What You Think Is True Might Be False and Costly!

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(March 2013)

What is more likely to hurt you is what you think you KNOW that is WRONG. What you don’t know is often not that important. Consider a few examples:

  • Cyprus Bank Accounts – Depositors believed their accounts were insured up to 100,000 Euros. According to the news, they are insured unless the EU, the IMF, Cypriot Bankers, the Parliament, or whoever chooses to “tax” (steal, appropriate, bail-in, confiscate) perhaps 10% of those accounts. Ouch! A 10% (maybe nothing, maybe 15% – still negotiating) theft of “insured” assets and pension funds is being discussed now. Could a 10% or 20% confiscation occur when the next crisis strikes? (This is not the first theft of deposits or pension assets – there have been other examples throughout history.) If you have money in Spanish or Italian banks, you might want to reconsider its safety.
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  • MFGlobal – Customer assets were supposedly insured, segregated, and protected by the exchange. Apparently not! Jon Corzine “has no idea” where the assets went. Most clients had believed their accounts were safe, and they were wrong.
  • Social Security – It will provide for us in our old age – the politicians told us so. The fund is paying out more than it takes in and is guaranteed by an insolvent government that is nearly $17,000,000,000,000 in debt. It might still provide recipients $1,000 or so per month, but how much will that amount purchase in consumer goods in five years? Inflation has already diminished the value of the social security benefit, and worse, consumer price inflation is likely to accelerate, further reducing the purchasing power of social security benefits.
  • Retirement Accounts – Most people assume their 401(k) accounts are secure. The employees of Enron with retirement funds invested in Enron stock received a nasty surprise, even though Wall Street analysts assured investors that Enron stock was a good investment – until near the end. What Enron employees thought they knew (retirement assets were secure) turned out to be false, and it hurt them.
  • Real Estate – It was widely believed that real estate prices always went up. The National Association of Realtors assured us it was true. We all know how that worked out.
  • Europe in 1913 – In 1913, it was widely believed that the governments of Europe would not go to war since there was no need or desire for war and because European economies were generally doing well. The situation rapidly changed, and a destructive war occurred in spite of the common knowledge that war was very unlikely.
  • The dollar is as good as gold. When the dollar was backed by gold, it was true. Now that gold is priced at about $1,600 per ounce and not $20 per ounce as it was 100 years ago, it is clear that this particular illusion has burst.

There are many other examples, but the essential truth is simple: For the most part, we are ignorant of many ideas and events in the world, and it rarely matters. But, what is often costly and destructive are the ideas and beliefs that we think are true – when in fact they are quite wrong.

Our savings and retirements are at risk when we invest them based on beliefs that may be incorrect. This is one of many reasons why people buy gold and silver – for insurance against unexpected events. What if our perception of financial reality is incorrect or if we are ignoring financial reality? Ayn Rand said it best, “You can ignore reality, but you cannot ignore the consequences of ignoring reality.”

What else do we think is true that might turn out to be wrong and costly? Time will tell, but the following are a few beliefs that might be wrong:

  • Gold is in a bubble and will drop back to $1,000 per ounce.
  • The DOW has made new highs, thanks to the liquidity injections from the Fed, and future “money printing” will keep it moving even higher.
  • The Fed will maintain low interest rates for many more years.
  • The US Dollar is the international reserve currency and will remain the favored currency for a very long time.
  • Retirement accounts, saving accounts, and brokerage accounts in the United States are safe from theft and confiscation.
  • The national debt is manageable, and the economy will grow enough to keep the debt at a reasonable percentage of GDP without creating an economic crisis that devastates our standard of living.
  • The Fed and the European Central Bank will successfully manage the economies of the United States and Europe and prevent a financial or economic collapse that causes disastrous consequences for the populace.

How are you protecting your retirement and savings in the event that one or all of the above turn out to be wrong and costly?

We need to protect our assets and to minimize the destructive consequences of uncontrollable debt and insolvent governments that change the rules to meet their need for additional cash.

Recommended Reading

Gold and silver have been money for over 3,000 years. Every paper money system throughout history has ultimately failed. Will this time be different?

GE Christenson
aka Deviant Investor

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