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The Screaming Fundamentals For Owning Gold And Silver

The investment thesis for precious metals
Wednesday, June 29, 2011, 9:22 AM

This report lays out an investment thesis for gold and one for silver.  Various factors lead me to conclude that gold is one investment that you can park for the next ten or twenty years, confident that it will perform well. My timing and logic for both entering and finally exiting gold (and silver) as investments are laid out in the full report.

The punch line is this: Gold and silver are not (yet) in bubble territory, and large gains remain, especially if monetary, fiscal, and fundamental supply-and-demand trends remain in play.

Introduction

In 2001, as the painful end of the long stock bull market finally seeped into my consciousness, I began to grow quite concerned about my traditional stock and bond holdings. Other than a house with 27 years left on a 30 year mortgage, these holdings represented 100% of my investing portfolio. So I dug into the economic data to see what I could discover. What I found shocked me. It's all in the Crash Course in both video and book form, so I won't go into that data here.

By 2002, I had investigated enough about our monetary, economic, and political systems that I decided that holding gold and silver would be a very good idea, poured 50% of my liquid net worth into precious metals, and sat back and watched.

Since then, my appreciation for and understanding of the role of gold as a monetary asset and silver as an indispensable industrial metal have deepened considerably.

Investing in gold and silver is still a good idea. Here's why.

Why own gold and silver?

The reasons to hold gold and silver, and I mean physical gold and silver, are pretty straightforward. So let’s begin with the primary reasons to own gold.

  1. To protect against monetary recklessness
  2. As insulation against fiscal foolishness
  3. As insurance against the possibility of a major calamity in the banking/financial system
  4. For the embedded 'option value' that will pay out if and when gold is remonetized

By ‘monetary recklessness,’ I mean the creation of money out of thin air and the application of more liquidity than the productive economy actually needs. The central banks of the world have been doing this for decades, not just since the onset of the great financial crisis. In gold terms, the supply of above-ground gold is growing at roughly 3% per year, while money supply has been growing at nearly three times that yearly rate since 1980.

Now this is admittedly an unfair view, because the economy has been growing, too, but money and credit growth have handily outpaced even the upwardly distorted GDP measurements by a wide margin.  As the economy stagnates under this too-large debt load while the credit system continues to operate as if perpetual expansion were possible, look for all the resulting extra dollars to show up in prices of goods and services.    

Real interest rates are deeply negative (meaning that the rate of inflation is higher than Treasury bond yields). This is a forced, manipulated outcome courtesy of central banks that are buying bonds with thin-air money. Historically, periods of negative real interest rates are nearly always associated with outsized returns for commodities, especially precious metals. If and when real interest rates turn positive, I will reconsider my holdings in gold and silver, but not until then. That is as close to an absolute requirement as I have in this business.

Monetary policies across the developed world remain as accommodating as they’ve ever been. Even Greenspan's 1% blow-out special in 2003 was not as steeply negative in real terms as what Bernanke has recently engineered. But it is the highly aggressive and ‘alternative’ use of the Federal Reserve balance sheet to prop up insolvent banks and to sop up extra Treasury debt that really has me worried. There seems to be no way to end these ever-expanding programs, and they seem to have become a permanent feature of the economic and financial landscape.  In Europe, the equivalent would be the sovereign debt now found on the European Central Bank (ECB) balance sheet.  

Federal deficits are seemingly out of control and are now stuck in the -$1.5 trillion range. Massive deficit spending has always been inflationary, and inflation is usually gold/silver friendly. Although not always, mind you, as the correlation is not strong, especially during mild inflation (less than 5%). Note, for example, that gold fell from its high in 1980 all the way to its low in 1998, an 18 year period with plenty of mild inflation along the way. Sooner or later I expect extraordinary budget deficits to translate into extraordinary inflation.

Reason #3, insurance against a major calamity in the banking system, is an important part of my rationale for holding gold. I’m not referring to “paper gold” either, which includes the various tradable vehicles (like the "GLD" ETF) that you can buy like stocks through your broker. I’m talking about physical gold and silver because of their unusual ability to sit outside of the banking/monetary system and act as monetary assets.

Literally everything else financial, including your paper US money, is simultaneously somebody else’s liability, but gold and silver are not. They are simply, boringly, just assets. This is a highly desirable characteristic that is not easily replicated.

Should the banking system suffer a systemic breakdown, to which I ascribe a reasonably high probability of greater than 1-in-4 over the next 5 years, I expect banks to close for some period of time. Whether it's two weeks or six months is unimportant; no matter the length of time, I'd prefer to be holding gold than bank deposits.

During a banking holiday, your money will be frozen and left just sitting there, even as everything priced in money (especially imported items) rocket up in price. By the time your money is again available to you, you may find that a large portion of it has been looted by the effects of a collapsing currency. How do you avoid this? Easy; keep some ‘money’ out of the system to spend during an emergency. I always advocate three months of living expenses in cash, but you owe it to yourself to have gold and silver in your possession as well.

The final reason for holding gold, because it may be remonetized, is actually a very big draw for me. While the probability of this coming to pass may be low, the rewards would be very high.

Here are some numbers:  The total amount of 'official gold,' or that held by central banks around the world, is 30,684 tonnes, or 987 million troy ounces (MOz). In 2008 the total amount of money stock in the world was roughly $60 trillion.

If the world wanted 100% gold backing of all existing money, then the implied price for an ounce of gold is ($60T/987MOz) = $60,790 per troy ounce.

Clearly that's a silly number (or is it?), but even a 10% partial backing of money yields $6,000 per ounce. The point here is not to bandy about outlandish numbers, but merely to point out that unless a great deal of the world's money stock is destroyed somehow, or a lot more official gold is bought from the market and placed into official hands, backing even a fraction of the world's money supply by gold will result in a far higher number than today's ~$1,500/Oz.

The Difference Between Silver and Gold

Often people ask me if I hold goldandsilver as if it were one word. I do own both, but for almost entirely different reasons. Gold, to me, is a monetary substance. It has money-like qualities and it has been used as money by diverse cultures throughout history. I expect that to continue.

There is a chance, growing by the week, that gold will be remonetized on the international stage due to a failure of the current all-fiat regime. If or when the fiat regime fails, there will have to be some form of replacement, and the only one that we know works for sure is a gold standard. Therefore, a renewed gold standard has the best chance of being the ‘new’ system selected during the next bout of difficulties.

Silver is an industrial metal with a host of enviable and irreplaceable attributes. It is the most conductive metal known, and therefore it is widely used in the electronics industry. It is used to plate critical bearings in jet engines and as an antimicrobial additive to everything from wall paints to clothing fibers. In nearly all of these uses, plus a thousand others, it is used in such vanishingly small quantities that it is hardly worth recovering at the end of the product life cycle -- and often isn’t.

Because of this dispersion effect, above-ground silver is actually at something of a historical low point. When silver was used primarily for monetary and ornamentation purposes, the amount of above-ground, refined silver grew with every passing year. After industrial uses cropped up, that trend reversed, and today there are perhaps 1 billion ounces above ground, when in 1980 there were roughly 4 billion ounces.  

Because of this consumption dynamic,  it's entirely possible that over the next twenty years not one single net new ounce of above ground silver will be added to inventories, while in contrast, a few billion ounces of gold will be added.

I hold gold as a monetary metal. I own silver because of its residual monetary qualities, but more importantly because I believe it will continue to be in demand for industrial uses for a very long time, and it will become a scarce and rare item.

Scarcity

If we cast our minds forward ten years and think about a world with oil costing 2x to maybe 8x more than today, we have to ask how many of our currently-operating gold and silver mines, or the base metal mines from which gold and silver are by-products, will still be in operation, and how many will close because their energy costs will have exceeded their marginal economic benefits.

After just 100 years of modern, machine-powered mining, nearly all of the good ores are gone. By the time you are reading stories like this next one, you should be thinking, 'Why are they going to all that trouble unless that's the best option left?'

South African Miners Dig Deeper to Extend Gold Veins' Life Spans

Feb 17, 2011

JOHANNESBURG—With few new gold strikes around the world that can be turned into profitable mines, South Africa's gold miners are planning to dig deeper than ever before to get access to rich veins.

The plans raise questions about how to safely and profitably mine several miles below the surface. Success would mean overcoming problems such as possible rock falls, flooding and ventilation challenges and designing technology to overcome the threats.

Mark Cutifani, chief executive officer of AngloGold Ashanti Ltd., has a picture in his office of himself at one of the deepest points in Africa, roughly 4,000 meters, or 13,200 feet, down in the company's Mponeng mine south of Johannesburg. Mr. Cutifani sees no reason why Mponeng, already the deepest mining complex in the world, shouldn't in time operate an additional 3,000-plus feet deeper.

"The most critical challenges for all of us in South Africa are depths and depletion of reserves," Mr. Cutifani said in an interview.

