Wednesday, January 6, 2010

Reply:When should you sell your gold stash?

Don Williams said...

Re Loquisimo at 7:59 "Many people on that forum are Jeffersonians and believe that true wealth comes from agriculture.

So if you can trade a few eggs or potatoes for bread, you will be far better off than the guy with only worthless USD or even silver and gold."
--------

Those people are not Jeffersonians -- they are Peasants. Peasants who will become sharecropping Serfs when the sheriff sells their farm out from under them because they can not come up with the money for taxes.

Or the occasional necessary bribe for officials. Have you ever heard of an official taking a handful of chickens as a bribe?

Why do you think the US Government stockpiled $Billions in RED paper currency in an underground bunker under Warrenton ,Virginia during the Cold War? It was to manage the economy after a nuclear war -- including making existing caches of pre-war green money worthless.

How did the government plan on making the red paper have value ? By DEMANDING that all taxes be paid in it.

I have nothing against having a self-sufficient farm --but you need money to keep it.

That reminds me of something my grandmother told me a while back.

Back when my grandparents came to Argentina, Argentina wasn't exactly welcoming immigrants with open arms as some Argentines seem to believe these days.

"No" my grandmother told me " You had to be invited by a relative already living here. You had to be claimed and there was a fee to pay as well".
Apparently those that couldn't pay or didn't have a job already, were sent to the provinces to work on the fields.
Again, notice how the city presented better opportunities and a better standard of living, along with more job opportunities.
I found all this to be interesting and its worth looking into it more.

Curious how a few decades later, those same immigrants or their kids would pay to escape the Argentine sinking ship.

My grandfather didn't join in Franco's armed forces and money and a couple hams kept the local authority happy. But then when they needed the papers to leave Spain, since he had eluded the draft, hams weren't enough, as Don says, for serious ... lets just call them favors... you need cash of the day.
Precious metals are usually quickly traded into that in no time, just a couple hours.

For the problems I had recently with our passports again, cash was needed. When I go back I'm taking a perfume and some chocolates to a couple of ladies that helped in one of the steps, at the passport offices. Piece of advice here, whenever you can turn the tables, take advantage of every possibility.

I wont bother contacting the "gestor" (guy that gets thing done thanks to his contacts) again until I need his services, but the ladies in the passport office, no reason why I shouldn't end in good terms. You never know when you might need a favor again.

What Loquisimo is saying is heard often among survivalists but I believe there's a problem with that logic.
You can say you'll trade a hen and a few loafs of bread for a bar of gold. Those are your terms and thats fine.
The problem is that the market says otherwise and has been saying so for thousands of years. That's the thing precious metals have going for them: Withstanding the test of time for thousands of years.

SO you can set any price you want, but if there are a dozen other traders near by willing to deal on recognized market prices, you either accept them or simply lose the possibility of doing business. Every human being greedy to some degree, its understandable that most people end up accepting the free market rules.

FerFAL

13 comments:

Anonymous said...

I will sell my gold after I run out of paper money, or it is no longer accepted. See

http://en.wikipedia.org/wiki/Gresham's_law

for an explaination of why people will hold back their good money and get rid of worthless paper first.

Barter is fine, as long as the person you are bartering with needs what you have. If you and I are both chicken farmers, I probably can't trade eggs for something I want from you. You already have eggs. Or if I want to trade for something expensive, you may not want 1000 eggs; you can only use 10. That's where PMs come in; store of value that won't spoil or break.

Of course there are many other examples of people choosing PMs over barter.

Loquisimo said...

Good point. One needs chickens AND silver. Many of the people on that forum are continually broke because they didn't plan for a JOB when they moved out to the sticks, and thought they could sell chickens for money. Complaints about property taxes are constant, taxes keep going up as govts struggle to fund themselves.

Don Williams said...

1) This is off topic but I have some news supporting a point I made a few days ago:

That The Financial Industry in the USA is stalling attempts at reform until the Republicans can pick up more Senate seats in November --and hence be able to filibuster any reform after the election.

2) Two Democratic Senators announced last night that they will not stand for reelection:
http://news.yahoo.com/s/ap/us_democrats2010

3) Failure to reform Wall Street will deter investors from risking their money --because who wants to play in a rigged card game-- and will prolong the recession. This , in turn, will dump major debt onto the US taxpayers.

