Gold, Silver, and the Status Quo

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Gold and silver will survive as a store of value and wealth. Paper money, the economic status quo, unfunded liabilities, pension plans, exponentially increasing debt, massive budget deficits, “to-big-to-fail” banks, and so much more are at risk of gradual or catastrophic failure.

Gold and Silver

Precious metals have been recognized as wealth and a store of value for over 3,000 years. They may no longer be used as currency but they retain their value. Example: I can’t go to Wal-Mart and buy food with silver coins but, practically speaking, I can sell or trade a gold or silver coin minted by Australia, Canada, or the United States in almost any country in the world at any time. Over the centuries, on average, they have retained their value, whether measured in gallons of gasoline, hours of labor, or food. Can you say the same for dollars, pounds, or any paper money?

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The Status Quo

Let’s call the Status Quo the existing state of affairs including the system of politics, government, currencies, banks, military contractors, financial systems and so forth. We all know “something is wrong” with the system, but the system is what it is and we live within it. The system richly rewards the political and financial elite, the upper middle class and a few privileged groups, usually at the expense of the remaining “debt serfs” via higher taxes, massive debts, wars, assets transfers, currency debasement and various controls over the economy.

Throughout history, this process has been repeated many times. From Simon Black regarding Italian history:

“And as one Emperor after another bankrupted the treasury through foreign wars, palatial opulence, and unaffordable social welfare programs, Rome gradually changed for the worse.

Desperate to keep the party going, later Emperors debased the currency to the point of hyperinflation. They imposed wage and price controls under penalty of death. They raised taxes so punitively that people simply quit working altogether.

With each successive emperor, Romans would foolishly believe that the ‘new guy will be different’ and that things would improve. Of course, apart from the occasional sage, Rome’s political leadership became more destructive.”

This is a familiar story. Empires throughout history have always gone through this life cycle of rise, peak, decline and collapse. Rome. Egypt. The Hapsburg Empire. The Ottoman Empire.

And the salient points are always the same – out of control government spending, a rapidly debased currency, costly foreign military campaigns, burdensome regulations, etc.”

“Meanwhile, the ‘richest’ countries in the world (US, Europe, Japan, etc.) are so deeply in debt that they have to borrow money just to pay interest on the money they’ve already borrowed.”

This isn’t rocket science. Predicting the end of this system is not attention–seeking sensationalism; it’s just common sense.”

It is easy to see that many western governments are following essentially the same path as Rome’s road to self-destruction. Rome’s status quo was increasingly expensive to support and eventually failed. Is the status quo in Europe or the United States likely to experience a different fate?

Consider Charles Hugh Smith’s commentary: That Which is Incapable of Reforming Itself Disappears

“Here is my scale-invariant summary of the Status Quo:

  1. An economy that is controlled by the government is one in which political power, not the market, controls the distribution of national income. Politics is the arena in which the national income is distributed. The primary contestants are entrenched, vested interests seeking to protect their perquisites and power.
  2. A government in which political power is for sale to the highest bidder puts the wealthy at an extreme advantage, as they have the means to buy political power to conserve and expand their share of the national income.
  3. In order to do the bidding of the financial Elite, the political Elite redistributes enough national income to the bottom 50% and retirees to buy their silence/complicity.
  4. A nation in which political power is for sale is one in which the rule of law is bent to serve those with power.”

Further…

“The political and financial Status Quo is incapable of true reform, because real reform threatens the perquisites and power of entrenched vested interests, what I call fiefdoms.”

And…

“That leaves breakdown as the only possible endpoint.

Though the Status Quo still has enough resources to put off the eventual breakdown and collapse for a while longer, I expect an initial crisis to emerge in 2014-2015 that is resolved by the usual politically expedient half-measures.

The sigh of relief that “everything’s been fixed” may last two to three years to 2017-18, and then the ultimate crisis will gather force until it is beyond half-measures, likely in the 2021-22 timeline.”

Or, as Karl Denninger says.

“There is a mathematically-certain collapse in our funding and economic model in the offing and we are now at the point where the actions we have left available to us can only change the outcome from catastrophic to “big suck,” but cannot avoid the inevitable and ugly adjustment that must be taken.”

Click on image to enlarge.

When debt grows far more rapidly than GDP, the consequences will eventually be catastrophic. Yes, we have ignored the reality of excessive spending, unpayable debts, unsustainable monetary policies, and Ponzi-finance for several decades, but that does not mean we can delay the consequences forever.

Yes, the consequences of failed policies, expensive wars, massive debts, and bond monetization must eventually be faced and the price will be paid. Yes, the consequences might be delayed a few more years, or perhaps even a decade. But, considering the inevitable consequences from the actions of our financial and political status quo, NOW would be a good time to transfer paper assets into real wealth – gold and silver – and store them outside the banking system.