The above article is just a different version of the story that led to the Deepwater Horizon incident.  By the time exceptional engineering challenges are being pondered to scrape a little deeper, it tells the alert observer everything they need to know about where we are in the depletion cycle.  We are closer to the end than the beginning.

We are at a point in history where we can easily look forward and make the case for declining per-capita production of numerous important elements just on the basis of constantly falling ore purities, and gold and silver fit into that category rather handily. Depletion of reserves is a very real dynamic. It is not one that future generations will have to worry about; it is one with which people alive today will have to come to terms.

The issue of Peak Oil only exacerbates the reserve depletion dynamic by adding steadily rising energy input costs to mix. Should oil get to the point of actual scarcity, where we have to ration by something other than price, then we must ask where operating marginal mines fits into the priority list. Not very high, would be my guess.

Supply and Demand - Gold

Not surprisingly, the high prices for gold and silver have stimulated quite a bit of exploration and new mine production. With over a decade of steadily rising prices, there has been ample time to bring on new production. Which leads to a real surprise: In the case of gold, relatively little incremental mine production has occurred.

The analytical firm Standard Chartered has calculated  a rather subdued 3.6% gold production growth over the next five years:

Most market commentary on gold centres on the direction of US dollar movements or inflation/deflation issues – we go beyond this to examine future mine supply, which we regard as an equally important driver. In our study of 375 global gold mines and projects, we note that after 10 years of a bull market, the gold mining industry has done little to bring on new supply. Our base-case scenario puts gold production growth at only 3.6% CAGR over the next five years.

(Source - Standard Chartered)

Of course, none of this is actually surprising to anyone who understands where we are in the depletion cycle, but it's probably quite a shock to many an economist. The quoted report goes on to calculate that existing projects just coming on-line need an average gold price of $1,400 to justify the capital costs, while greenfield, or brand-new, projects require a gold price of $2,000 an ounce.

This enormous increase in required gold prices to justify the investment is precisely the same dynamic that we are seeing with every other depleting resource: Energy costs run smack-dab into declining ore yields to produce an exponential increase in operating costs. And it's not as simple as the fuel that goes into the Caterpillar D-9s; it's the embodied energy in the steel and all the other energy-intensive mining components all along the entire supply chain.

Just as is the case with oil shales that always seem to need an oil price $10 higher than the current price to break even, the law of receding horizons (where rising input costs constantly place a resource just out of economic reach) will prevent many an interesting, but dilute, ore body from being developed. Given declining net energy, that's forever, as far as I am concerned.

The punch line of the Standard Chartered gold report is that they think $5,000 gold is a realistic target and go on to note the most important shift in gold accumulation of the past 30 years:

The limited new supply comes at a time when central banks have turned from being net sellers to significant net buyers of gold. The result, in our view, will be a gold market in deficit, even assuming flat growth in demand.

With the supply-demand balance so out of kilter, we see the gold price potentially going to US$5,000/oz.

(Source)

The emergence of central banks being net acquirers of gold is actually a pretty big deal. Over the past few decades, central banks have been actively reducing their gold holdings, preferring paper assets over the 'barbarous relic.' Famously, Canada and Switzerland vastly reduced their official gold holdings during this period, a decision that many citizens of those countries have openly and actively questioned.

The World Gold Council out of the UK is the primary firm that aggregates and reports on gold supply-and-demand statistics. Here's the most recent data on official (i.e., central bank) gold holdings:

(Source)

Note that the 2009 data is lowered by slightly more than 450 tonnes in this chart to remove the one-time announcement by China that it had secretly acquired 454 tonnes over the prior six years, so this data may differ from other representations you might see. I thought it best to remove that blip from the data. Also, the data for 2011 is for the first four months only, so we might expect 2011 to be a record-setter if the current pace continues.

Overall, world supply and demand are a bit out of alignment right now, with supply increasing by 2% last year and non-official demand increasing by 10%:

The summary of the fundamental analysis is that with mine production seriously lagging, the price increases for gold, and increased central bank and investment demand, we have set the stage for some hefty price increases irrespective of any fiscal or monetary shenanigans.

However, once we put those back into the mix, I forecast a quite volatile but upwardly sloping price for gold over the coming years. Possibly a very steep upward slope at points.

Supply and Demand - Silver

Silver demand is growing by double-digit percentages, being led primarily by industrial uses and investment demand. The Silver Institute does a fine job of tracking and reporting on these matters.

First, demand:

Total fabrication demand grew by 12.8 percent to a 10-year high of 878.8 Moz in 2010; this surge was led by the industrial demand category. Last year, silver’s use in industrial applications grew by 20.7 percent to 487.4 Moz, nearly recovering all the recession-induced losses in 2009, and is now seeing pronounced advances in 2011.

Jewelry posted a gain of 5.1 percent, the first substantial rise since 2003, primarily due to strong GDP gains in emerging markets and the industrialized world’s improving economic picture. Photography fell by 6.6 Moz, realizing its smallest loss in nine years, as medical centers deferred conversion to digital systems. Silverware demand fell to 50.3 Moz from 58.2 Moz in 2009, essentially due to lower demand in India.

(Source)

Now, supply:

Silver Production 2010

Silver mine production rose by 2.5 percent to 735.9 Moz in 2010 aided by new projects in Mexico and Argentina. Gains came from primary silver mines and as a by-product of lead/zinc mining activity, whereas silver volumes produced as a by-product of gold fell 4 percent last year.

Mexico eclipsed Peru as the world’s largest silver producing country in 2010, and Peru is followed by China, Australia and Chile. Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 2010.

(Source)

Again, we are comparing double-digit demand increases against low single-digit supply increases.  After a decade of rather dramatic price increases for silver, the alert observer should be asking exactly why this is the case.

In table form, we can clearly see that the silver balance for the world requires both dishoarding from government stockpiles and the recycling of scrap silver. That is, shortfalls from mining have to be made up from above-ground stocks:

(Source)

There's only so long that such an imbalance can continue before the shortfalls require much higher prices to cool off demand.

One of the precise reasons that I originally invested quite heavily in silver is that I came to the conclusion that the price was far too low, artificially so, and that it would therefore be a great investment. So far, so good.

Given the above fundamentals, I project that prices for the precious metals will be many multiples higher - in today's dollar terms - by the end of the decade.

Part II of this report: How to Play The Greatest Gold & Silver Bull Market Of Our Lifetime delves into the specifics of how much of your net worth to invest and in what forms, what price targets gold and silver are likely to reach, and what indicators to look for that will indicate that it's time to sell out of your precious metal investments.

Click here to access Part II (free executive summary, enrollment required for full access).

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210 Comments

sofistek's picture
sofistek
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Ready wrote:and we are now

Ready wrote:
and we are now debating whether or not savings (of any kind) is a good thing (seriously???? )

No, we're not debating that, in as stark a manner as you've put it. I hate that way of debating - a bit like a straw man. Savings are a great thing to have now. But what is their purpose, especially as we're facing a very uncertain future (though certain in some key ways, since our behaviours are unsustainable)? Some have claimed it's sort of an insurance policy but where the insurance company is not guaranteed to pay out. Others seem to view savings as a delaying mechanism, to prolong the time before they really have to fend for themselves.

Savings today are a good thing to have but only to spend on preparations (though I admit that there are many ways to view those preparations).

sofistek's picture
sofistek
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tictac1 wrote:gold will not

tictac1 wrote:
gold will not somehow be worthless this time around

I'm not sure that anyone said it would be. Whether you can physically use it in the way you might imagine is another matter. It's questionable as to whether PMs will be a common enough means of exchange to make it a useful commodity to hold. The masses will probably be bartering rather than exchanging gold coins or slivers.

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capesurvivor
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back from the void

I guess I was "cleansed" along with the religious comments. Ok with me.

Tictac1, there's a difference between placing precious metals and their ownership in a context and proselytzing. The Crash Course is a secular course. Chris very carefully made it so and  is therefore conceptually accessible to everyone without interference of, or minsinterpretion by, religious dogma.

There are thousands of religious websites, especially religious preppers, who might welcome those with a religious interpretation of the Triple E predicaments we face. On this thread, such intrusions have proven to be just that, intrusions, and diversions, as you've seen.

At the risk of having my comment cleansed, I won't answer your musing out loud about why people are offended by Christianity.  Books have been written.

I am certainly concerned that my PMs will stolen by some manner of government finagling or intervention and that I will be penalized, not rewarded, for my economic caution. They have thrown savers and retirees under the bus and saved bankers for the past several years and I assumer that they will throw precious metal owners under the bus to save the bankers in the future.

I'm all ears for suggestions from, as you noted, an astute group. I don't believe that a Swiss gold account accessible by a neat ride in my Gulfstream is in the cards for me, as many "poser' gold mavens who publish newsletters so smugly suggest.

