It is now estimated somewhere around $15 trillion (to date) lost in real estate wealth. This wealth is not coming back regardless what 24 hour nonstop news reports. Losses like those from the RE bubble burst are painful, even devastating to some, but nothing compared to a USD bubble burst. Gerald Celente recently referred to our dollar’s burst as a “monetary tsunami”, I certainly won’t argue with his years of economic accuracy. Very few are prepared for the monetary wave of devastation such a bubble burst will wreck.
Those holding silver and gold will experience anything but devastation as scads run in search of real money.
The US economy continues to find itself in checkmate fashion and my goal today is provide several examples as proof. Even conclusive proof can’t sway the masses away from dollars which leads many PM forecasters the feeling of preaching to the choir.
Here is a huge part of the problem. All currencies (US dollar by example) have the same printed number(s) regardless of declining value. This creates a monetary chameleon like appearance all while hiding devaluation. The need for more dollars to buy what fewer used to hides well in a time of multiple credit options.
Higher gas and food prices are now clear to all but the true epicenter of the problem eludes most. To be honest few give lasting thought to rising prices that is as long as credit fills the gap.
Evidence of a coming dollar bubble presents itself like the last five minutes of a Perry Mason episode. One glaring piece of evidence lie at the feet of silver and gold. Gold has consistently appreciated 19% year over year and over the last decade. But this rise comes at a big price even for those not buying PM.
Please reread the two sentences above if not 100% understood. Gold’s rises while our dollar’s buying power declines. This has nothing to do with questioning PM as a good investment. This is nothing more than a slow calculated erosion of your dollar’s buying power.
But this doesn’t strike a necessary cord to those holding soft wealth in dollars; it certainly should. What gold is trying to say is each victory for gold is a loss to the USD (all currencies in fact).
Maybe an aeronautics analogy can best explain silver and gold’s ascent while our dollars decline.
Critical mach is an aeronautics term describing the maximum mach number which an aircraft can attain while still remaining controllable by the pilot. Anything over critical mach leads to an unhappy ending.
Below is a graph showing the USD supply over the last few years. Our dollar’s path is now reaching a point similar to our critical mach analogy above. The problem, if the Fed reduces spending, printing dollars, then our economy sputters leading to economic adversity. This certainly complicates the ability to finance old debt with new debt.
The Fed act like all is in control but something recently proves opposite. The US is now buying 61% of our own debt just to sustain a bad economy. As you can imagine this also requires massive amounts of new money printing.
Here is what The Wall Street Journal had to say about buying our own debt.
The Federal Reserve is propping up the entire U.S. economy by buying 61 percent of the government debt issued by the Treasury Department, a trend that cannot last, Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, writes in a Wall Street Journal opinion article published Wednesday.
“Last year the Fed purchased a stunning 61 percent of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis,” Goodman writes.
Goodman also warns that U.S. economy and markets are “at risk for a sharp correction” if conditions aren’t “normalized.”
“This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.”
Fed intervention in the government debt market makes demand for Treasury bonds appear higher than it really is, as foreign creditors and other investors have fled U.S. government debt instruments and are looking elsewhere until the government makes serious attempts to curb spending and narrow its gaping deficits. More
Let’s go back to real estate for a moment. Do you recall the era just prior to the housing bubble a few short years ago? That’s right, the bubble burst when new buyers refused to support (buy) over inflated homes. New buyer’s reluctance to pay higher prices exposed and popped what today we refer to as the RE bubble of 2006 and beyond.
The WSJ article above makes my point perfectly when it mentions “foreign creditors and other investors have fled U.S. government debt…”.
So what does a dollar bubble have to do with your stash of silver and gold?
Let’s recap before we tie PM into the coming dollar bubble.
- The US is buying its own debt like never before.
- Less buyers willing to buy US debt than ever before.
- The US is dependent on currency printing like never before.
- Nearly all currencies are printing like never before.
- Less wealth stored in silver or gold than ever before.
My point is this. Investor confidence diminishes in the USD just when our economy needs it most. This “mach speed” race to devalue the dollar hides itself well since the numbers printed on each bill stay the same (even though they buy less).
This charade only lasts so long before folks lose trust in the USD and pilgrimage for a real store of value. Yep, you guessed it, silver and gold will greatly benefit from this decade’s dollar bubble. Think about a gold bullion coin for a moment. An American Eagle one ounce coin is a $50 legal tender coin but no one in their right mind view its value as fifty bucks. This coin has ability to absorb the value lost in USDs.
This is why your gold stash grows in value every time the USD declines.
COMMENTS & QUESTIONS:
I love reading TPS (The Prospector Site) and want you to answer a question please. My situation is uniquely different from questions I commonly see asked. I’m thinking about parking money in gold or silver but only for a short term. I say short term because my plan involves eventually investing the money is cashflow property and a start-up business (around 12 to 18 months). In your opinion, is silver best for short term compared to gold? Thank you.
PROSPECTOR REPLY: Thanks for the question, and reading TPS. Okay, let’s break this down just to make sure I understand the plan. You have cash now but your long-term plan is to reinvest the cash into a start-up and rental property. You’re asking if trading cash for PM is wise considering it’s only for a year or two (or if silver is better than gold). I’m not sure I would buy either to be honest. PMs are not ideal short-term options at least how I view them. I’m concerned 12 month appreciation might not offset the cost to sell back 12-18 month old silver or gold.
Have you considered parking the cash in a money market account? I realize they pay little or no interest but they are relatively safe for the short term. I’m all about owning silver and gold but don’t view it as a short-term investment by any means. Please give it some thought regardless. Oh, one other thing. I too love business and rental investing, but. Consider holding 1/3 in PM in case the new business doesn’t take hold exactly as planned.