What to do with paper money

[pguitarb]

Considering the real possibility that the dollar will become worthless sometime soon, what do people suggest doing with the money in one's bank account? Is it a good idea to trade it in for gold?

[fsk]

I think that the final collapse of the dollar is still 10-20 years away. There's no need to rush to buy gold.

There are a couple of problems with buying gold:

1. Where to store it? I don't trust a bank safety deposit box, especially since they're required to report its contents to the government. A warehouse service is also at risk for a default. I think that storing it in your house is the safest option, but then you're at risk for being robbed. I've also considered a warehouse service that doesn't specifically specialize in gold storage (i.e., a generic warehouse).

2. It's hard to make anonymous cash purchases of gold.

Remember: In a "TSHTF" scenario ("the s*** hits the fan"), it isn't enough to have physical gold. You also need trustworthy trading partners.

Don't forget about silver. Right now, silver is cheap relative to gold. One ounce of gold is too expensive for small purchases, but one ounce of silver is suitable for small transactions.

[pguitarb]

Ok so basically if your just a college student then.....enjoy the ride?

[fsk]

Don't keep your money in a bank account. It'll just lose its purchasing power to inflation.

For now, stocks are the best inflation hedge. If you pick stable priced stocks, like Coca-Cola, you won't be risking too much of your principal, plus you get inflation protection. If you really need the money, you can always sell.

If you're too chicken to pick individual stocks, go with an index fund. If you're willing to "long term buy and hold" and "dollar cost average", individual stocks will outperform index funds. There's so much money invested in index funds that people are able to take advantage of the indexes.

I'd keep 3-6 months of living expenses in a bank account and go with stocks for the rest. As you get older, and the final collapse of the dollar gets closer, you might switch 5-10% into gold or silver.

Don't forget IRAs and a 401(k) plan. The ability to defer taxes is a huge benefit.

[LibertyEagle]

Anyone remember what happened to the peso? A whole lot of nothing, is still worth nothing.

5-10% in PMs sounds very low to me.

[fsk]

5-10% in PMs sounds very low to me.


Until the final collapse of the current economic system gets close, stocks will outperform gold and silver. Large corporations are the beneficiaries of a massive government subsidy, via the Federal Reserve in the form of low interest rates.

Gold and silver just sits there. Stock investments let you get a slice of the massive government subsidies that are distributed to large corporations.

I also am advising 5-10% by cost basis. As the dollar does collapse, then the value of your gold and silver holdings will rise relative to the others.

At present, there are a lot of obstacles to gold and silver ownership by individuals. In a "TSHTF" scenario, physical gold and silver by themselves are insufficient. You also need trustworthy trading partners.

[jonahtrainer]

Considering the real possibility that the dollar will become worthless sometime soon, what do people suggest doing with the money in one's bank account? Is it a good idea to trade it in for gold?

I hold physical gold and silver along with GoldMoney.com. I also recommend having a good food supply (2-3 years) on hand.

The last two (1 (http://goldmoney.com/en/commentary.php#current) and 2 (http://goldmoney.com/en/commentary/2007-08-12.html)) commentaries on GoldMoney.com are excellent.

[mdh]

Trade it in for Ameros when those are introduced, duh. ;)

In honesty, you missed a great time to jump on metals the other day - gold and silver both crashed hard.

[AnotherAmerican]

Where can one buy pure gold, silver, etc. for cash, and walk away with the metal in hand? An ounce of gold here, a pound of silver there, that kind of thing?

[CurtisLow]

especially since they're required to report its contents to the government.

How do they know what the contents are?

Where's a good place to buy silver bars? Maybe $100 bars and they send them to you.

Thanks,

[ShaneC]

Where can one buy pure gold, silver, etc. for cash, and walk away with the metal in hand? An ounce of gold here, a pound of silver there, that kind of thing?

for me, so far, ebay, but I hold less than 1/2 a pound of silver. :( Its far from the best way to do it. There's a few online sites that sell very close to market price and you can buy like 1000oz bars as well.

If you can find a dealer locally, that's probably your best bet. I hear mention of "old coin shops" and the like, but I've yet to source out a regular supplier aside from the NET.

[fsk]

In honesty, you missed a great time to jump on metals the other day - gold and silver both crashed hard.


A slight correction: The supply of dollars crashed hard. The price of gold and silver crashed along with the price of everything else as the money supply shrank.