CS

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not necessarily

>>On grey/black market value of gold, it's been said that the illegality of trade would lower the price.  While this makes some sense, I cannot think of any other item that gets CHEAPER on the black market.<<

Not necessarily, In my country back in the days.... the official exchange rate of the $ was 1:1 but on the black market it was 1:3 (3 times more expensive). There was this subtlety of course, not everybody was allowed to exchange or have $. Talks about the stupidity the gov can come up and also you can't change human nature with fabricated laws that make no sense.

So it depends.

tictac1's picture
tictac1
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For sofistek:  bartering

For sofistek:  bartering without paying taxes is most definetly illegal in the U.S., as is trading labor for labor.  I can get you IRS code if you need it, I just don't have it handy right now.  Interestingly, the IRS says you have "no basis" in your own labor, i.e. it is worthless, until you go to trade it, of course.  That's why any money you make through your labor is 100% taxable.

Based on recent history, I think we should all plan on governments furthering their looting of the public in favor of powerful banking interests.  World-wide corporate socialism, if you will.  This might mean taxing or otherwise regulating your PMs into near worthlessness, IF that means saving their bacon.  Again, though, this presupposes a compliant public to make it worthwhile on a large scale.

The last time gold was confiscated, the general atmosphere was very different.  I think the public had a basis of trust in the US government, something that does not appear to be so at this time. 

I don't think anyone should see PMs as the end-all, be-all of self-sufficiency.  I doubt anyone here does.  They are merely one way to preserve wealth, an insurance policy.  Another wise investment might be tools of various sorts, and learning the skills to use them effectively.  For example, a generator/TIG/stick welder might cost you a few grand, but it can easily be made to pay for itself many times over if you know how to use it.

Diversified income streams, in addition to a variety of wealth preservation/investment vehicles, is about the best you can do, financially. 

For those that believe PMs are a bad idea, I would ask this question- if that is so, why are banks reversing course on holding gold, and buying?  If PMs are being manipulated upward, wouldn't banks be reducing their holdings to take advantage of the "bubble"?  My WAG is that central banks are quietly preparing for what they see as a forgone conclusion, the eventual collapse of the US dollar.  I don't see a gold standard arising from this, though.  I see another fiat.  It's the only way "the game" of robbing the masses through wealth destruction and confiscation can continue.  I welcome retorts to this idea, however.

Historically, this does not bode well.  The masses get violent when "class warfare" comes to a head.

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I also agree we will end

I also agree we will end with another fiat/s.. no way out of it (expandable electronic money are better lubricant for world trade than commodity money).. It can even be more abstract like the SDR for the interbank backbone (Then the bankers can play even more games). Any gold standard scheme is doomed to failure too.

sofistek: Gld holding is not for trading and day to day transaction. But a way so you can go trough the crisis on the other side with preserved purchasing power.

Ready's picture
Ready
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Dear Sofistek,

sofistek wrote:

Ready wrote:
and we are now debating whether or not savings (of any kind) is a good thing (seriously???? )
No, we're not debating that,

sofistek wrote:

Paying off debt and making preparations is a wise thing to do. Perhaps saving enough for property taxes is a wise thing to do but I'm not sure why saving beyond that is wise.

Well, you are right about one thing, WE are not debating that. Apparently you are debating it with yourself across posts.

Cheers,

Strawman

Doug's picture
Doug
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Sofistek

Doug wrote:Remember, practices like barter are technically black markets,

Quote:
I don't see that, either in the current society or after collapse. Barter is direct exchange of goods and services, instead of through some intermediate mechanism, like money or gold. I don't think I've heard of barter being taxable currently, though I wouldn't put it past governments or dictators to try to do so, in some way.

http://www.irs.gov/taxtopics/tc420.html

Quote:
Topic 420 - Bartering Income

Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of goods and services received in exchange for goods or services you provide must be included in income in the year received.

Generally, you report this income on Form 1040, Schedule C (PDF), Profit or Loss from Business. If you failed to report this income, correct your return by filing a Form 1040X. Refer to Topic 308 for Amended Return information.

A barter exchange or barter club is any person or organization with members or clients that contract with each other (or with the barter exchange) to jointly trade or barter property or services. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.

The Internet has provided a medium for new growth in the bartering exchange industry. This growth prompts the following reminder: Barter exchanges are required to file Form 1099-B for all transactions unless certain exceptions are met. Refer to Barter Exchanges in Publication 525, Taxable and Nontaxable Income, and the instructions for Form 1099-B for additional information on this subject. Persons who do not contract a barter exchange but who trade services do not file Form 1099-B. However, they may be required to file Form 1099-MISC. If you are in a business or trade, you may be able to deduct certain costs you incurred to perform the work that was bartered. If you exchanged property or services through a barter exchange, you should receive a Form 1099-B (PDF), Proceeds From Broker and Barter Exchange Transactions. The IRS also will receive the same information.

Please refer to our Bartering page for more information on bartering income and bartering exchanges.

If you receive income from bartering, you may be required to make estimated tax payments. Refer to Publication 525, Taxable and Nontaxable Income, for additional information.

So, if you haven't reported your barter arrangements, you are running afoul of IRS rules.  It isn't very strictly enforced, but it can be at the whim of the IRS.  Remember, there is no more powerful agency of gov't than the IRS.  Going forward, we should assume every financial agreement (whether involving currency, commodity or services) is potentially a taxable event and we are functioning in at least a gray if not black market if we ignore the tax consequences.  Paranoia is a healthy reaction to such a financial environment.

Doug

Doug's picture
Doug
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taxation of barter

I should have added that there are exemptions of certain barters from the requirement to file a 1099-B:

http://www.irs.gov/businesses/small/article/0,,id=188094,00.html

Quote:

Barter exchanges, whether Internet based or with a physical location, are required to file Form 1099-B for all transactions unless certain exceptions are met. Barter exchanges are not required to file Form 1099-B for:

  • Exchanges through a barter exchange having fewer than 100 transactions during the year
  • Exempt foreign persons as defined in Regulations section 1.6045-1(g)(1)
  • Exchanges involving property or services with a fair market value of less than $1.00
Not very comforting. Doug
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Scope and scale....

Doug wrote:

So, if you haven't reported your barter arrangements, you are running afoul of IRS rules.  It isn't very strictly enforced, but it can be at the whim of the IRS.  Remember, there is no more powerful agency of gov't than the IRS.  Going forward, we should assume every financial agreement (whether involving currency, commodity or services) is potentially a taxable event and we are functioning in at least a gray if not black market if we ignore the tax consequences.  Paranoia is a healthy reaction to such a financial environment.

Doug

I don't hink it will be so easily enforced.  If things degrade to the extent that many of us think it may, and barter exchanges increase more and more, I have serious doubts as to the ability of the IRS to enforce anything that will be occurring on such a large scale.  Don't forget, not all of the IRS "Agents of Destruction" are storm troopers.  Many of them might actually turn out to be your neighbors.  I'm not so sure there is anything about being an IRS agent that will make one immune to the coming storm.

Doug's picture
Doug
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their jobs

Quote:
I'm not so sure there is anything about being an IRS agent that will make one immune to the coming storm.

Keeping their jobs in such a storm is a powerful incentive.

Doug

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Turnover

The turnover rate for field agents is very high.  For some reason, it's not a very nice place to work...:)  Some agents that quit go on to be anti-IRS crusaders.  The IRS operates illegally much of the time, and for some reason, there's no recourse.

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capesurvivor
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Default

Default will affect my gold ownership. I'm a saver and not a borrower. It seems to me that two consequences of default, among many, maybe, would be a surge in interest rates and in the price of gold. I think I would sell my gold into that rally and put the money in CDs, which undoubtedly would also go WTF up with interest rates. After TPTB figured some way to redo the system and  get back to the business of screwing us as usual and interest rates and gold went back down, I'd stay in my high interest CDs and  use some other cash to buy back cheaper gold.

A reasonable plan?

CS

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Interest on something worth nothing = ZERO!

capesurvivor wrote:

I think I would sell my gold into that rally and put the money in CDs, which undoubtedly would also go WTF up with interest rates.

What if the currency that your CDs are denominated in goes to zero?  It doesn't matter what your interest rate is.  At this time in history, I think I would not worry about gain and only about preservation of wealth.

capesurvivor's picture
capesurvivor
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zero

If U.S. currency actually went to zero, wealth preservation would be the least of my concerns probably.

SG

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Wrist Rocket

capesurvivor wrote:

If U.S. currency actually went to zero, wealth preservation would be the least of my concerns probably.

SG

Steve -

You could use 1 ounce gold bars in a slingshot?????

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capesurvivor
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hmmm

Not against tanks!

CS

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raptor wrote:sofistek: Gld

raptor wrote:
sofistek: Gld holding is not for trading and day to day transaction. But a way so you can go trough the crisis on the other side with preserved purchasing power.

