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jaima | 02-02-2008 06:20 PM
good article on what to do with PMs when TSHTF What Will You Do With Your Gold? By: Gary North..Goldseek This assumes you have bought some gold. A lot of my readers have read my recommendation � "Buy some gold" � for six years. They still haven't bought any. They apparently think it's good enough to have read a few reports on the importance of buying gold. "Now I don't actually have to buy any." It's like an overweight person reading a diet book while munching on Fritos and bean dip. There is an astounding amount of misinformation on gold available on the Web. This shows the tremendous impact of the Web. Back in 1995, this misinformation was far more limited in its scope. Here is the main piece of information: "Gold! Gold! I'll be rich � rich, I tell you! Hahahahaha." No, you won't. Here's why. IN THE MANIA, YOU WON'T SELL I have been through a gold mania: 1979. People who had heard about gold from 1976 ($105/oz) all the way up into the range of $700 finally decided to get in. They had seen silver make similar gains. Newcomers wanted to buy. Old-timers didn't want to sell. Prices soared. Then, in one month � January 1980 � gold's price peaked for one day at $850 and then plummeted by over $200 over the next few days. For the next 21 years, gold was a bad investment, and silver was even worse: from $50 to $4.50, plus a loss of 50% in purchasing power to boot. There was no worse investment in that era than silver. Yet all the way down, there were coin businesses that sold people silver coins. Some salesmen used exactly the same arguments that they use today to persuade people to buy. For 21 years, the arguments were incorrect. The better dealers just quoted prices and made deliveries. They did not hype the product. They are still in business. Newcomers to the precious metals market don't know this story. They should. So, trust me when I tell you that you will not sell your precious metals during the mania. In a mania, buyers think, "It will cost more tomorrow. I must buy today." Most would-be sellers think the same thing. They refuse to sell. Only a few see what's coming and sell at the top. This is true of everything that becomes the focus of a mania, not just precious metals. Think "dot-com stocks, March 12, 2000." Think "S&P 500, March 24, 2000." So, why hold precious metals? THE CRACK-UP BOOM This golden phrase was coined by Ludwig von Mises. In Chapter 17 of his book on economics, Human Action, he described the breakdown of a monetary system. The breakdown begins with fiat money inflation by a government or its licensed central bank. This creates an economic boom, as he described in Chapter 20. Over time, people recognize that price inflation will continue. They begin to hedge themselves against the effects of price inflation. They stop lending money to be paid back in a depreciating currency. They buy hard goods, such as gold and silver. The crack-up boom is not part of the normal ups and downs of commodity prices. The following is normal. He who believes that the prices of the goods in which he takes an interest will rise, buys more of them than he would have bought in the absence of this belief; accordingly he restricts his cash holding. He who believes that prices will drop, restricts his purchases and thus enlarges his cash holding. As long as such speculative anticipations are limited to some commodities, they do not bring about a general tendency toward changes in cash holding. The trouble begins when people decide that they had better get rid of cash. To do this, they must find sellers of goods who do not see what is happening or who think the rise in prices is temporary. When they expect that the money prices of all goods will rise or fall, they expand or restrict their purchases. These attitudes strengthen and accelerate the expected tendencies considerably. This goes on until the point is reached beyond which no further changes in the purchasing power of money are expected. Only then does this inclination to buy or to sell stop and do people begin again to increase or to decrease their cash holdings. The trouble is, not many people perceive this change at the top of the mania. Most people can't get out at the top. Remember the investor's command: "Sell!" Remember the broker's response: "To whom?" As the mania grows, public opinion changes. But if once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse). Let me tell you a great story. I have told it many times over the years. Back in the 1970's, I knew a retired banker named Norbert Einstein. He was very urbane, the model of a European gentlemen. He was the cousin of a more famous Einstein. He told me about the experience of their Aunt Rosa. Aunt Rosa was a slow learner, unlike her nephews. She did not catch on to what the German central bank was doing until 1923, the final year of the mass inflation. She finally figured out that she needed to buy hard assets. But she had waited too long. There were none to buy. Well, almost none. She did find a seller of a niche product: bedpans. She took all of her money and bought a stack of them. Shortly thereafter, the German government had a currency reform, the central bank ceased inflating, and this ended the great inflation. The demand for hard goods slowed dramatically. There was Aunt Rosa, figuratively sitting on top of a pile of bedpans. In every crack-up boom, there will be many Aunt Rosas. Your goal should therefore be to avoid winding up with the equivalent of bedpans as your retirement portfolio. Mises continued to describe the crack-up boom. The characteristic mark of this phenomenon is that the increase in the quantity of money causes a fall in the demand for money. The tendency toward a fall in purchasing power as generated by the increased supply