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Category Archives: Savings

Government’s War Against Savers


Government Squeezes the Savings--and Independence--Out of People [courtesy Google Images]

Government Squeezes the Savings–and Independence–Out of People
[courtesy Google Images]

Reuters published “India’s ‘gold monetization’ scheme could have a big impact on global demand”.  According to that article:

“Last week the Indian government approved the so-called gold-monetization scheme . . . [by] creating a system in which Indians holding private gold will be able to deposit it at banks—and then earn interest on their bullion holdings.

The government plans to then make the deposited gold available to buyers across India. The aim is to reduce gold imports from outside the country, which run at nearly 1,000 tonnes yearly.

“India’s cabinet also approved a ‘gold bond’ program in which citizens will be able to buy interest-bearing bonds backed by gold, rather than owning physical gold.

Estimates are that private citizens across India hold tens or even hundreds of millions of ounces of gold—which could become available to the banking system, if the monetization program is well received.”

 

First, a metric ton weighs 2,200 pounds.  If India imports 1,000 metric tons of gold at $1,200 per ounce, they’re importing $42 billion worth of gold each year.

India’s current GDP is about $2 trillion per year. Thus, India currently spends 2.1% of its annual GDP purchasing more gold from foreign sources. That’s 2.1% (more or less) last year; 2.1% this year; 2.1% next year.  Note that US economists hope that the US economy will grow by 3% annually.  Compare that 3% hope to India’s 2.1% annual drag on their economy due to purchasing foreign gold.  You can see that 2.1% is a significant expense for an economy the size of India’s and cause for governmental concern.

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Mass Liquidation


Liquidation = Prices Drastically Reduced [courtesy Google Images]

Liquidation = Prices Drastically Reduced
[courtesy Google Images]

Born in A.D. 1932, Hugo Salinas Price holds degrees from Wharton School, University of Pennsylvania, the Instituto Tecnologico at Monteray, Mexico, as well a law degree from the Universidad Nacional Autonoma de Mexico.  The man is well-educated.

He founded Mexico’s Elektra retail chain and became one of the world’s wealthiest men.  He’s currently retired from business and focused on restoring a silver-based monetary system for Mexico.

In a recent article (“The Coming Liquidation”), Salinas-Price warns of an approaching crisis when investors will try to sell (liquidate) their bonds and learn that no one will buy at full face value.  Panic will ensue.  Prices will crash.  Fortunes will be lost.  The world economy could collapse.

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Loss of Savings, Not Size of Debt, Causes Bank Panic


Bank Panic--A.D. 1907 [courtesy Google Images]

Bank Panic–A.D. 1907
[courtesy Google Images]

The Associated Press recently published an article entitled “The Latest:  Will Greek banks have all their money next week?”  That headline hints at the danger in fractional reserve banking.

As I understand it, in the US, the fractional reserve ratio is about 10:1 meaning that out of every ten dollars deposited into bank accounts, the bank holds one dollar in its vault to hand out to depositors and lends the other nine to borrowers.

The advantage and even necessity for fractional reserve banking is that it prevents currency from being hoarded in banks and shrinking the money supply needed to keep the economy growing.  Instead, fractional reserve banking allows 90% of the currency saved to be loaned back into the economy to circulate and stimulate economic activity.

The danger in fractional reserve banking is that if an emergency arises when only 10% of the deposits are actually kept in the bank vault, and more than 10% of US depositors want to simultaneously withdraw all of their currency from their bank accounts, then there’ll be a “bank run”.

If enough depositors join the bank run, the bank will be unable to provide the funds owed to depositors since 90% of their deposits have been loaned out to others.  Once the bank is shown to be unable to meet the depositors’ demands, the bank will be deemed to be insolvent and may be closed.

Although depositors might later be able to regain their deposits, for the immediate future, 90% of depositors will be unable to access any of their savings.  Without access to their bank deposits, bank customers may have no money to buy groceries, pay their mortgages, or get to work.  They’ll tend to panic.  The economy may tend to collapse.

Fractional reserve banking is both necessary to a modern economy and also dangerous.  If a nation’s depositors all try to withdraw their funds at once, they won’t be able to access their funds.  They’ll tend to panic, throw things, riot, light fires and shoot.

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The Foundation for Hyperinflation


Hyperinflated Cash is Trash [courtesy Google Images]

Hyperinflated Cash is Trash
[courtesy Google Images]

A lot of people agree that America is heading for a second “Great Depression”. A lot of people disagree as to whether the next economic depression will be deflationary or hyperinflationary.