So you see the crisis as some temporary blip where the other side of it will have markets functioning like today? There seem to be two lines promoted here, for holding PMs. One is to preseve wealth until one is in a position to use that waelth for preparations. The other is to hoard it for some uncertain future but where one is certain that it can be used to trade in lieu of physical goods or services. Now you seem to be adding a third, whereby there is some other side of this crisis where everything will calm down and, whilst many parts of society may be changed, you will still be able to sell PMs for some means of exchange and have expectations that the PMs will continue to hold their value during your lifetime (or perhaps your family's lifetimes).

The least gamble seems to be the first position but then it would be a short term position and I don't think Chris often espouses PMs for the short term, though he has encouraged sale of some portion of holdings if required to complete preparations. However, most advice is for a long term hold and that is where I simply don't see the reasoning. In a world that will probably see collapse or some stages of collapse in the lifetimes of everyone here, I don't see the benefit of holding a largely useless material simply in the hope that it will enable its holders to think they are wealthy as society collapses around them.

Tony

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Doug

OK, Doug. Fair enough. In the US, it's illegal (bizarrely). Maybe it's illegal anywhere, then, though I don't recall reading or hearing that before. I don't know if it's illegal here in New Zealand. However, we're talking of the future here, during and after collapse. I can't see how taxing or avoiding bartering can be enforced in a world where most people only have goods and services to exchange for other goods and services. I don't see gold and silver as a means of exchange being common. That's my point. There will be haves and havenots but what difference does it make to survival and quality of life?

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Abandon your gold, all ye foolish people?

sofistek wrote:

In a world that will probably see collapse or some stages of collapse in the lifetimes of everyone here, I don't see the benefit of holding a largely useless material simply in the hope that it will enable its holders to think they are wealthy as society collapses around them.

Let's look at the situation from a little different perspective.  I can't recall members of various collapsed civilizations or declining empires or countries being conquered or countries experiencing currency destruction or persecuted populations including Egyptians, Chinese, Indians, Assyrians, Babylonians, Persians, Israelites, Romans, Greeks, Mayans, Aztecs, Incas, Ottomans, Mongols, Dutch, French, English, Russians, Vietnamese, etc., etc. ever abandoning their gold because it was a useless substance.  But suddenly, this time it's different and gold will become completely useless and valueless in every way, shape, and form?

I think not.

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ao wrote:Let's look at the

ao wrote:
Let's look at the situation from a little different perspective.  I can't recall members of various collapsed civilizations or declining empires or countries being conquered or countries experiencing currency destruction or persecuted populations including Egyptians, Chinese, Indians, Assyrians, Babylonians, Persians, Israelites, Romans, Greeks, Mayans, Aztecs, Incas, Ottomans, Mongols, Dutch, French, English, Russians, Vietnamese, etc., etc. ever abandoning their gold because it was a useless substance.  But suddenly, this time it's different and gold will become completely useless and valueless in every way, shape, and form?

So you believe that the use of gold as a means of exchange was widespread among the members of those collapsed civilisations? I think that's the prevalent view here but I've read equally strong views that it was not widespread, that it's a myth. No one said that gold was ever completely abandoned - we wouldn't be considering it now as a means of exchange if it had been. But I think it is wishful thinking to suppose that during or after collapse, the few with gold will be any, or much, better off than the majority without. Those with skills and those in resilient close-knit communities will do far, far better than those who simply have a lot of gold stashed away.

It's possible that gold and silver will be able to be used in limited ways during and after collapse but it may take the rise of the next unsustainable civilisation before the gold hoarders (or their great descendants) will be able to start being able to use gold and silver freely for whatever their bodies need or whatever their hearts desire.

Unfortunately, articles like this from Chris, will probably get a lot of people thinking they could make a killing (what with notions of an ounce of gold being potentially worth $65,000 or more). I think it has no longer become a means of maintaining wealth in order to better prepare but rather a business as usual investment, with the hopes of riches to come. I'd like to see Chris's take on some of the counter points raised here but, sadly, he doesn't usually involve himself in these types of discussions.

Tony

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flexible or inflexible?

sofistek wrote:

ao wrote:
Let's look at the situation from a little different perspective.  I can't recall members of various collapsed civilizations or declining empires or countries being conquered or countries experiencing currency destruction or persecuted populations including Egyptians, Chinese, Indians, Assyrians, Babylonians, Persians, Israelites, Romans, Greeks, Mayans, Aztecs, Incas, Ottomans, Mongols, Dutch, French, English, Russians, Vietnamese, etc., etc. ever abandoning their gold because it was a useless substance.  But suddenly, this time it's different and gold will become completely useless and valueless in every way, shape, and form?
So you believe that the use of gold as a means of exchange was widespread among the members of those collapsed civilisations? I think that's the prevalent view here but I've read equally strong views that it was not widespread, that it's a myth. No one said that gold was ever completely abandoned - we wouldn't be considering it now as a means of exchange if it had been. But I think it is wishful thinking to suppose that during or after collapse, the few with gold will be any, or much, better off than the majority without. Those with skills and those in resilient close-knit communities will do far, far better than those who simply have a lot of gold stashed away.

It's possible that gold and silver will be able to be used in limited ways during and after collapse but it may take the rise of the next unsustainable civilisation before the gold hoarders (or their great descendants) will be able to start being able to use gold and silver freely for whatever their bodies need or whatever their hearts desire.

Unfortunately, articles like this from Chris, will probably get a lot of people thinking they could make a killing (what with notions of an ounce of gold being potentially worth $65,000 or more). I think it has no longer become a means of maintaining wealth in order to better prepare but rather a business as usual investment, with the hopes of riches to come. I'd like to see Chris's take on some of the counter points raised here but, sadly, he doesn't usually involve himself in these types of discussions.

Tony

If you can cite me some historical instances of citizens with gold being worse off than those without, I'd be interested in hearing about them.  I don't know why but you seem to perseverate in this notion that having gold precludes having skills.  Also, I haven't seen anyone say they think their gold is going to be worth $65K/oz.  In addition, you seem fixated on gold as a medium of exchange or as an investment.  I think most folks here would use silver as a medium of exchange or an investment or some other goods or services for exchange.  I think more than anything else, most think of gold as a store of wealth.  Here's why:   

Attributes of gold 
  • Rarity  
  • Stable supply
  • Chemically inert
  • Durability
  • Divisibilitiy
  • Easily stored
  • Portability
  • Universal recognition
  • Liquidity
  • Not only a commodity but also a currency
  • Not someone else's liability
  • Can be wholly owned
  • Consider that one of the most important assets in a collapse is flexibility of thought and action.  How flexible are you?  How married are you to

not having gold?  Personally, I'd consider it financial suicide not to hold some wealth in PMs in our present economic climate but that's just me.  

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If you have spare cash you might as well buy gold

That people might be worse off with gold was an opinion, I have no historical evidence, so feel free to dismiss it, as you obviously have. It was an opinion expressed earlier only insofar as those seen trying to only buy their survival instead of chipping in might be ostracised in their community. It's just an opinion so don't rail at it too hard.

I don't think buying gold precludes gaining skills and have never said so. All I've said is that gold shouldn't be thought of as an alternative to preparations, in any way, unless one is physically incapable of preparing.

If you have spare cash that you can't use in preparations, then buying gold is as good as anything else. Or if your preparations may take a few years, then gold may be a good way of preserving your wealth during that time.

Financial suicide not to hold PMs? Nah. Only if you plan to prepare over a period of time does it make sense to me to hold gold. It can't easily be exchanged for goods and services now and so you would have to sell it in order to extract its value for your preparations. Most people actually don't have PMs (in any significant amount) so by your reckoning almost everyone is comitting financial suicide. You could hold cash instead - yes, it's value is eroding but, so far, inflation is not so onerous that its value will be gone before you can make good use of it, and most countries have some form of insurance against banks holding your savings going bust, though spreading it around is probably wise. Cash is always immediately available and accepted by everyone as a means of exchange, now. Maybe you're right but I'm dismayed that Chris's blog seems to be becoming a gold selling forum; his last three blog entries are all about gold and PMs. You'd think things weren't going to change that drastically - just buy gold and you'll be all set.

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how's that cash doing compared to PMs?

sofistek wrote:

That people might be worse off with gold was an opinion, I have no historical evidence, so feel free to dismiss it, as you obviously have.

Indeed, there is ZERO historical evidence.

sofistek wrote:

I don't think buying gold precludes gaining skills and have never said so. All I've said is that gold shouldn't be thought of as an alternative to preparations, in any way, unless one is physically incapable of preparing.

But your statements implied this.  And, as far as I know, I don't think there's a single post on this forum that ever said or implied that gold was an alternative to preparations.

sofistek wrote:

If you have spare cash that you can't use in preparations, then buying gold is as good as anything else. Or if your preparations may take a few years, then gold may be a good way of preserving your wealth during that time.