Where can one buy pure gold, silver, etc. for cash, and walk away with the metal in hand? An ounce of gold here, a pound of silver there, that kind of thing?


In many states, gold and silver are subject to sales tax. It's very hard to hold a shop that trades gold and silver for paper money; the laws strongly discourage that sort of thing.

[Mesogen]

Are gold and silver REALLY good hedges against inflation?


Looking at these charts, it doesn't look like it.

http://www.kitco.com/LFgif/au75-pres.gif
Gold is about the same price that it was in about 1980. Yet the dollar is worth way less now than it was in 1980. So it seems to me that $650 1980 dollars would buy you an ounce of gold or 650 paper dollars and today it will buy you an ounce of gold or 650 paper dollars. Doesn't sound like a hedge against inflation or a good investment to me. You could put 650 "paper" dollars into 10 year CD at 5%apr in 1980 and in 1990 you'd have $1059. Put it back into another 10 year CD at 5%apr and in 2000 you'd have $1725. Put it back in for 5 years and you'd have $2202.
(I used this CD calculator = http://www.bankrate.com/brm/calc/cdc/CertDeposit.asp warning java.)

So, you could deposit $650 paper money into a bank in 1980 and come out with $2202 in 2005. Or you could buy an ounce of gold in 1980 for $650 and sell it in 2005 for $650.

Silver doesn't look any better.
http://www.kitco.com/LFgif/ag85-pres.gif
There's a little spike there at the end, but over 20 years, it looks about the same.
It was the same price in 2006 that it was in 1985. And these charts are not adjusted for inflation.

Now the real investment looks like rhodium.
But only if you put your money into it in 2002-2003 and sold it off today. You'd quadruple your money.
http://www.kitco.com/LFgif/rd92-pres.gif

But in a crisis, not many people are going to be familiar with rhodium, so how much would really be worth?

If the shyte really does hit the fan, like a nuclear holocaust or something, will gold be worth anything? If food were scarce, food would be worth more than gold and no one will want to trade you their food for a bar of metal.

If you came at someone with a bar of rhodium, would they want it? Would they think it were valuable? Hell a 1 lb bar would be about the size of a pack of gum and be worth about $100,000, but would anyone want it? oo shiny metal.

[John of Des Moines]

How do they know what the contents are?

After a crash they'll require your friendly banker to record (photograph) the items you remove from a safety deposit box.




Where's a good place to buy silver bars? Maybe $100 bars and they send them to you.

Silver bars? Why silver bars. So, it's now time for you to use your hoarde of silver bars but two problems arise. First, how do you convince the person you are trying to trade with your silver bars are really silver bars? Second, you are trying to trade your 1 oz. silver bars for a gallon of milk which is commanding a price of 1/4 oz per gallon. How does the seller of milk or you break an oz. bar of silver?

The best bet is to start buying pre-1964 U.S. silver coin. I read / heard somewhere (Howard Ruff??) that you should aim for $1000 of face value silver coin per person in your family before investing in larger face-value silver dollar coins or gold coins. As for buying silver coins how private do you want to go? Go to your local coin dealer with your cash or leave a paper trial and have it delivered to your door via the US Mail.

[sickmint79]

i would say 10% in PM would be solid. maybe more because of war. not smart to put all your eggs in one basket ever though, diversify!

for my very liquid stuff i'm actually like 70% in silver right now. gold is pretty, i want some. but so much easier to buy a silver coin. best is physical and keeping it some place safe but not public.

you can get stuff on ebay, various melter/refineries and some websites. i like bulliondirect.com a lot - cheap buy/sell and they keep it in an insured vault for you, or you can choose to have it physically delivered. wish i had discovered it earlier.

[DAZ]

We are pretty much all aware of the problems with inflation, but personally, I'm beginning to think that deflation will be the real problem before long. The increasing number of home mortgage defaults is by no means over. The Mortgage Backed Securities (MBS) and Collateralized Debt Obligations (CDO) based on these shaky or defaulted mortgages are listed as assets on the Balance Sheets of just about every major and minor financial institution around the world. What happens to those Balance Sheets when the MBSs and CDOs are proven to be worth nothing? They become unbalanced.