In both alternatives, an economic depression would cause rising unemployment, business failures, and increasing poverty over a prolonged period.

But, in a deflationary depression (like the Great Depression of the 1930s) the money is deflated and becomes more valuable. What you might buy for $100 today might sell for $80 next year and $60 the year after that. Prices fall, the purchasing power of the dollar rises, and “cash” becomes “king”.

A deflationary depression is dangerous because falling prices make it difficult for businesses to make a profit. A manufacturer might pay for the parts, materials, tools and labor to build a product which he expects to sell for $100 and make a $20 profit. But if he can’t sell that product almost as soon as he manufactures it, his expected price of $100 might fall to $90 or even $80 before he can sell it. If he gets caught in that deflationary price squeeze, his accounting will show that he’s selling products for less money than they cost to build, and he’ll therefore go broke.

If the manufacturer goes broke, his workers become unemployed, there’ll be less money in the economy, and the prices for remaining goods and services will sink even lower.

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Gold is up to $1,330 Today (so far)


Gold Rising [courtesy Google Images]

Gold Rising?
[courtesy Google Images]

Gold is up about $85 in the previous 30 days or an average of about $4 per trading day.

There are about 220 trading days left in this year.  If gold continued to rise at an average of $4/day, the price of gold could be up another $880 for a year-end price of $2,210—that’s an increase of 66% in the next 10.5 months.  Over 6% per month.

Most conventional paper-debt investment vehicles (stocks, bonds, bank accounts, pension funds, etc.) will be happy to generate a 5% increase per year.  I don’t know what gold will actually do in the remainder of the year, but gold has a shot at an average increase of 5% per month.

Naked short selling has been a primary strategy for suppressing the prices of gold and silver. A friend of mine who should know what he’s talking about told me that the Federal Reserve has announced that naked of short selling of gold will be prohibited after May 1st.  I haven’t confirmed his report, but if it’s true, the ability of government and/or Wall Street banks to suppress the price of gold will soon be badly diminished or even terminated.

My friend believes that the coming suspension of naked short selling is the underlying cause for the current jump in gold prices.   I’m not making a prediction but, if my friend’s report and conjecture are accurate, it’s conceivable that the price of gold could double by the end of this year.

 
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Posted by on February 17, 2014 in Gold & Silver Coin, Savings

 

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Retirement Savings Begin at 40? . . . 50? . . . 60?


Better than Paper [courtesy Google Images]

Better than Paper
[courtesy Google Images]

CNBC.com published an article entitled, “40-plus? It’s not too late to start saving”.  The thrust of the article is that, while it’s best to start saving for your retirement long before you turn 40—it’s still possible to accumulate meaningful savings if you start shortly after 40:

“From a retirement-planning perspective, this is the decade [from age 40 to 50] where the rubber meets the road.

“Those who started socking money away sooner are best positioned to meet their long-term goals, of course, but there’s still plenty of time to shore up your savings if you’ve been hitting the snooze button on your 401(k) plan for the last 20 years. “

 

But what about those who haven’t saved anything and turn 50?  Or even 60?  Is there any hope for them to save enough for their retirement?  Or is it too late to start saving?  Must they instead rely only on So-So Security?

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Bitcoin and other Intangible Savings Vehicles


Bitcoins are always portrayed as tangible "coins" rather than intangible, digital "bits" [courtesy Google Images]

Bitcoins are always portrayed as tangible “coins” rather than intangible, digital “bits”
[courtesy Google Images]

Reuters reported in “Bitcoin plunges after marketplace indefinitely halts withdrawals,” that,

“The price of the digital currency bitcoin slid to its lowest level in nearly two months on Monday after bitcoin digital marketplace Mt. Gox said a halt on withdrawals it announced on Friday would continue indefinitely after it detected “unusual activity.”

“The bitcoin price varied dramatically from one exchange to another, with Tokyo-based Mt. Gox, the best known operator of a bitcoin digital marketplace, recording one of the biggest drops for the day.

“On the Mt. Gox platform the currency plunged to as low as $500 early on Monday, down more than 27 percent from Friday’s final price of $692, according to the Mt. Gox website. It last traded at $595.74, off nearly 14 percent from Friday.”

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Posted by on February 17, 2014 in Fiat Currency, Fictions, Money, Savings, Values

 

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