There are very few where preparations will take less than a few years.

sofistek wrote:

Financial suicide not to hold PMs?

So how exactly do you plan to hold onto wealth in a hyperinflationary environment?

sofistek wrote:

Most people actually don't have PMs (in any significant amount) so by your reckoning almost everyone is comitting financial suicide.

When everone is doing something investment wise, that's exactly the time I don't want to be doing what they're doing.  Compare the returns for individuals who started holding PMs in 2001 versus those holding stocks, bonds, or cash.  If the returns on the latter 3 asset classes compared to the returns on PMs aren't a form of financial suicide, I don't know what is.

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On PMs as currency- "I

On PMs as currency- "I think that's the prevalent view here but I've read equally strong views that it was not widespread, that it's a myth."

I'd like to see some sources on that.  I'm a bit of a history buff, and the use of gold and silver as currency in multiple, long-lived civilizations is well-documented.  In fact, many of the coins minted still exist in museums and private collections.  Additionally, even when it was not used as currency, it was always highly valued.  I can find no instances where civilized peoples considered gold to be of low value.

As a store of wealth, PMs enable those with wealth to remain wealthy after a catastrophic collapse.  The concept that the wealthy will fair no better than the average man under such conditions is also without historic precedent.  Even in countries experiencing violent revolution AGAINST the rich (for example Cuba), money gives an escape route not available to those without it.

So far, all the arguments I've seen against gold involve a view of the future without precedent and in contradiction to human nature.  The "Mad Max" scenario is simply fiction, humans never remain in a state of anarchy for any extended period, they group up and begin forming rules to live by, and mediums of trade.  We inherently seek order and social structure.

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tictac1 on PM currency and anarchy

tictac1 wrote:

On PMs as currency- "I think that's the prevalent view here but I've read equally strong views that it was not widespread, that it's a myth."

I'd like to see some sources on that.  I'm a bit of a history buff, and the use of gold and silver as currency in multiple, long-lived civilizations is well-documented.  In fact, many of the coins minted still exist in museums and private collections.  Additionally, even when it was not used as currency, it was always highly valued.  I can find no instances where civilized peoples considered gold to be of low value.

As a store of wealth, PMs enable those with wealth to remain wealthy after a catastrophic collapse.  The concept that the wealthy will fair no better than the average man under such conditions is also without historic precedent.  Even in countries experiencing violent revolution AGAINST the rich (for example Cuba), money gives an escape route not available to those without it.

So far, all the arguments I've seen against gold involve a view of the future without precedent and in contradiction to human nature.  The "Mad Max" scenario is simply fiction, humans never remain in a state of anarchy for any extended period, they group up and begin forming rules to live by, and mediums of trade.  We inherently seek order and social structure.

This reinforces what I've concluded, also. A question for you, however, regarding the "Mad Max" scenario. While I agree that humans are unlikely to remain in a state of anarchy, isn't it possible or maybe even likely that we would pass through that stage en route to a more stable society? And wouldn't it be prudent to prepare for that scenario however unlikely it may be?

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Before I prepared for it,

Before I prepared for it, I'd like to see historical precendent for it, so that I'd have at least a vague idea of what it might look like.  I'm open to suggestions on periods of history that might resemble this.

However, you can't REALLY prepare for the mad max world.  After all, it's essentially a "might makes right" scenario, which means to "prepare" is to be able to resist another's use of force.  Gun nuts like to fantisize about scenarios where they single-handedly fend off maruading groups, like a western frontiersman fighting the "indians".  The reality, however, is that people group up so quickly it's unlikely you will NOT be part of a group of people, unless you purposesly choose not to, which is suicide.

We already have groups of people that are essentially prepared to fill any power vacuum left.  MS-13, LA Crips, etc.  In CA, these are the folks you will either align with, resist, or be victimized by.  Witness Mexico.  Of course, I have no doubt various militias would pop up to combat these, ala the colonies of America immmediately after the revolution.

Another possibility of collapse is that former LE agents will become mafia, like the USSR after their collapse.  Unemployed government workers with few skills could easily turn to crime, as seen in the former Soviet Union.  Some might argue they already are a criminal enterprise.

In any of these scenarios, having wealth can both make you a target, and provide a means of escape/survival.

A well-off homestead or farm, located remotely, is a very attractive target for groups of murderers/thieves.  Look at South Africa.

The best defense is to proactively create close-knit communities, like Mr. Martenson says.  Look at the Amish and Mennonite communities, if they did not have to pay exorbitant taxes on their land, they would not need the "english" at all.  They will ride out any financial upheaval far less scathed than the rest of us, by virtue of community and practical skills.

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ao wrote:Indeed, there is

ao wrote:
Indeed, there is ZERO historical evidence.

Well, I doubt you know that for certain so my opinion is as valid as yours.

ao wrote:
But your statements implied this [that gold is an alternative to preparations].  And, as far as I know, I don't think there's a single post on this forum that ever said or implied that gold was an alternative to preparations.

Well, that's your opinion. When the articles don't explicitly give the conditions under which gold might be a reasonable investment to make, it is not unreasonable to suppose that it's an alternative to preparations or, at least, a reason to delay preparations. If the articles stated that before making a long term investment in PMs make sure that you have sufficient liquidity to complete your preparations, then that would be fine. Alternatively, if they stated that those who cannot make their preparations for some time would be wise to place some of their wealth in PMs, to extract when they can make their preparations, then that would be fine too. I just don't see that but apologies to Chris if he does make this point often.

ao wrote:
There are very few where preparations will take less than a few years.

Just to be clear, I meant that the investment for preparations may take a few years. The physical labour and land preparations may take many years, but the investment in tools and skills may largely take place over a shorter time period - and perhaps should; there is no knowing when the facilities to make those investments in preparations will not be available, or easily available.

ao wrote:
So how exactly do you plan to hold onto wealth in a hyperinflationary environment?

Well, it's not clear that there will be such an environment and Chris has been in two minds about this, though currently appears to favour an inflationary environment (though I'm not sure about hyperinflationary). Of course, if we see inflation creep near or into double figures, that might be a signal to do something different, or complete preparations ASAP. Almost no-one else will be holding significant quantities of PMs so, at least, you won't be any worse off that most people, if you can't make those PM purchases.

ao wrote:
When everone is doing something investment wise, that's exactly the time I don't want to be doing what they're doing.

But that really misses my point. If you're looking to make a financial killing then I'd agree. The fact that you then compare returns between PMs and stocks/bonds/cash shows that you're viewing it as a "normal" investment vehicle, rather than a means to maintain wealth. In that case, you're right and good luck to you. But that's not akin to suicide. Though people are generally becoming worse off, suicide is not the right word to use. Maybe stupid? But if I can meet my preparation requirements with what I have, then I'm not going to wait around for many years, in an attempt to get a good return from PMs so that I can complete my preparations. Who knows how this will pan out and what the time scale will be. I get mixed messages from Chris; a couple of his posts this year have urged the need to complete preparations but then we get a series of entries on the investment potential of gold.

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tictac1 wrote:I'd like to

tictac1 wrote:
I'd like to see some sources on that.  I'm a bit of a history buff, and the use of gold and silver as currency in multiple, long-lived civilizations is well-documented.

As a common means of exchange? I don't have sources off-hand but some of these ideas (that gold will immediately take over from fiat money after collapse) come from The Automatic Earth blog. This isn't to say that gold will lose its value. Among those who can use it as a means of exchange, it will remain valuable but it makes sense to me that, given most people won't have any or much PMs, PMs won't be a widespread means of exchange for a long time. So if you have some, you might well need to hold onto it for quite a long time before being able to realise its agreed value.

tictac1 wrote:
As a store of wealth, PMs enable those with wealth to remain wealthy after a catastrophic collapse.

Well yes, at least nominally, though, as I say, they may need to hold onto their PMs for a while before being able to use that wealth. However, I've really gone off the notion of wealth inequality, so I can't say that that would be a convincing reason for me.

tictac1 wrote:
So far, all the arguments I've seen against gold involve a view of the future without precedent and in contradiction to human nature.

And I think the view of the future held by the pro-PM movement is a very rosy view and, IMHO, unlikely to be borne out, at least for quite some time. However, there may be patchy regions, as collapse progresses, where the gamble pays off. I remain unconvinced, but I'd say that one should buy one's gold and silver in as small amounts as possible (small coins, maybe, or 1 gram ingots), since I don't think many traders will want to, or be in a position to, give change, if they do accept gold/silver (and are confident it actually is gold or silver).