Remember: The world has been living with unbacked paper currencies since Nixon’s default in August of 1971. Since then we have clear evidence that:

  • Governments do not maintain the value of their unbacked paper currencies.
  • Purchasing power declines.
  • Debts and unfunded liabilities increase much more rapidly than the underlying economy which must support those debts.
  • Expensive wars and social programs accelerate the process.
  • Political promises to balance the budget, put the fiscal house in order, and live within our means are good theater, but little more.

Yes, NOW would be a good time to transfer paper assets into real wealth – gold and silver – and store them outside the banking system.

Read: Going Dark! Economic Cycles Point Downward
Read: Gold, Silver, and the Sins of The Past

GE Christenson
aka Deviant Investor

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8 thoughts on “Gold, Silver, and the Status Quo

  1. Well, yes, precious metals will be the personal solution to fiat currency blues. However, not yet; we will probably see a “final” low in PM prices at the start of next year. There will be some more time to get on board the PM express.

    I am a bit aprehensive of some federal “threshing” around as the beast dies. It may strike out with wealth taxation, caital controls and other such. Just try to figure where and how Senators will squirrel away their federal payments and consulting fees payments. Maybe such information will indicate what may be safe.


    • I share your concerns about damage to the populace as the beast dies. And you might be correct that PM have not yet hit their bottom. I am in the other camp but who knows? It is a manipulated market and so less predictable.

      Thanks for your comment.

      GE Christenson
      aka Deviant Investor


  2. The OTTOMAN EMPIRE collapses due to hyperinflation in the value of the Kurush/Piastre ??? Really !!! How Profound !!!
    The elimination of the Armenian population in Anatolia.Plus the transfer of Greek and Turkish populations.The Greek to the Athens region.This would indicate to me Religious causes.I do not see any economic pretexts there.Apart from robbing Christian assets,that is. Having said my piece I am neither Historian nor Economist.No degree either.


  3. Hi!, Patrons Et Al:

    Why is the COMEX in New York begining to complain that it will probably be negotiating settlements of 100 troy oz. gold contracts in cold, hard, fiat “CASH” instead of yellow bullion within the next 3 months or so? How did it allow itself to sell more gold for deliveries to traders than it had on hand? Those wanting bullion will be OK settling for cold, hard fiat cash instead or how will that conflict be decided? What will the international markets dealing in gold do to handle these conditions? Is silver in even a greater physical supply deficit condition? Those using both gold and ssilver in the productions of say silver and gold jewlery for example will be happy to settle in cold, hard, fiat cash or what else can they do? Who will provide US these answers to these inevitable questions in time?

    RUSS SMITH, CA. (One Of Our Broke Fiat Money States)
    resmith@wcisp.com


    • I don’t have answers for you. Sorry. I suggest you read what Jim Sinclair (www.jsmineset.com) has to say. In essence, he suggests (as I understand it) that rather than run out of gold, the Comex will, if necessary, settle in cash – a form of default. A number of banks around the world have already done so. Fractional reserve gold sales are doomed to failure – eventually. I suspect 2013 – 2015 will make that abundantly clear.

      As to silver, I don’t know, but it appears that the great silver and gold market crash of April – June 2013 did not discourage demand, but in fact encouraged it. I suspect silver shortages will become much more evident in the coming year. But we’ll have to wait and see.

      Thanks for your comments.

      GE Christenson
      aka Deviant Investor


  4. Me again …
    I have to admit M. Armstrong was right …I took your sample of 1932 .
    1932 = the DOW at 41 2013 DOW at 15,600 up 38,000 % in 81 yrs.
    1932 = gold at $ 35 2011 GOLD at $ 1900 up 5400 % in 79 yrs.

    Which confirms ( in my mind ) that the pm stocks deliver better ( % ) than the material ONCE THEY RUN …lol
    And here comes silver :
    1932 = Silver at $0.25 2011 Silver $ 49 up 19,500 % in 79 yrs. 50 % less then what the DOW did in 81 yrs.

    Can’t argue ….stock market did better than gold & silver !!!!!


    • Well maybe. I’m not so certain that we are making fair comparisons. In favor of the Dow, we should add back dividends paid. Against the idea that the Dow provided favorable returns, we must consider “survivorship bias.” In essence, the good folks running the Dow and S&P index substitute companies all the time. Drop company xxx and add company yyy. This is done to keep the index current but it does not make long term comparisons fair – as I understand it. For instance, how many companies from 1932 have gone bankrupt or out of business in the last 80 years? If their stocks were still included, the DOW and S&P indexes would be far lower than they currently are – since a number of the index components would be zero instead of some much larger number caused by substituting a viable company for a bankrupt company.

      So I’m not certain direct comparisons between stocks and gold/silver are valid considering the above. Regardless, I’ll still side in favor of real metal stored outside the banking system.

      GE Christenson
      aka Deviant Investor


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