gold and silver economy?greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
I have questions concerning gold and silver. What kind of an economy are people envisioning where you would use gold and silver coins? Would the value of the coins be set locally? What would a silver dime that you pay forty cents for today be worth in such a disaster? A dime? Forty cents? The then current melt value? It would have to be monster of a crisis before youd be pulling out the gold eagles to pay for groceries.
Ive read of people suggesting putting away $5000 worth of gold and silver per family member. Youve got to be kidding me. I think it might be less risky and even more profitable to take that money, build a greenhouse and buy a lot of lettuce and tomato seeds.
Also I question the stampede to junk silver. For very little premium over melt you can get lower grade common date collectable coins which gives you a little extra possibility for appreciation even if precious metal prices dont soar. If there is a big coin melt down in the future, those common date coins could turn out to be rather uncommon.
I also would rather be known as a modest coin collector than someone who puts away bags of junk silver. The later would seem to be a bigger target in a serious disaster.
Thanks for your help.
-- Timothy Rebman (email@example.com), July 08, 1998
It is hard to envision precious metal coins circulating as everyday money, I agree. Not because it isn't a good idea, but rather that so few people will have them to spend. Also, most people don't think of old and silver as money because they haven't been during most, if not all, of their lives. To the public, real money is Federal Reserve Notes and clad coins of little intrinsic value. The reason to buy gold and silver is to possess a tangible asset that is not dependent on computers or governments to preserve at least some of its value. If the power or the banks actually do fail or the IRS is unable to collect taxes to pay the interest on the outstanding T-Bills then the whole concept of a fiat currency begins to unravel. Just the news that the Treasury is printing bills like crazy to keep up with bank withdrawals would lead to loss of public confidence and without that, the fractional reserve and paper money system cannot survive. It quite literally is a "confidence" game. How all this will play out and how bad it gets I don't know nor do I have any faith that anyone else does either so I'll have some metal, paper, and electrons as we approach the rollover. By the way, I don't like the "junk" either. VF to AU Peace dollars and Franklin halves don't cost that much more and look really nice, too!
-- Anon (firstname.lastname@example.org), July 08, 1998.
There are a lot of people who don't have the space to build a greenhouse - or they figure they might need to move, and the greenhouse doesn't fit conveniently into their car trunk. Or maybe they already have the greenhouse, and are looking for the next insurance item.
A typical price currently for $1,000 face value of 90% silver coins is around $4,200, I believe; and the sellers at that price will typically buy it back for around $3,800. So it's one of those things - if you have the extra cash, and you don't mind paying for insurance, it might turn out to be a valuable commodity. And after 1/1/00, if it's all no big deal, it will be easier to sell the bag of silver coins than the unneeded greenhouse and the tomato seeds. There have certainly been plenty of times in history where those who had some precious metals did a lot better than those who didn't - and some of those situations prevail currently in Asian countries.
Some people can envision a scenario that includes people totally losing faith in the government - which would then probably mean losing faith in paper money. In a case like that, which I consider unlikely but within the realm of possibility, the person with the precious metal money will be in a stronger bargaining position than someone with only paper money or a piece of plastic with funny looking numbers on it. It would be much easier for someone selling something to price it in terms of ounces of silver or gold than to price it in terms of tomatoes and lettuce. The economy works best when there is a recognized unit of exchange, and that usually isn't tomatoes (probably because they come in such different sizes!).
Let's face it, we don't know what will actually happen - so you might be better off with a green house, but you might not. Historically, there have no doubt been times when each of these strategies worked out best in a crisis situation. I'm sure that in 18 months, if we can still get on the Internet and read all these forums, a huge percentage of what we have written on here is going to look pretty ignorant - but that's exactly what we are, ignorant of what will really transpire. We're just doing our best to guess and estimate. ....................................................
-- Dan Hunt (email@example.com), July 09, 1998.
Hope this doesnt label me a pessimest, but its my opinion, that probably half of the U.S. citizens dont even understand the concept of the current money system, and would have to be told when to lose confidence in it.
-- Vic (Light_Servant@yahoo.com), July 09, 1998.
My opinions only.
If Y2K stops anywhere short of a complete collapse, today's cash will still be cash. I doubt that more than 5% of the US population realize that pre-1964 dimes & higher coins have some silver content. So "junk silver" wouldn't play much of a part in that kind of economy except as an investment.