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there is none so blind as he who will not see

sofistek wrote:

ao wrote:
Indeed, there is ZERO historical evidence.
Well, I doubt you know that for certain so my opinion is as valid as yours.

ao wrote:
But your statements implied this [that gold is an alternative to preparations].  And, as far as I know, I don't think there's a single post on this forum that ever said or implied that gold was an alternative to preparations.
Well, that's your opinion. When the articles don't explicitly give the conditions under which gold might be a reasonable investment to make, it is not unreasonable to suppose that it's an alternative to preparations or, at least, a reason to delay preparations. If the articles stated that before making a long term investment in PMs make sure that you have sufficient liquidity to complete your preparations, then that would be fine. Alternatively, if they stated that those who cannot make their preparations for some time would be wise to place some of their wealth in PMs, to extract when they can make their preparations, then that would be fine too. I just don't see that but apologies to Chris if he does make this point often.

ao wrote:
There are very few where preparations will take less than a few years.
Just to be clear, I meant that the investment for preparations may take a few years. The physical labour and land preparations may take many years, but the investment in tools and skills may largely take place over a shorter time period - and perhaps should; there is no knowing when the facilities to make those investments in preparations will not be available, or easily available.

ao wrote:
So how exactly do you plan to hold onto wealth in a hyperinflationary environment?
Well, it's not clear that there will be such an environment and Chris has been in two minds about this, though currently appears to favour an inflationary environment (though I'm not sure about hyperinflationary). Of course, if we see inflation creep near or into double figures, that might be a signal to do something different, or complete preparations ASAP. Almost no-one else will be holding significant quantities of PMs so, at least, you won't be any worse off that most people, if you can't make those PM purchases.

ao wrote:
When everone is doing something investment wise, that's exactly the time I don't want to be doing what they're doing.
But that really misses my point. If you're looking to make a financial killing then I'd agree. The fact that you then compare returns between PMs and stocks/bonds/cash shows that you're viewing it as a "normal" investment vehicle, rather than a means to maintain wealth. In that case, you're right and good luck to you. But that's not akin to suicide. Though people are generally becoming worse off, suicide is not the right word to use. Maybe stupid? But if I can meet my preparation requirements with what I have, then I'm not going to wait around for many years, in an attempt to get a good return from PMs so that I can complete my preparations. Who knows how this will pan out and what the time scale will be. I get mixed messages from Chris; a couple of his posts this year have urged the need to complete preparations but then we get a series of entries on the investment potential of gold.

ROTFLMAO.  A vision enters my head of you standing on the sloping deck of the Titanic, resolutely lecturing the passengers about the rashness of abandoning ship as the sea water begins to lap at your feet.  Thank you for the entertaining exchange.

BTW, gold's just gone up about 7% in 2 weeks and silver over 15%.  How's that cash doing?

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The Difference

ao wrote:
BTW, gold's just gone up about 7% in 2 weeks and silver over 15%.  How's that cash doing?

Well, this is a pretty clear illustration of the difference between your view and mine. I'm not interested in making a fast buck. I'm not interested in getting as wealthy as I can (in financial terms) as quickly as possible. My cash, actually, is doing better than inflation, just. And that's fine with me.

Look, I've never said I'm against gold but that I find the arguments for holding it either unconvincing or morally unsound. But your ethics may vary. However, I'm still considering gold and could probably afford 10-15 ounces, quite easily, but the only reason I see for doing so would be for a short term hedge against the banks that hold most of my money going bust. In the short term, I don't think that's likely, at least for the banks I'm using. I think it is just as likely that gold will plummet in price in the short term (I think Chris said this in his article). I see no benefit in holding it for the long haul, partly because it will likely have to be a very long haul, since it's unlikely to be a widespread means of exchange for a very long time, and partly because I see no benefit in being wealthy in a land of financial paupers, unless I am physically and mentally incapable of acquiring skills and tools that will be far more useful to my, and my family's, survival than a few ounces of some inert metal.

Most of Chris's messages here are spot on but he seems to have a fixation for gold, perhaps driven by the vision of untold riches (though I know he ditched the wealthy lifestyle many years ago). I think that vision is what has driven many gold followers here, demonstrated by the quote from you above.

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slapstick comedy

sofistek wrote:

ao wrote:
BTW, gold's just gone up about 7% in 2 weeks and silver over 15%.  How's that cash doing?

Well, this is a pretty clear illustration of the difference between your view and mine. I'm not interested in making a fast buck. I'm not interested in getting as wealthy as I can (in financial terms) as quickly as possible. My cash, actually, is doing better than inflation, just. And that's fine with me.

Look, I've never said I'm against gold but that I find the arguments for holding it either unconvincing or morally unsound. But your ethics may vary. However, I'm still considering gold and could probably afford 10-15 ounces, quite easily, but the only reason I see for doing so would be for a short term hedge against the banks that hold most of my money going bust. In the short term, I don't think that's likely, at least for the banks I'm using. I think it is just as likely that gold will plummet in price in the short term (I think Chris said this in his article). I see no benefit in holding it for the long haul, partly because it will likely have to be a very long haul, since it's unlikely to be a widespread means of exchange for a very long time, and partly because I see no benefit in being wealthy in a land of financial paupers, unless I am physically and mentally incapable of acquiring skills and tools that will be far more useful to my, and my family's, survival than a few ounces of some inert metal.

Most of Chris's messages here are spot on but he seems to have a fixation for gold, perhaps driven by the vision of untold riches (though I know he ditched the wealthy lifestyle many years ago). I think that vision is what has driven many gold followers here, demonstrated by the quote from you above.

Omigosh, this is just too funny!!!  So if suddenly, the return on gold fell relative to the return on cash, would you then dump your cash for gold because you'd be getting wealthy too fast?  Do you think there's an morality associated with poverty or with getting rich slowly and an immorality associated with getting rich more quickly?  Because if you do, you can assuage your guilt even more by giving your remaining cash away before it's inflated away to nothingness.  Come to think of it, applying your point of view, it's morally wrong to hold any cash.  It's hoarding.  I think you should distribute it all to those needy individuals in your community.  You're making a fast buck on it relative to those who've lost their money.

And sorry but I sincerely doubt that your cash is outpacing inflation unless you believe some of the imaginary inflation figures generated by governments.

Actually I think you're far more fixated on Chris discussing gold than Chris is fixated on gold (and I don't think he's fixated at all).  You've perseverated on that issue with every single post.   

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ao wrote:Omigosh, this is

ao wrote:
Omigosh, this is just too funny!!!  So if suddenly...

I don't see why there has to be this sort of back-and-forth about varying mileages.  On the one hand, let's say I recently became aware that I should be preparing for an uncertain future.  Should my priority be preserving my wealth, or investing in things that would make living self-sustaining?  Let's say, I choose to buy gold, and years later I'm living in an apartment and buying cartons of tomatoes with my gold eagles.  Is this sustainable?  Would it not have been better to invest in some land and grow the tomatoes myself?  Or let's say, I invested in land, now should I invest in aquaponics or gold?  Is that a no-brainer question?

On the other hand, if you have land and are, or on the way to being, self-sustaining, why not own gold to pay for taxes, etc.?  I can't argue with that.  And for those who can do both, you are not as many as you think ;-)

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the gas, it's spreading

r wrote:

ao wrote:
Omigosh, this is just too funny!!!  So if suddenly...

I don't see why there has to be this sort of back-and-forth about varying mileages.  On the one hand, let's say I recently became aware that I should be preparing for an uncertain future.  Should my priority be preserving my wealth, or investing in things that would make living self-sustaining?  Let's say, I choose to buy gold, and years later I'm living in an apartment and buying cartons of tomatoes with my gold eagles.  Is this sustainable?  Would it not have been better to invest in some land and grow the tomatoes myself?  Or let's say, I invested in land, now should I invest in aquaponics or gold?  Is that a no-brainer question?

??? 

I think I'd to buy some land with a 100% down ARM, plant some gold, throw the tomatoes out, and use my cash as mulch. 

r, go back, read the exchange carefully, and note the subtext.  I realize some things are lost on the intraweb.;-) 

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r
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re: ???

ao wrote:

??? 

I think I'd to buy some land with a 100% down ARM, plant some gold, throw the tomatoes out, and use my cash as mulch. 

r, go back, read the exchange carefully, and note the subtext.  I realize some things are lost on the intraweb.;-)

I think I made a valid point about the priorities of those with more limited means.  You don't have to make light of it, and I really don't care about the lines between the lines.

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sofistek
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ao wrote:Omigosh, this is

ao wrote:
Omigosh, this is just too funny!!!  So if suddenly, the return on gold fell relative to the return on cash, would you then dump your cash for gold because you'd be getting wealthy too fast?

