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I can’t complain. My
wife and I have plenty to eat and we own our home outright. With no
debt and enough money to carry us for the next few years, we’ll make it
through this economic downturn as long as we continue to live modestly.
But when it comes to developing a strategy on how to protect my hard-earned
savings from theft, folly, taxes or inflation, great care must be
taken.
I’ve read a lot of monetary history and understand that
protecting your savings is actually a very difficult task. While
studying economics at Harvard, I had the terrific opportunity to study and
learn from some of the best and brightest scholars and professors there, some
of whom come January will be thinking up and acting out economic policy for
at least the next four years in the White House. My education and
experience has given me great insight into how these economic czars think and
what their sense of morality, or lack thereof, really is. There’s no
doubt they’ll be forced to act aggressively to get our country out of
this slump, and their actions will have a deep long lasting impact on every
aspect of the economy as well as your savings, if you’re not careful.
Economic czars Lawrence Summers and Ben Bernanke fundamentally believe
that the economy is like a great Keynesian engine with pumps and
levers. In order to make the engine work, all you need to do is twist a
valve here, pull a big lever there and goose the gas, or step on the
break. If you were to compare the dot.com crash in 2000 to the
situation today, stepping on the gas was just what the former Fed Chairman
Alan Greenspan did by lowering the Fed Funds rate to one percent, and forging
full speed ahead! Boy, did his economic policies take us for a thrill
ride that crashed, resulting in massive bubbles that have blown up in
housing, credit, and financial leverage, driving the US and global economy
straight into a mini-depression.
So what are these Keynesian boy wonders going to do next? This
week, the first big lever has been pulled and the Fed funds interest rate has
been cut to zero. (With the US and Japan at virtually zero interest
rates, most major countries will follow). In addition, the
newly-elected administration will be stepping on the gas and we could see
Treasury deficits of 10 percent of GDP; for most governments around the
world, deficits could easily exceed seven percent of GDP.
Even old line Republican bankers are beginning to realize that the
unemployed will not be able to pay their auto loan, credit card or mortgage,
and selling the political side of deficits and inflation has suddenly become
easy. In today's economy, the only employer hiring will be the federal
government through public works. The policies that are signed off on in
the coming months will very likely create the greatest inflation anyone
living today will ever remember. Let’s not forget: Government-sponsored
inflation taxes, destroys and robs any wealth held in financial assets such
as cash, stocks or bonds. This destruction of wealth will absolutely
dwarf the Bernie Madoff hedge fund calamity, and the stock market decline of
the last few months.
What other tricks with your money will these economists dream in the
coming months? As Treasury Secretary under President Bill Clinton,
Professor Summers believed in Gibson's Paradox. Gibson’s Paradox
was a trick used by the government to manipulate the price of gold down, thus
creating the illusion that if the price of gold is weak, the dollar must be
strong! He loved Gibson's Paradox. He actively helped
major governments including the United Kingdom sell gold, and even today the
US is still trying to hold the price of gold down by manipulating the gold
futures markets. Because of his actions over 10 years ago, it’s
been hard to resist not accumulating gold and silver, and I suspect
he’d love to pull off this trick again now, or try something even
bigger, if that doesn’t work!
You must agree that the financial markets today are nothing short of
fascinating! Under Greenspan, the Federal Reserve experimented by
cutting interest rates and creating economic bubbles. Today, the Fed is
cutting interest rates and printing up money to fight the deflation that
comes with the busted bubbles. I do find it short-sighted that most
people in the financial markets just look at the current debt
deflation. However, there are growing numbers of farsighted investors
who can plainly see that the federal government is starting to launch the
greatest worldwide inflation ever seen to fight today’s debt
deflation. As more investors around the world sense massive inflation
coming, the wise ones will become gold and silver buyers. Surprisingly,
investors in precious metals are finding it harder every day to find the real
thing in physical form, and as gold and silver future prices continue to
decline, real gold investors – in for the long term that sense Gibson’s
Paradox is breaking down – will want to buy all the gold that comes to
market!
With Professor Summers back at the wheel in the fast lane shifting
gears, he may soon be in total disbelief when he realizes the attempts to
push down the price of gold – to make the dollar look strong –
are not working! Although he is extremely bright, he’s famous for
turning red and going ballistic when forces outside of his control don't go
his way. Why should you care? One reason is that the Treasury
sets US economic policy for the value of the dollar, and he’ll be the
magician behind the scenes. Guys like him have a need to control and
there is nothing more important in the world than the value of the US
dollar. With gold running in short supply, to support a Gibson’s
Paradox policy he’ll be searching for ways to beg, borrow, or steal
gold to support the dollar but it won’t be easy while the Fed is
printing up trillions of dollars to fight deflation, and holding interest
rates at zero.
Beware! If you currently own gold through an ETF it may not be
safe. With one little stroke of the President's pen, it can be
confiscated by the US Treasury for so-called national security
purposes. The government officials will claim they are out to protect
US citizens from speculators whom they blame for the dollar collapsing, but
in reality their policies that will force Americans, who actually want to
save, to flee the dollar. So, could the US Government grab your
gold in an ETF?
The act of governments stealing gold and robbing currency holders is
nothing new, even in America. President Roosevelt grabbed the
gold and devalued it in the 1930 Depression, and Nixon jumped off the gold
standard in the 1970s. In order to save the nation the government will need
to save the dollar, and the right way to do this would be to run prudent
fiscal policy with low budget deficits, and have the Federal Reserve raise
interest rates to encourage savings. But the easy short-term fix is to
steal some gold now owned by a few who were only trying to protect their
savings.
My nature is not to be an alarmist and I honestly don’t know for
sure when and if the US will grab the ETF gold. However, over the next
two years the federal deficit, funded by selling new Treasury securities, is
certain to be over 10 percent of GDP. Holders of the dollar will want
out and all that gold sitting in vaults makes it too easy for our federal
government to come in and rob you of it in order to save the dollar and pay
for socialism. I understand the morality here: Inflation is good
so robbing savers (for the sake of government) is viewed as good!
Therefore, robbing savers of their gold is even better!
So, buying gold, silver, and precious metals is truly one of the few
ways you can immunize yourself from the coming inflationary confiscation of
wealth. Owning physical gold and silver and keeping it safely in
your possession is a good idea! If you can’t get gold, buy
silver, platinum, palladium, etc., all in physical form. While you
still can, think about moving into physical form any gold in ETFs you have;
you won’t be sorry you did!
Richard Benson
SfGroup.org
Richard Benson is the
founder of The Specialty Finance Group ("SFG") was founded in 1989
as a financial broker to private finance companies, introducing them to major
financial institutions that would provide them with equity, subordinated debt,
and senior credit facilities using the Capital Market.
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