of money is intensified by the general propensity to restrict cash holdings which it brings about. Eventually a point is reached where the prices at which people would be prepared to part with real goods discount to such an extent the expected progress in the fall of purchasing power that nobody has a sufficient amount of cash at hand to pay them. The monetary system breaks down; all transactions in the money concerned cease; a panic makes its purchasing power vanish altogether. People return either to barter or to the use of another kind of money. This is the end result of every expansion of money that is not halted earlier by the monetary authorities. But if they do call a halt, then there will be a recession or a depression. Mises described why in Chapter 20. The problem is, central bankers and politicians are unwilling to accept this result. So, they reinflate. The march toward the crack-up boom continues. This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy. This is our present situation. The public still prefers the boom effects of monetary inflation to the recessionary effects of monetary stabilization. But then finally the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against real goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them. We are nowhere near this yet. But this is the end result of a policy of monetary inflation. What Mises described is a breakdown in the exchange economy. Once again, I cite him. The monetary system breaks down; all transactions in the money concerned cease; a panic makes its purchasing power vanish altogether. People return either to barter or to the use of another kind of money. This is the equivalent of a depression. It is an inflationary depression. THE DIVISION OF LABOR In 1923, at the peak of the German inflation, the prices of goods in Berlin as denominated in pounds sterling were higher than the prices of the same goods in London. Why? Because production had collapsed. The division of labor had collapsed. To get goods imported from outside the country, entrepreneurs had to take greater risks. Uncertainty increased. Because the orderly markets had disappeared in the wave of price inflation, supplies of everything became much tighter than outside Germany. Buyers in other nations could outbid German buyers, even in those cases where German buyers had foreign currencies and gold. Gold and foreign currencies kept families alive. It did not make them rich. Then who won? The great winners were farmers. They easily paid off their pre-War debts. Even before 1923, a farmer could pay off all of his debts by the money generated by the sale of a single egg. What counted most in 1923 was your ability to keep your job. What made jobs desirable were products to sell that everyone wanted: basic foodstuffs, coal, and liquor. People in cities sold off their prized possessions and heirlooms in order to get food. The flow of grand pianos to German farmers never again reached such a rate. There was almost no way to get rich in cities. There was no asset, other than stored food and coal, that could have made someone rich. But rich as measured in what? The greatest urban wealth was food and coal. Holders refused to sell. The same story appears in the Bible. In II Kings 6, we read of a siege that was so horrendous that women ate their infant children, a practice which had been prophesied by Moses centuries before (Deut. 28:57). No one got rich in that siege. Almost no one gets rich in a crack-up boom. The few who do generally go bankrupt after the currency reform, when economic conditions return to normal. THEN WHAT GOOD IS GOLD? Gold serves as a valuable asset in the time leading up to the crack-up boom. Its price rises faster than the prices of most other assets. In the crack-up boom, gold serves as an insurance policy against a catastrophe. You can buy your way out of circumstances that bankrupt others. You preserve much of your lifestyle by selling off a widely sought-after asset: gold. But understand: this is not a way to get rich. It is a way not to become totally impoverished. After the currency reform, gold is more likely than any other crack-up boom asset to retain its purchasing power. This means that gold is a good investment in three phases: in the years before the crack-up boom, during the boom, and in the reconstruction phase after the boom. Other assets require trading in and out. They require almost perfect timing. Gold doesn't. You buy it before the boom is expected (e.g., 2001), hold it through the boom phase and the crack-up phase, and then re-enter the capital markets as the owner of an asset that has universal desirability as an investment. You don't get rich as a holder of gold during a time of serious inflation. Yet get rich as an investor with capital to invest after the crack-up boom has ended. CONCLUSION People do not see gold in this way. They see it as a way to get rich in a time of inflation. They do not understand this principle of economics: The division of labor through invested capital is what makes people rich, slowly. The crack-up boom destroys the division of labor. Most people get poor in the crack-up boom, except those who (1) operate successfully in a low division of labor environment (think "Amish") and (2) debtors who live outside urban areas, who pay of their debts with depreciated money. The Amish don't pay much attention to their wealth, except maybe to buy better horses. Debtors who learn how to play the pyramiding game in the boom phase generally go bankrupt after the monetary stabilization takes place. So, don't expect to get rich in an age of inflation by owning gold. That's because you would have to sell it to get rich. Your timing had better be perfect. Don't wind up like the entrepreneur described in II Kings 7:16�20. His timing was deadly. February 2, 2008