This country runs on debt, as does much of the global economy. We have come to believe that debt and wealth are the same thing. It seems we are now realizing how wrong we were. Think about all that money you have stashed away in a bank or brokerage account for retirement. Do you imagine it sitting in some vault where Scrooge McDuck takes his daily swim? Hardly. Your money has been loaned out to other people and other companies. Companies with these suddenly worthless MBSs and CDOs listed as assets on their Balance Sheets. Your money has seemingly been multiplied many times over as a result of the fractional reserve banking system. Here's the problem: when companies, banks, and brokerages are suddenly called upon to pay their debts by creditors worried about all the uncertainty in the markets, some won't be able to. Not everybody gets their money back.

If this happens to enough institutions, suddenly hardly anybody is getting their money back. You see, your money was never really multiplied in the first place. It was loaned out in the expectation that it would be repaid. Now it isn't being repaid. So the question is, who is going to be left holding the bag when it turns up empty? That's right.....you and me. The Great Depression wasn't caused by inflation. It was caused by deflation--a decrease in the money supply.

Of course, the Fed won't just stand by and watch that happen. At least they'll try to stop it. They will probably be able to hold it off for a while, but I wouldn't be surprised to see deflation get out of control. If this does occur, cash in hand will be your best friend. Hope you can get to the bank before the lines get too long......

JMHO
--DAZ

[fsk]

Are gold and silver REALLY good hedges against inflation?

You're missing one huge point in your analysis. Central banks have been selling off their gold and silver hoards in an attempt to suppress the price.

If you correct for central bank metal sales and leases, gold and silver really are good hedges against inflation.

[sickmint79]

short term there may be deflation as things are valued to where they should be, and foreclosing mortgages destroy money... but the fed would not let that happen for long.

also the bank doesn't loan out your money that you put in, and you are fdic insured up to 100k anyway. the banks operate on a fractional reserve policy, where they only need to actually have x% of dollars. so say i put in 10 dollars and the reserve is 10%. they can then loan out 90 dollars. of that 100 total (loaned 90 and my held 10) they only need to actually have 10% on hand. when you buy a house they don't give you 250k in some pool of money there; they just give you the money out of thin air because they created it. money was once a store of value, and now it is monetized debt.

[Wyurm]

I think 10 to 20 years is an over-estimation. It could feasibly happen at any point in time. There are a number of factors that could crash our economy in a heartbeat if not kept in check, and I assure you they havent been kept in check. For example, China should they so desire could do some major damage with the bonds they hold. There is of course Iran which is a 2-edged sword with attaching their oil to a different currency than the dollar and then if the US retaliates (offically it will be to fight terrorism) the cost of the war would kill us. It's currently inevitable and there is no garuntee of when it will happen. Is there a way around it all? Yes, but its semi-illegal at the moment. You can buy lots of silver or an alternate currency, but using these as money will be tricky since you can't use them as money right now. Also, these might work for food, but probably won't work for your bills. To worsen the situation, there are a vast amount of people who don't think anything is wrong except for some minor areas for improvement.

When the SHTF you will know it. There will be riots, fear, panic, general anarchy. The president will declare a state of emergency followed by martial law. Once martial law is declared, you will be subjected to whatever that president desires, in this case, most likely a global government. At that point, you will be made to carry a card or be injected with a chip which will act as an ID. If you don't have your ID you won't be able to do anything needed to live. Also, weapons will be outlawed, speech will be curbed, entertainment and news censored, breeding controlled, and you will have barely enough to live off of. Life will be hell, death will be just one wrong word away. After about 5 years of this, those who remain will have learned their new places and will follow the rules, abstaining from free thought and focusing on exactly what they are supposed to do. There will be no laws and no wars after a while. Yet even though there are no laws, if you make the slightest move out of line you will be pulled from the system.

Those who had stored up gold, silver or other precious metals or gems will have them taken away. Those who owned land will no longer own anything, the new global government will own everything and loan it to you as long as you keep in line. The internet will still exist, but you dare not say one wrong thing on it, for what was once the last bastion of freedom will now become the greatest enemy you have. There is only one salvation for you and you secretly pray for it every single night. That is for a massive natural EMP burst to put all the world back into a stone age. You will have one state sponsored religion and if you practice any other religion, it will be your death. You will speak a new language which you will learn, or die. The new language will have no words to express feelings of revolution or feelings of dissent. If you are crippled, terminally ill, retarded, or otherwise non-productive, you will die. There will be no prisons, there will be no jails, only death if you do anything the government sees as wrong.