(Obama dumped UNLIMITED LIABILITY for Fannie Mae/Freddie Mac losses onto the taxpayers on Christmas Eve. Fannie Mae/Freddie Mac are the quasi-governmental organizations that trade in US house mortgages. )

parabarbarian said...

Another thing to watch out for is the currency exchange. It is a common way for collectivist regimes to discourage "hoarding" of cash and the black and gray markets. Declare that all old currency no good after a certain date and give subjects a short period of time to convert their old cash to new cash -- often at a discount. Anyone who shows up with "too much" cash can expect to be interrogated. IIRC, the Soviets did this at least six times between 1917 and 1991.

As Mr. Williams pointed out, the government demands payment of taxes in the current currency or they will take your land and throw you into the street. However, those who think they will deal in gold and silver directly will find that legal tender laws make it problematic for merchants to trade in anything but the latest government issued currency. Places like Zimbabwe, where gold was used as money are unique in that, until April 2009, there simply was no other currency available.

Don Williams said...

Here is another STRONG reason for having money and gold: a news story about a new industry that is thriving in a badly depressed city -- Debt collection.

What is interesting is that some of the top earners are former criminal felons who kinda know how to lean on a debtor -- and who sometimes break the law doing so.

http://finance.yahoo.com/news/Buffalos-debt-collectors-apf-2226423347.html?x=0

The other point is that US law enforcement reins them in to some extent now -- while there is still money to pay for law enforcement and social workers.

In a really bad economy where there is no money to pay policement, I suspect there won't be any constraints on those brutal convicts collecting on debts.

Remember also that US Credit card companies charge more than 20 percent interest --which used to be called criminal loan sharking in the old days.

Blindweb said...

There are only a couple of very extreme cases where I can think of where precious metals would lose significant value. The extreme positive end and the extreme negative end of the spectrum

On the positive side: Some revolutionary technology breakthrough like zero point energy. If this happens we'll all be living better lives and I won't really care if I lose money on PMs

On the negative side: Some event that would shut down the entire global trade network. Something like global nuclear winter, great plague, End of Tommorow weather event. The probability of these events are so small they are hardly worth contemplating. Also the probability of me surviving those events no matter how much I prepare is extremely slim.

Food, weapons, networks are useful in a temporary disruption which is more likely. The price of metals will come back as soon as the storm is weathered. As soon as someone says you can't eat PMs you should immediately know they are very limited in their monetary and trade history understanding, very black and white. They should be ignored. They can only think of normal times and apocalyptic times. It's akin to stereotyping where one makes a blanket statement because they can't be bothered to understand the nuances. There's a million shades of gray in between that are far more likely; like the last 10 years of rising PMs, or what happened in Argentina.

Anonymous said...

FerFal-
Just curious. Has your government tried to make gold illegal, and confiscate it like the U.S. government did in the 30's? That would seem like the next logical next step in total governmental control of the people.

Don Williams said...

Actually, the people Loquisimo speaks of might be Jeffersonians:

"Although he was born into one of the wealthiest families in North America, Thomas Jefferson was deeply in debt when he died...

...Only Jefferson's public stature prevented creditors from seizing Monticello and selling it out from under him during his lifetime.

After his death, his possessions were sold at auction. In 1831, Jefferson's 552 acres (223 hectares) were sold to James T. Barclay for $7,000"

JJ in SC said...

It's also worth considering that in the one sort of situation where food might have serious value beyond that of gold, that of mass shortage and starvation, it will be much easier for ordinary people to justify forced redistribution of food stuffs than for them to justify taking cash or precious metals. The same does not hold true of the government or of criminals, which will happily take either one, but a local citizens group could easily paint someone with surplus food stocks as a bad guy to raise muscle.

There's nothing wrong with stocking up on food (which I do) or with farming/gardening (which I hope to do. Expecting that food will become a currency in any situation where a currency will be useful is as misguided as expecting blacksmithing to become a wealthy skill in a post collapse world. Either one may be useful, and may be temporarily needed (in a very unlikely worst case scenario) but they won't hold that inflated value past an immediate crunch, until other farms/factories begin to come back online.

