Friday, June 18, 2010

Living in the Economic Past

June 17, 2010

I visited with my neighbors last night, a Christian Arabic family, whose relatives live in Nazareth, Israel.

The occasion was their son's 20th birthday, so we toasted with champagne and ate homemade birthday cake.

I laid a copy of Robert Kiyosake's new book, Rich Dad's Conspiracy of the Rich, on the table and urged their son to read it before he finished his formal education and didn't know a thing about money and how to keep it.

I briefly mentioned the problems caused by fiat money, fractional banking, etc.

My neighbor's brother was sitting at the table, and he said he did not know of fractional banking.

I explained it to him, that banks keep depositors' money as a 10% reserve and make 9-fold more money out of thin air and loan it out to home buyers, etc. I explained that banks offer 1.2% interest on saved money today and turn it into ten times more money, that a $1000 deposit would yield $12 a year in interest, but the bank would use that $1000 as a reserve to make another $9000 out of thin air, loan it at 5% interest, make $450 a year, and he would only make $12 a year on his money. This didn't seem to bother him.

The conversation drifted to gold. I said it might be wise to buy some gold to protect your wealth, if you have money in the bank.

My neighbor's brother said "We have gone through all this before. We have been told the U.S. dollar will become worthless and to buy gold. China and other countries will never let the U.S. dollar fold. They will prop it up. It will never happen."

My neighbor's brother went on to say that gold doesn't produce any dividends, that it is better to own stocks and to buy real estate.

I attempted to explain that dividends are passé. Everybody is going for the big payoff when a company is acquired by another, so they can make a big killing.

I explained that the real estate market is so overvalued (by 30%), and US incomes so stagnant, and with an over-supply of homes (20 million are empty) that the real estate market wasn't going to come back in a decade. While it would be wise to own physical assets as paper money declines in value, real estate may not be a reliable option for someone who doesn't have a good cash flow.

He conceded that his business, selling auto parts, is very weak and it is difficult to stay in business these days. His cash flow is not what it once was.

I explained that the stock market is manipulated today and that the only sector that is making a killing is government-propped, can't-fail companies.

But he said he would rather buy auto parts at low prices, wait for inflation, and then re-sell the auto parts, than to buy gold.

I said, yes, anything that would be in demand could be used to exchange for money in hard times, but that auto parts aren't easily exchanged for food or rent.

He said he knew a relative who, maybe 20 years ago, bought one gold coin every month. She did this for years. He said he didn't know how well she fared but did recall that she once paid a large auto repair bill with gold coins.

But, he recalled, a couple of decades ago gold was over $800 an ounce, then it dropped to $350 an ounce. He didn't like gold. He said people all over the world have US dollars stashed under their mattresses. That is a vote of confidence.

I attempted to explain that today is not like the past. The US is printing paper money so fast, or acquiring debt at an unprecedented pace ($1 trillion added to the US national debt in just 117 days!), that at some point the US will have to devalue its currency.

I told him the EURO was considered a strong currency against the dollar, but that we sent our henchmen (Goldman Sachs) over to Greece, pulled one leg out of the EU table, and the whole table fell. The US banksters certainly know how to deal with competition. Everybody laughed.

I explained the federal government has few cards to play now. It resists cutting spending, won't go to a gold standard, is unable to significantly grow the economy, and auctions for other nations to buy our debt now go wanting. Our only option will be to devalue the currency at some point, especially if pressured by other countries devaluing their money and the spot price of gold rising.

I explained that the real price of gold in Greece is now $1700 an ounce, that they are getting a surcharge as the demand for gold soars there. So the spot price today does not reflect the real peak selling price.

My neighbor's brother wasn't convinced. He would rather keep his money in the bank, even though virtually every bank in the US is living on borrowed reserves and overvalued real estate assets.

I had to leave the party, said my good-bye's, said I had to go home and recount my gold, and realized that some people live in the past. They cannot see that the economic landscape has dramatically changed.

The central bankers Ponzi schemes, sleight of hand, and outright fraud, are coming to their inevitable end. How long the elites can cling to the end of the rope is unknown. Paper money is a false god, and so many have faith in it.

A precious statue of god may be treasured, but a trillion copies of that icon would diminish its value to a cheap trinket. Maybe a solid-gold statue would be better.

Bill Sardi [send him mail at] is a frequent writer on health and political topics. His health writings can be found at He is the author of You Don’t Have To Be Afraid Of Cancer Anymore. His latest book is Downsizing Your Body.

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