By this point most people would think I've lost it, that I'm a nutty conspiracy theorist or that I'm just a very very pessimistic person. Others would think I've been reading Orwell too much or listening to Alex Jones too much, but alas all of these are wrong. I know this to be our future because I watch C-Span. Like all of us, globalists aren't good at keeping secrets either. So, they let their secrets see the light of day by mentioning them on C-span and on cfr.org and plenty of other places the average person has no interest in looking at. You don't have to believe me of course, but feel free to print off my post and Just remember that as crazy as it sounded in August of 2007, Jeremy was right.

Of course none of this is likely to happen if Ron Paul wins the presidency :)

[Devil_rules_in_extremes]

Where can one buy pure gold, silver, etc. for cash, and walk away with the metal in hand? An ounce of gold here, a pound of silver there, that kind of thing?

If you want to walk away with the metal in hand, you need to go to a local coin shop.


But in the mean time, look at the website below if you want to buy silver:


http://www.apmex.com/

[DAZ]

short term there may be deflation as things are valued to where they should be, and foreclosing mortgages destroy money... but the fed would not let that happen for long.

also the bank doesn't loan out your money that you put in, and you are fdic insured up to 100k anyway. the banks operate on a fractional reserve policy, where they only need to actually have x% of dollars. so say i put in 10 dollars and the reserve is 10%. they can then loan out 90 dollars. of that 100 total (loaned 90 and my held 10) they only need to actually have 10% on hand. when you buy a house they don't give you 250k in some pool of money there; they just give you the money out of thin air because they created it. money was once a store of value, and now it is monetized debt.

I've read that the FDIC only has enough cash currently to cover about 3% of all FDIC-insured funds. (Can't remember where, so that may not be true.) If they were to make up that shortfall, where do you think that FDIC money would come from? Either taxes (bad for you and me) or printed out of nothing (inflationary---and bad for you and me). Honestly, I think a large crisis like I illustrated earlier would prove too much for the FDIC and they would "suspend" payments. Besides, I don't think the Federal Gov. has a very good track record of providing aid to those in need. Just like I'm not counting on getting a Social Security check when I hit 65, I'm not counting on the FDIC to protect my bank account should "Banks 'R Us" go under. Some things in life we can all count on. Is the FDIC one of them?

As far as the rest of your post goes, I don't really see how it is a rebuttal. Looks more like an agreement to me. Debt is issued with the expectation that it will be repaid. When debtors default on a large scale, wealth (debt, actually, but in today's world they are functionally the same) evaporates.

Now, I may be incorrect about the power of the Fed to stop such a spiral. I know that there are safeguards in place, stock trading will automatically halt if prices fall too quickly, etc. Unfortunately, this bubble needs to burst to allow a return to normalcy. Assets are overvalued and debt is over-extended. There will be a recession (it's started already). The Fed is walking a very fine line, because too much interference will postpone the pop and make it worse down the road while too little may lead to panic among investors, creditors, and consumers.

The Center for Economic and Policy Research just put out their report on this whole situation. I recommend everybody read this.
http://www.cepr.net/documents/publications/meltdown_2007_08.pdf

[Brandybuck]

There are a couple of problems with buying gold:
The biggest problem is that no one will accept it as payment. Ditto for silver. Oh, a few libertarians here and there may accept it, but the common person isn't going to.

Intead, stock ownership in solid companies that pay dividends is great. But most people don't know the first thing about stocks, so get a good mutual fund instead. Vantage is good because it's indexed. Don't try to play the stock market. A friend of mine lost his savings that way last week.

Buy some gold, of course. It makes a good inflation buffer. And diversify. Have some bond funds, and some international funds. The latter is good, because if the US dollar tanks, they'll skyrocket.

[DAZ]

Here's my issue with putting more money into the stock market right now.

Any idiot can make money with a diversified stock/mutual fund portfolio in a bull market. Including me. But when the markets head south, it takes a lot more knowledge, attention, caution, and time invested to turn a profit. With a longterm view, it has been seen that values tend to increase. But right now might be a bad time to ignore the short term. If the markets head south in the near future, one will probably be better off finding a more stable investment until the trend reverses.


Caveat: nothing I post should be construed as investment advice. Do your own due diligence.

[lost_in_samoa]

..