money Archives - Page 5 of 5

The Case for Gold and Silver Bullion

submitted by jwithrow.

While gold and silver prices have declined in 2013, the fundamental case for owning gold and silver bullion is still growing.

The mainstream media has been quick to pronounce the death of the precious metals as an asset class with their evidence being the recent price depreciation of both gold and silver. Theirs is a very short term and self-serving view; the long term fundamentals have not changed.

The Federal Reserve did taper its money printing, but guess what? The creature from Jekyll Island is still creating $75 billion new dollars every single month to purchase U.S. Treasury bonds and mortgage backed securities. Meanwhile, Congress has quietly done away with the sequester spending ‘cuts’ and will continue to spend gargantuan amounts of money in 2014 – money they do not have.

What’s so humorous about this is the fact that the sequester did not cut any real spending in the first place – it simply curtailed proposed future spending increases. We suppose the thought of curtailed spending increases kept the Congress critters up too late at night.

And it’s not just the U.S.

Japan has promised to continue to keep their central bank money printer on turbo gear. Estimates suggest that the U.S. and Japan together will create nearly $2 trillion over the next 12 month period. Meanwhile, the Eurozone experiment is still on the verge of blowing up and not one single G-20 country operates with a balanced budget.

Simply put, the economies of the developed world have run up massive amounts of debt that cannot possibly be paid back in full. The massive debt has been serviced primarily by central bank funny money up to this point, but we are quite sure that the funny money policies cannot possibly last forever. And the longer the printing presses continue to run, the less valuable our paper currencies will be.

That’s why we adamantly believe that gold and silver bullion will be a vital part of a diversified portfolio in the coming years as the economic endgame of central bank funny money policy plays out.

Now, we don’t think it would be prudent to hold 100% of one’s assets in gold and silver. We look at the precious metals more as insurance against destructive monetary policies. Oh, and we should probably clarify that we mean physical gold and silver bullion in your possession, not an ETF.

So if you expect the value of your paper currency to increase then you may not be interested in holding gold or silver bullion. But if you expect the value of your paper currency to decrease then purchasing gold and silver bullion may be very wise. Given the long term fundamentals, we would suggest that the value of our paper currency is ultimately only going to go in one direction.

And that direction is back to paper currency’s inherent value…

The Lesson From Monopoly

submitted by jwithrow.

Chances are you have played the once popular board game Monopoly. In the event that you have never played the game then I would highly recommend it to you as there is a valuable lesson to be learned. And it is a classic!

The object of the game is to buy up as much real estate as possible so you can earn rental income when another player ‘lands’ on your real estate. Once you have acquired the real estate then you can invest in houses and hotels to increase your rental income.

Common thinking suggests that the game is called Monopoly because players attempt to achieve a real estate monopoly.

I do not think this is accurate, however. I would suggest that the title is derived from the fact that the ‘bank’ holds a monopoly on the money supply.

The object of the game is not to hoard the Monopoly money but rather to convert the money into productive assets. These productive assets then generate additional money in the form of rental income which can be used to subsequently purchase more productive assets when the opportunity arises.

Interestingly, the money generated from productive assets can also be used to pay taxes when the player is unfortunate enough to ‘land’ on those spots.

Players of the game understand that the Monopoly money holds no inherent value. The Monopoly money is only the accepted means of exchange with which productive assets can be purchased.

This is the lesson that we would be wise to learn and apply.

The Monopoly money is not terribly different from our fiat currency today. Our currency holds no inherent value and the central bank (Federal Reserve) holds a monopoly on the money supply. In fact, the Monopoly money may actually be better in context than our dollar because the Monopoly money maintains its value over the course of the game whereas our dollar is constantly losing value due to inflation.

So in this regard, the key to our own personal financial success is not terribly different from the object of Monopoly. The path to true wealth in life is the same as it is in the game – use the monopoly money to purchase income-generating assets. Obviously this is more complex in real life as there are a myriad of assets of varying quality to choose from and the process of acquiring these assets is much more complicated than ‘landing’ on their spot. But the concept remains the same.

Mainstream personal finance does a poor job of emphasizing this. Personal finance gurus almost exclusively suggest that we invest all of our surplus money in stocks and bonds employing a “buy, hold, and pray” strategy. This may be due to the fact that financial advisors make their living by selling the securities they tout. And while there may be a place in our investment portfolio for paper securities, they certainly do not take the place of real productive assets and one would be wise to understand the nature of the markets and the business cycle before jumping in.

Keep this concept well in mind as you build and execute your own personal financial plan. The goal is not to end up with the most money at the end of the day; it is to use money to acquire productive assets that will then provide income streams. It is essential to also employ an asset allocation model so that you are diversified across several different asset classes.

Always remember that money is just an illusion. Its only purpose is to serve as a medium of exchange and a temporary store of value. It is wise to keep a healthy amount of cash on hand at all times for both opportunities and emergencies, but any cash above your allocation would best serve you in other asset classes.

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Money is an Illusion

submitted by jwithrow.

Currently we use fiat currency as money… But it’s just an illusion.

If you doubt this then ask yourself the question: What is money?

Yes, you know what money does – it buys things. But what is it?

Is it a green piece of paper with numbers and words and some symbols printed on it? Is it a card with your name, a string of numbers, and a bank logo on it?

Or is that just a piece of paper and a piece of plastic?

Fiat money is not wealth. That runs contrary to everything our society has told us, but it is the truth.

Fiat money is simply a medium of exchange which can then be used to acquire wealth… But the money itself is nothing more than a tool.

Historically, we have used gold and silver, and notes backed by gold and silver as money.

Our fiat currencies today serve the same purpose as gold and silver money… But there is one major difference. Fiat currencies can be created arbitrarily from nothing. And the central banks of the world create their fiat currencies out of thin air in massive numbers.

That’s the biggest secret of the 1% – fiat money is an illusion that is available in abundance.

While fiat money can be created out of thin air, the value of existing money necessarily falls as new money enters the economy. That’s just basic supply and demand economics. All things equal, value goes down as supply goes up.

Basically, the new money steals value from the old money. The old money can buy less and less over time. It loses purchasing power.

And that means they poach value from your bank account every time they pump a little more money into the system.

As a result, our cost of living rises over time.

Because of that, the key to financial success is not to hoard money. It’s to use money to acquire assets… Assets that rise in value over time because of all the new money being created from nothing.

The truth is, money is little more than an idea. It is an illusion… And it is only valuable as long as it is perceived to be valuable.

So if you think of money as an idea and not as a tangible asset, you will see that it takes nothing but an idea to obtain more money. But that money must then be exchanged for assets in order for it to be converted into wealth.

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