rad | 02-02-2008 07:07 PM
Re: good article on what to do with PMs when TSHTF thx good article

lhslancers | 02-02-2008 07:19 PM
Re: good article on what to do with PMs when TSHTF North conveniently forgets that Mom and Pop were lined up to sell their silver during the runup.

Twisted Avatar | 02-02-2008 07:22 PM
Re: good article on what to do with PMs when TSHTF Great read!!!! T

blueice | 02-03-2008 12:50 AM
Re: good article on what to do with PMs when TSHTF Quote:
Originally Posted by lhslancers (Post 949832) North conveniently forgets that Mom and Pop were lined up to sell their silver during the runup.
Fine point, Master Lancers...Oh they also sold what gold they had..

damoc | 02-03-2008 01:19 PM
Re: good article on what to do with PMs when TSHTF excelent article Im surprised it hasnt recieved more of a response from all the financial gurus here.to me it seems like great wisdom or at least it agrees with what I already thought. I was hoping to hear some thought on what GOV would do during these times price controlls and if so does this make an ideal enviroment for a black market? It sounds almost like hyperinflation would be a good thing if you are in the business of food or fuel production? do you think GOV would sieze controll over food/fuel production and distribution more than they already have? perhaps a liscense to sell or buy food or fuel? perhaps higher taxation for producers? would the GOV come in and sieze any stocks of fuel and food i may have for redistribution at "fair" prices?

TechGuy | 02-03-2008 01:52 PM
Re: good article on what to do with PMs when TSHTF Quote:
Originally Posted by damoc (Post 950722) do you think GOV would sieze controll over food/fuel production and distribution more than they already have? perhaps a liscense to sell or buy food or fuel? perhaps higher taxation for producers? would the GOV come in and sieze any stocks of fuel and food i may have for redistribution at "fair" prices?
They have already publicly talked about 'hoarders' and that possibility (this is fema). Which tells me that as soon as it is apparent that TSHTF to hide ALL provisions, especially FUEL, FOOD, AMMO, GUNS and PM's. All will be on the confiscation list.

AMforPM | 02-05-2008 10:46 AM
Re: good article on what to do with PMs when TSHTF Why else do they want to microchip even pet chickens? They have some grandiose schemes, but their grand schemes are not working out well in Iraq with 1/20th or less the population. Shrub was open about wanting to treat New Orleans like Iraq, and may have drawn the wrong conclusions. Watching that changed a large percentage of Americans, IMO. Public sentiment and insufficient manpower may prevent it going as well as it did the last time. I am told that farm families were restricted in what they were permitted to eat that they raised themselves. Rationing for the war effort and all. But there was not the same kind of deep mistrust that there is now. Mountain people never trusted the flatlanders. But many families did listen to fireside chats without the scorn a modern audience would feel. It is overexposure to mass media acting like a vaccine. Then families hid part of their hogs, grain, etc so they could not be entirely robbed. Far from all the gold came in. There was conscription but also willing volunteers. A draft or stormtroopers door to door is very risky business to visit on a public so sick and tired of the endless barrage of lying advertising. There will be so many angry nearly suicidal well armed people that it could easily be impossible to go door to door. It is another kind of blowback. Young children mock advertising and the lies in it. There is going to have to be some caution and patience with negotiating some humanity all around or things will get nasty. The best outcomes will be if government centers more locally and nobody panics. If politicos figure they are going to be executed then cornered rats fight. A spirit of reconciliation, but taking away the red buttons, is going to be needed. If the vast majority of us see each other not as some tower of Babel 'other'... different sock puppet party, different skin, different language, different tiny opinion difference: You see that here all the time. He said X right but must be a troll or shill because he does not see EVERYTHING exactly as I do. If we go that way we will tear ourselves to bits. But if we see each other as humans who have made various good and bad calls and need to get busy saving our country, that is a winning position. It is why they market anger so much, risky though it is. They need us to kill each other, or we can reclaim our freedom. On the original post... lots of people sold near the top last time. I see no reason to think it will be otherwise this time. The exchange rate of PM for land will likely get very attractive at some point, though not for sure. A garden is really important for doing ok. Like Cuba cities will need to garden their green spaces.

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