot less. Holding onto a dollar instead of exchanging it for some other unit of investment, money, or wealth is a wager on the future performance of the market for dollars.

It is my opinion that the coming years will see a massive redistribution of wealth from the poor and middle class to the wealthy as a result of the depreciation of the primary modes of saving for most of us (for the poor, cash; for the middle class, all other investments) concurrent with the appreciation of the primary assets of the super-wealthy (the material components of real wealth and the means to produce them). This is why virtually any investment that one can make today is a sure loser.

The solution is to disinvest. Sell your stocks. Sell your bonds. SELL YOUR DOLLARS. Sell them for gold or silver--real money with stable value. If you had the money to buy factories and farmland, I'd tell you to do that. But even if you did, you probably couldn't afford to hold onto idle factories and farmland during the depression that is coming. You also won't be able to hold onto your current stock in the companies that own those things if you join the swelling ranks of the unemployed. The super-wealthy will buy those shares from the unemployed middle class at fire-sale prices because they can afford to wait it out.

Most of the middle class who own stock probably have most or all of it in a 401(k) or IRA. I'm not aware of any way to hold gold in a 401(k), but there are many IRA administrators who offer the option of holding gold. If you have an IRA, ask the investment company if they offer this option. If they don't, switching is easy. If you have only a 401(k), consider rolling over a portion of it to a new IRA. Or, better yet, find a way to save more of your paycheck and put that toward gold or silver. Other options include buying physical gold or silver from a local coin dealer or purchasing it online at an exchange and storage provider such as BullionVault. In a future post, I may go into more detail on these methods, but if you want to get started right away and need help, just ask me.

Opt out of: the investment house of cards; the safe-dollar mentality.