And people, farms and factories would be rapidly brought back on line. The entire US Air Force, in the most massive bombing campaign the world has ever seen, and the mass destruction of most of it's infrastructure and a vast section of its working age population never fully stopped the Germans from manufacturing weapons, and even rolling out new varieties of weapons.

As soon as the A-bombs or Asteroids or whatever you're afraid of stop falling, those who are left will start bringing factories back on line.

Anonymous said...

Discussion of particular scenarios are helpful to explore that scenario. However, as one poster here points out, there are many shades of gray in between the extremes. The most informed opinion of what will happen are 'best estimations', and can only speak from their experience or perspective. Examples in history are the best reference, yet history never quite repeats itself.

Find a strategy that is flexible and fits your situation. Avoid tunnel vision. Start with what you currently believe is the mostly likely you'll have to deal with, i.e., possible food shortage. What happened in Argentina is a good start. Exactly what conditions one will find themselves faced with are simply unknown. It could be much worse or not as bad as Argentina suffered, and the situation will vary over time and will be colored based upon factors such as one's mindset, knowledge and skills, locality, financial and other resources. We can learn and modify each.

If one can disconnect themselves from society for a period, it provides peace of mind and an opportunity to better adapt given the tools you've set aside. Ye ol'adage is still good, 'plan for the worst and hope for the best'.



To Don Williams. Zero Hedge takes the discussion to another level. They they think they'll suck up all the 'bad' assets, MBS' and the like, and ship it to China and anyone still buying dollars once values are inflated...but who really knows. The derivatives monster is what they really fear and so does the rest of the world. As with MAD (Mutual Assured Destruction) during the cold war, everyone's REAL COoperative so they don't get blowed up. The Euro will stay down supporting the dollar above 71.18 USDI, for awhile anyway. The Chinese need time to restructure so they can sell the overproduction to themselves, and load up on commodities. Then there's the strong possibility of real war over oil, the petro dollar, China's pipeline, and all that geopolitical stuff. All in all it's a real cluster with too many moving parts to predict, and with lots of wild cards thrown in such as possible 'spiking oil prices' from a big Middle East mess. That could kill the what's left of the economy rather quickly.

Vince said...

FerFal - Important question I may have missed! What happened to people who owed on credit cards and homes? What happened to their loans? Were they wiped out reduced or remained the same? Did you guys get a new currency? I am confused. Thank you so much for your blog!

Anonymous said...

Vince's question about credit card debt is very intriguing. I have heard that the best advice would be to borrow as much as possible before tshtf and use it to prepare. After tshtf, repayment of credit cards will not be a priority, and if you borrow it at a fixed interest rate, then the hyperinflation means that you are paying it back with seriously inflated dollars, so who cares! I do have an ethical issue with running up debt knowing that I may well just default on it.... That being said, current laws in the US do not allow creditors (other than the bank who holds your mortgage) to throw you out on the street and seize your house. The most they can do is put a lien against your house so that if/when you do sell it, they will get some of the money..... So Fernando, what happened in Argentina to credit card defaulters?

JJ in SC said...

For Vince:

In a situation of runaway inflation it FIXED interest loans would become cheaper, so that would work in your favor. Basically the payments you have to make would be worth less relative to everything else. However, and this is a big however, you would likely be spending more money on other necessities, so you would actually have less money to make your loan payments. Nor would your paycheck inflate at the same rate. Wages NEVER keep up with inflation. Your paycheck may go up (assuming your employer stays in business and you are not laid off or replaced by some starving person who will work for much less, but it is extremely unlikely to keep up with inflation.

An economic collapse could also lead to deflation, as it did during the great depression, in which case your loans would become more expensive. And guess what! Your wages would be much more likely to decrease in such a situation at the same time.

This brings me to one final point, unless society collapses to such a degree that it really is the end of the world, in which case you will probably die, no matter how well prepared, any failure to pay your debts could easily result in you having your most valuable preps,house, land, car, guns, gold, livestock, crops, etc, seized by your creditors, leaving you out in the cold.

The ONLY situation worth going deeply into debt for as far as prepping goes, is buying a house and or land. Anything else could cause whatever you do have to be taken from you. Not to mention that if there is no collapse, you will still be in massive debt, mostly for things that will not increase your earnings potential.

Borrowing to prep is a bad, bad, bad idea.