Tax & Financial Consulting Services
Why Paper Currencies Are Destined to Plummet
(And Why You Should Be Buying Gold & Silver)
Something interesting happened to me recently. When checking out at the grocery store, the clerk handed me change, including a quarter. She looked at it for a moment and said, “Oh, it’s a silver one.”
“Good deal,” I said, “I’m glad I have it.”
Sure enough, it was a coin that had been missed by all whose hands it had passed through. The quarter was minted in 1962 when these coins were 90% pure silver. This meant this quarter contained 0.18 ounces of the metal. With silver at around US$17 an ounce, it has a metallic value of around US$3 (or an 1100% increase from its face value).
By a very odd coincidence, just a month earlier a friend of mine was at the beauty shop and her beautician came across a strange US$10 bill. She showed my friend the worn US$10 bill she had gotten for payment in which she thought was a fake. "My...how we can be dooped for lack of knowledge."
It was a 1957 silver certificate. The legend reads, “THIS CERTIFIES THAT THERE IS ON DEPOSIT IN THE TREASURY OF THE UNITED STATES OF AMERICA TEN DOLLARs IN SILVER PAYABLE TO THE BEARER ON DEMAND.”
They’ve Stolen from You for the Last 50 Years
Just looking at that a 1957 dollar, I couldn’t help but think about the highway robbery that’s happened over the last 50 years. At today’s price, four pre-1965 quarters would contain US$13 worth of silver. But the equivalent government paper bill that promised to pay its own weight in silver is worth…well…a single dollar.
Even a US$1 bill is losing its purchasing power as you holds it in your pocket. In the decades since that 1962 quarter was made, its paper counterpart has lost 92% of its purchasing power.
Paper money is a promise. The current dollar bill is a “Federal Reserve Note.” A “note,” of course, is an IOU. A silver certificate is an IOU for silver but, a Federal Reserve Note is an IOU for nothing.
Moral Hazard Leads to ZERO Responsibility
Central bankers pretend to be prudent stewards of the nation’s currency. They like to argue their monetary management is a selfless attempt to prevent the innocent public from losing money in bank failures.
In fact, central bankers are following a monetary strategy that can never achieve their supposed goals. It’s impossible. It’s impossible to achieve economic stability by issuing more fiat money because it violates the first law of economics: You can’t change paper into gold.
Modern currencies are IOUs that derive their true value from the collateral backing up the IOU. So it follows that you can estimate the currency’s real value by looking at the central bank’s assets and collateral. Your local bank can get into trouble when it borrows from you, then loans your money to a borrower that can’t repay. If the bank doesn’t check to make sure that borrower has good collateral, that bank defaults on its promise to you, and goes bankrupt.
For a century and a half, the central banks claim has been that a central bank must protect the public during a credit crisis by lending funds to commercial banks that make such bad loans to help them stay afloat.
Bankers are in business to make a profit on the spread between the interest the bank pays the depositor and the higher interest it receives from a borrower. More loans to riskier borrowers (who must pay higher rates of interest) mean greater profits.
If the banker believes that the Federal Reserve or the Bank of England will bail him out, why not take more risks and reap the extra profits? Victorian Economist Walter Bagehot argued the case that a central bank should make loans to commercial banks against collateral provided by the borrowing banks. The public swallowed the idea. It’s no surprise that bankers succumb to the moral hazard.
Rather Than Gold, Your Money Is Backed By Sub-Prime Junk
But just as a prudent bank should demand solid collateral to back its IOUs, so should the central bank. Back in the day, that collateral was gold, foreign exchange, or very short-term commercial notes that the bank had accepted from strong businesses.It was even a breach of convention for the Bank of England to lend against government securities.
Now we find that our central banks are bailing out these moral weaklings by lending them money against illiquid collateral that never should have been on any properly run bank’s books in the first place — mortgages. Not just mortgages, but securitized bundles of sub-prime mortgages. How far the world has come.
Gold & Silver, the most liquid of monetary assets, today is officially demonetized, whereas mortgages are the collateral behind your money.
Turn currency into whatever shape you please, but its ultimate value depends on the intrinsic value of the collateral behind it. The solution for you is obvious. You should make certain that the assets you hold either have intrinsic value within themselves, such as do gold, silver, and all real commodities. It’s not rocket science…it’s just common sense.
Here Are the Three Steps You Should Consider Right Now
Step #1 If you missed my conference call last week Diversification, go back to the playback of the call and I tell you how to obtain these investments and protect your financial well-being.
Step #2. If you don't already own gold, I strongly suggest you buy some now. Don't worry about a $10 pullback. Or even a $100 pullback. Buy gold for the long-term and protect your paper dollars pronto. As I have suggested in my past newsletters, and on last weeks conference call, I would seriously consider allocating 20-30% of your net worth to gold and silver investments. You might want to put 2/3 in pure gold and silver investments, and the other half in mining shares.
Visit the following site www.publicgold.com/gngpreciousmetals in order to purchase Gold & Silver Eagles at a 20-30% discount instantly propelling your investment into a double digit gain.
To review, my favorite gold investment vehicles. Become an exclusive member of the G&G Investment Society subscription for USD ($99).
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Again, if you missed the last conference call, no problem. You can listen to the playback of the conference by dialing the number below:
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Tax & Financial Consultant, RFC
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"Knowledge is a form of food, nourishment at the higher level"
Dr. S Epps
LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility. G&G Associates gets paid a commission from a membership purchase at www.publicgold.com/gngpreciousmetals.