Thanks for another example. Chris has usually emphasised the "retaining wealth" aspect of PMs, not the "getting wealthy" aspect. It seems that you are too into wealth to ever see another point of view.

ao wrote:
And sorry but I sincerely doubt that your cash is outpacing inflation

You can doubt it all you like, it doesn't bother me. Most of my cash is on term deposit, getting between 4% and 5% interest. Inflation, here in New Zealand, is about 4.5%. Up until the last month, I was getting 5%-5.5%. That's fine with me. I don't mind if it falls a little below inflation, that's life. I've got more important things to worry about, unless inflation starts ratcheting up to double figures. Also, interest rates are expected to rise before too long, as the official economy is apparently doing quite well over here. Yes, the figures are probably wrong (though not as wrong as the US figures) but I'm doing OK.

ao wrote:
Actually I think you're far more fixated on Chris discussing gold than Chris is fixated on gold

Hmm. The last 4 entries on his blog, removing the advert for the German version of the Crash Course, are heavily into PMs. I think that demonstrates where his current thoughts are centered. I'm not fixated on discussing gold but it does concern me that this site, which started so well with the crash course and preparations, seems so heavily weighted towards buying gold and silver. Yes, mention it occasionally, even have an in depth report on it once or twice a year, but to have four blog entries in a row (apart from the advert) on it seems a bit over the top.

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Quite right, r. This is

Quite right, r.

This is pretty much what I've been saying. Preparations first. Any spare after that, by all means buy gold and silver. Also, gambling on gold and silver in the short term as a means of possibly retaining wealth as you prepare (selling as needed to prepare), is fine too. Personally, I'm not convinced of the short term gamble and long term has no end, plus your gold is of no worth until you spend it, if you can spend it.

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r wrote: ao

r wrote:

ao wrote:

??? 

I think I'd to buy some land with a 100% down ARM, plant some gold, throw the tomatoes out, and use my cash as mulch. 

r, go back, read the exchange carefully, and note the subtext.  I realize some things are lost on the intraweb.;-)

I think I made a valid point about the priorities of those with more limited means.  You don't have to make light of it, and I really don't care about the lines between the lines.

Actually, as far as I can see, there was no mention of those with more limited means.  That wasn't the discussion here.

Also, right now, land is significantly more expensive than gold or silver.

http://cherokeetribune.com/view/full_story/14721613/article-Investors-see-big-potential-down-on-the-farm?instance=special%20_coverage_right_column

It's pretty hard to buy arable land in sizes smaller than an acre and good arable land is going for significantly more than an ounce of gold per acre.  So I'm not sure how valid your argument is.

Sorry you don't seem to have a sense of humor but I tend to make light of almost everything.  My father was joking as he was dying.  I have those same genes.  If it offends you, sorry ... you can always choose not to read my posts. 

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sofistek wrote: ao

sofistek wrote:

ao wrote:
Omigosh, this is just too funny!!!  So if suddenly, the return on gold fell relative to the return on cash, would you then dump your cash for gold because you'd be getting wealthy too fast?

Thanks for another example. Chris has usually emphasised the "retaining wealth" aspect of PMs, not the "getting wealthy" aspect. It seems that you are too into wealth to ever see another point of view.

ao wrote:
And sorry but I sincerely doubt that your cash is outpacing inflation
You can doubt it all you like, it doesn't bother me. Most of my cash is on term deposit, getting between 4% and 5% interest. Inflation, here in New Zealand, is about 4.5%. Up until the last month, I was getting 5%-5.5%. That's fine with me. I don't mind if it falls a little below inflation, that's life. I've got more important things to worry about, unless inflation starts ratcheting up to double figures. Also, interest rates are expected to rise before too long, as the official economy is apparently doing quite well over here. Yes, the figures are probably wrong (though not as wrong as the US figures) but I'm doing OK.

ao wrote:
Actually I think you're far more fixated on Chris discussing gold than Chris is fixated on gold
Hmm. The last 4 entries on his blog, removing the advert for the German version of the Crash Course, are heavily into PMs. I think that demonstrates where his current thoughts are centered. I'm not fixated on discussing gold but it does concern me that this site, which started so well with the crash course and preparations, seems so heavily weighted towards buying gold and silver. Yes, mention it occasionally, even have an in depth report on it once or twice a year, but to have four blog entries in a row (apart from the advert) on it seems a bit over the top.

Actually, Sofistek, you seem to be more into me being into wealth than I am.  So are you saying you're opposed to increasing your wealth?  If so, do you think it's immoral and if so, why?  Certainly if you're opposed to wealth, why not give yours away to charity.  Why are you saving your money and getting interest?  That sounds hypocritical to me.  But if you think I'm into wealth, that's fine.  I certainly am into increasing my wealth but it's not my sole pre-occupation, just one of many things that I do.  If I have the option of decreasing it, keeping it the same, or increasing it, I'd be a fool not to increase it.  If increasing it is anathema to you, however, why not invest it in something where you lose money?  That'll take care of that distasteful issue of increasing your wealth.

And since you stated your interest rate on your term deposits, I'm sure you realize that the TRUE rate of inflation in NZ is higher than your return.  Or maybe you don't?  Also, from what I've seen, the NZ economy figures are questionable in several ways.  The government statistics office in Christchurch was destroyed.  Also, I'm sure you've heard of something called "disaster economy" ... not something you want as a long term economic engine.

Also, if Chris's blogs about PMs are disturbing to you, I would elect not to read them.  Better not to read them than be distressed.  Attitude and stress control will become increasingly important in times to come.  Unlike you, however, I think most folks here find them valuable. 

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Hmmmmm.....

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sofistek
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No

ao wrote:
So are you saying you're opposed to increasing your wealth?

Well, I wasn't saying that but I wouldn't put it that way, anyway. However, it's irrelevant (though I'm not interested in increasing my wealth) since Chris has said in that past that PMs are a means of maintaining wealth, not increasing it. Which is why I fail to see why he's pushing it so much now, and touting the potentially fabulous financial gains to be made. In this respect, the site has become an investment advice site, thus watering down the notion that the next 20 years will not be a continuation of the last 20.

Yes, I know all inflation rate numbers and all GDP numbers are garbage but since I don't know what the real numbers are, the official numbers are all I have to go on. If I'm only losing a few percentage points a year, then I'm hardly going to cry about that, especially as the impact goes down each year as I spend my money on preparations.

Now, if deflation takes hold, you might not think me quite as crazy or as suicidal as you do.

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The official numbers are

The official numbers are lower than actual inflation, so double them and you'll be close, at least here in CA.  Our CD rates are about 1.2%, with stated inflation at about 3%.  So CDs are a joke.

You seem to be operating under the assumption that gold/silver will either be near worthless, or difficult to use.  However, I believe you've already admitted this view has no precedent, so you are COMPLETELY spit-balling by conjuring up a totally baseless scenario, then making preparations as though it were not only LIKELY, but a forgone conclusion.  This is insane.  Unless you are spending every dime on "preparations", though I think your statements about CDs prove you are not.  That money you placed in CDs has lost value, whereas had you spent it on gold, in any given 1 year period for the last 10, you would have at least neutralized the inflation losses. 

If you are unconcerned about this, fine, but don't drag others down with you.  Some of us can't afford to waste money.  Plus, anyone who says they do not care about wasting money has no business commenting on a financial thread.

Here's a few quotes you may or may not enjoy-

"An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions."

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold."

"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard._

-Alan Greenspan

Again, if you have real information that might be adverse to owning gold, I'd be all ears, but so far there's nothing of substance for that argument.

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I certainly think it will be

I certainly think it will be difficult to use, since most people won't have it nor have equipment to test it. It may eventually have a more prominent place but that will take time.

So far, I haven't seen any evidence that it will be available for wide use by those who hold it. It simple seems to be a belief but based on presumably some kind of coherent society holding together. Certainly, I wouldn't want to hold large blocks of gold or silver and I can't imaging somehow spending even an ounce coin, in 10 years.

But, as I've said, if people have extra cash available, by all means buy gold and silver - it's no worse than anything else. Short term holding may even be of use.

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sofistek wrote:I certainly

sofistek wrote:

So far, I haven't seen any evidence that it will be available for wide use by those who hold it. It simple seems to be a belief but based on presumably some kind of coherent society holding together.

Nope, no evidence.  Just thousands of years of history spanning thriving civilizations, collapsing civilizations, war, revolution, societal upheaval, plague, famine, etc. of gold and silver being used as money. 

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ao wrote

ao wrote:
Nope, no evidence.  Just thousands of years of history spanning thriving civilizations, collapsing civilizations, war, revolution, societal upheaval, plague, famine, etc. of gold and silver being used as money.

Let's not be hasty; I think sofistek does have at least a tenable argument.  We have to remember that we are now dealing with a population that holds very little gold.  At this unique moment in history, the majority of citizens have never held a gold coin in their hands.

Several months ago I had a very interesting conversation with user R.US, who experienced the economic collapse in Russia following the dissolution of the Soviet Union.  In the USSR the ownership of gold was (surpising to me) not prohibited, and gold and silver coins could be bought easily in the shops. 

In the months leading up to the collapse, the prices of gold and silver increased rapidly as the currency began to collapse.  However, in the years after the collapse when paper money was worthless, gold was never used as a direct medium of exchange, even though it was plentiful.  Instead vodka and packs of cigarettes were the universal currency.

According to Scott, people sold their gold coins at a coin shop in exchange for "money" (vodka and cigarettes):

Quote:
Sell gold for money, and immediately spent the money on food and clothing. The remaining money is preserved through the purchase of highly liquid commodities (vodka and cigarettes).

How could this be?  The reason was that after the collapse, enormous quantities of phony gold quickly appeared, and coins that contained a somewhat lesser purity of gold than they should have.  The Russian people were not experienced in handling gold or silver coin, and did not feel comfortable taking gold coins from a stranger for fear of being cheated.  So gold continued to be bought and sold only through the coin shops and bullion dealers.

But everybody was comfortable with vodka and cigarettes, so they sold their gold coins for money, and immediately purchased vodka and cigarettes.  A side-effect was that the price of gold temporarily crashed as everybody tried to unload their gold.  As scott put it:

Quote:
Everybody needed money for simple food but salaries were not paid regularly. Gold and jewelry were the first thing to go. Gold was very plentiful on the shelves. Nobody wants to buy it, and everybody is trying to sell it. They sold gold at a fraction (1/4-1/2) of the price in terms of food. But those who had gold were glad to sell at any price for what small food it could buy . . . Two years later,the system stabilized. Emerging commerce requires sound money. That's where the gold and silver could show its brilliance.

Two years later, after the system stabilized, anybody still holding gold made a handsome profit.  But those who had to sell their gold for goods during the two years of crisis suffered a heavy loss.

Given additional time, as people grew familiar with it, maybe gold could have penetrated into the Russian marketplace and become a medium of exchange instead of vodka and cigarettes.  But as it happened the U.S. Dollar came to fill that role instead.

I am not saying that over decades and centuries gold isn't a superior store of value.  My point is this:  the majority of US citizens -- like the people of Russia -- are unfamliar with gold and may not accept it until they become comfortable spotting fakes.  There is at least a chance that -- as in Russia -- the familiarization process with gold may take years, during which time anybody attempting to sell would face steep losses. 

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Liquid wealth

So.....a well-diversified portfolio consisting of gold, vodka, and cigarettes. Any suggestions on how to explain this to the wife?

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sofistek
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Thanks, jrf29, for a recent

Thanks, jrf29, for a recent example of why gold may be unlikely to be usable widely as a means of exchange. Unfortunately, it seems to be perceived wisdom that those holding gold would be insulated against a collapse in fiat money, but I don't recall seeing actual examples of how this will happen or how long it will take for it to happen.

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jrf29 wrote: ao wrote: Nope,

jrf29 wrote:

ao wrote:
Nope, no evidence.  Just thousands of years of history spanning thriving civilizations, collapsing civilizations, war, revolution, societal upheaval, plague, famine, etc. of gold and silver being used as money.

Let's not be hasty; I think sofistek does have at least a tenable argument.  We have to remember that we are now dealing with a population that holds very little gold.  At this unique moment in history, the majority of citizens have never held a gold coin in their hands.

Several months ago I had a very interesting conversation with user R.US, who experienced the economic collapse in Russia following the dissolution of the Soviet Union.  In the USSR the ownership of gold was (surpising to me) not prohibited, and gold and silver coins could be bought easily in the shops. 

In the months leading up to the collapse, the prices of gold and silver increased rapidly as the currency began to collapse.  However, in the years after the collapse when paper money was worthless, gold was never used as a direct medium of exchange, even though it was plentiful.  Instead vodka and packs of cigarettes were the universal currency.

According to Scott, people sold their gold coins at a coin shop in exchange for "money" (vodka and cigarettes):

Quote:
Sell gold for money, and immediately spent the money on food and clothing. The remaining money is preserved through the purchase of highly liquid commodities (vodka and cigarettes).

How could this be?  The reason was that after the collapse, enormous quantities of phony gold quickly appeared, and coins that contained a somewhat lesser purity of gold than they should have.  The Russian people were not experienced in handling gold or silver coin, and did not feel comfortable taking gold coins from a stranger for fear of being cheated.  So gold continued to be bought and sold only through the coin shops and bullion dealers.

But everybody was comfortable with vodka and cigarettes, so they sold their gold coins for money, and immediately purchased vodka and cigarettes.  A side-effect was that the price of gold temporarily crashed as everybody tried to unload their gold.  As scott put it:

Quote:
Everybody needed money for simple food but salaries were not paid regularly. Gold and jewelry were the first thing to go. Gold was very plentiful on the shelves. Nobody wants to buy it, and everybody is trying to sell it. They sold gold at a fraction (1/4-1/2) of the price in terms of food. But those who had gold were glad to sell at any price for what small food it could buy . . . Two years later,the system stabilized. Emerging commerce requires sound money. That's where the gold and silver could show its brilliance.

Two years later, after the system stabilized, anybody still holding gold made a handsome profit.  But those who had to sell their gold for goods during the two years of crisis suffered a heavy loss.

Given additional time, as people grew familiar with it, maybe gold could have penetrated into the Russian marketplace and become a medium of exchange instead of vodka and cigarettes.  But as it happened the U.S. Dollar came to fill that role instead.

I am not saying that over decades and centuries gold isn't a superior store of value.  My point is this:  the majority of US citizens -- like the people of Russia -- are unfamliar with gold and may not accept it until they become comfortable spotting fakes.  There is at least a chance that -- as in Russia -- the familiarization process with gold may take years, during which time anybody attempting to sell would face steep losses. 

This discussion gets so tiresome.  First of all, anyone who would keep ALL of their transactional wealth in PMs is an idiot.  That's self evident.  Secondly, as has been said here, again and again ad nauseum on multiple threads, silver would be used for day-to-day exchanges and increasing wealth, gold would be used for storing and preserving wealth.  Russia is very different from the U.S.  Try using vodka and cigarettes as a medium of exchange in California when the time comes and see how far it gets you.  Also, the use of vodka and cigarettes is dependent upon the social circles one frequented and especially, the type of business one transacted.  There's a big difference between an internet discussion with some relatively anonymous user and knowing someone who lived in, travelled around in, and did business in Russia during that time.  This person did use gold to bribe favors for business transactions.  He said It was largely small time, proletariat transactions that used booze and cigarettes. My guess is that one's reliance (throughout history and throughout various societies) upon PMs would be somewhat dependent upon one's net worth.  Someone with a lower net worth would not have the luxury on sitting on their PMs while someone with a higher net worth would.  You don't hear of too many people in the ghetto loading up on gold and silver.  You do hear of hedge fund managers doing so for their personal assets. 

Doug's picture
Doug
Status: Diamond Member (Online)
Joined: Oct 1 2008
Posts: 2736
gold and silver

As noted above, day to day transactions in a USD collapse situation would probably be done in silver, particularly junk silver as everyone is familiar with the coins and would be less fearful of fakes.  Also, the smaller denominations would be unlikely to be counterfeited, just as you never hear of problems with counterfeit $1 or $5 bills.  I think the use of vodka and cigarettes in Russia may be more a reflection of Russians' apparent penchant for self-destruction than an indication of enduring value.  That doesn't mean alcohol and tobacco won't have value.  After all, addictive drugs always have a market.

As was also noted, the Russian experience was a relatively brief transition period.  I don't think we're talking on this site of short term events with eventual return to some form of normalcy.  We are talking about permanent paradigm shift.  The USD was good in Russia because it was a stable world reserve currency, the ultimate store of value at that point in history.  That is clearly no longer true.  In the absence of a stable fall-back reserve currency, we look about for another store of value.  The default position, it seems to me, is a form of money with a long term history. 

What oh what might that be? Innocent

Doug

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Dogs_In_A_Pile
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Posts: 2485
Lemme guess...?

Doug wrote:

As noted above, day to day transactions in a USD collapse situation would probably be done in silver, particularly junk silver as everyone is familiar with the coins and would be less fearful of fakes.  Also, the smaller denominations would be unlikely to be counterfeited, just as you never hear of problems with counterfeit $1 or $5 bills.  I think the use of vodka and cigarettes in Russia may be more a reflection of Russians' apparent penchant for self-destruction than an indication of enduring value.  That doesn't mean alcohol and tobacco won't have value.  After all, addictive drugs always have a market.

As was also noted, the Russian experience was a relatively brief transition period.  I don't think we're talking on this site of short term events with eventual return to some form of normalcy.  We are talking about permanent paradigm shift.  The USD was good in Russia because it was a stable world reserve currency, the ultimate store of value at that point in history.  That is clearly no longer true.  In the absence of a stable fall-back reserve currency, we look about for another store of value.  The default position, it seems to me, is a form of money with a long term history. 

What oh what might that be? Innocent

Doug

Is it hot peppers?  Laughing

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