In a complete collapse, we'll all be bartering anyway. Remember how people would pay country doctors with a couple of chickens? Food, bullets, labor, etc. will flow back & forth. Junk silver wouldn't play more than a minor part in that economy, but might be useful in the early recovery stages.
OTOH, I remember that in the 1970s, conventional investment wisdom suggested that about 10% of your portfolio should be gold/silver (but bullion, not coins).
-- Larry Kollar (firstname.lastname@example.org), July 09, 1998.
Vic, you're not a pessimist, you're an optimist if you think as many as 50% of the American public understands the monetary system in this country.
Others: on the subject of gold and silver and the fractional reserve system of banking, Gold and silver have intrinsic value and can be used for many other things. They have been recognized as real money from biblical times. Check some history and the German inflation and see if you think that there is not much value in holding them in a time like this. If the banks go down and the dollar drops in vlaue by 90% and you smoke, that pack of $2 ciggies will now cost you maybe $20 in greenbacks. On the other hand when the dollar drops 90%, gold may rise an equivalent amount or more. A 1/10 oz. gold coin now about $30 will be $300. Wow, you can buy a whole lot of ciggies now! If you don't understand this, you have been duped by the educational system and the fractional reserve system and fiat money.
-- (email@example.com), July 10, 1998.
Anon said "Just the news that the Treasury is printing bills like crazy to keep up with bank withdrawals would lead to loss of public confidence."
I don't know how many of you out there are aware of it, but in addition to running the printing presses "like crazy," the Federal Reserve has stopped destroying old $20 bills in an effort to stockpile cash in case of a "liquidity crisis" (i.e., bank runs) in the U.S. financial system.
I don't expect the panic to start yet; too many people are oblivious or in denial.
-- Nabi Davidson (firstname.lastname@example.org), July 10, 1998.
I don't know it the govt.could print enough dollars to make up the trillions of electronic dollars that are afloat worldwide. Trillions are a whole bunch of bucks. Don't forget that there will probably be a lot of foriegn countries who are in financial straits right now who might sell their US notes and holdings to get dollars. I read in the NY Times this morning that Russia now needs 20 Billion to shore up the Ruble. I agree that the average American will not recognize or accept metal in bad times. I have a big picture of trying to buy stuff with a gold 50peso Mexican coin. Besides, how would anyone make change? How would a merchant know it's not phoney? If the machinery of civilization fails, I think that we would be better off stockpiling bullets and fish hooks. If it doesn't fail, maybe greenback dollars will be ok, assuming the govt. does not issue "Military Post Script" as a way to force the circulation of money and invalidate the greenback, thereby forcing money hoarders to get rid of their greenback. Does anyone know if the govt stll has warehouses full of that stuff? It used to be called, "Invasion Money"
-- Bill Solorzano (email@example.com), July 11, 1998.
No one knows how this thing will play out. Having some money in Gold &/or silver is a hedge against a complete blowout. The deflationary wave working its' way around the world will hit/hurt the U.S.- On top of that will be y2k. If the disruption is such (as it well could be) that the ability of the U.S. to remain solvent is questioned there could be - a loss of faith in the dollar (a loss of purchasing power through a decline in value vs other currencies, or, (more likely) the government could print/create more money to try and forestall a catastrophy. Either of these possibilities should make your gold/silver holdings pay off. Personally, I would advise bullion or non-numismatic coins. They can be bot for a small premium over the value of the actual metal content. Numismatic coins/collectibles could lose their premium over metal content if we have a societal breakdown or deflation. The sales pitch of making money through owning "rare" coins doesn't address the current need. We are trying to assure our life style and safety and to preserve what assets we have. A guide has been that 16X the price of a barrel of oil is a reasonable price for Gold. New gold mines being opened recently have had a production cost per ounce of less than $200. Both of these indicate the price of gold could drop quite a bit from the current $290's. (i.e.app. $200 based upon current pricesof those indicators. It could go lower if oil and production costs (? Real cheap labor now available in Indonesia.)continue to drop. There is no clear answer. Events could cause the price of Gold or Silver to go either up or down. If you put some percentage in Krugerrands, Eagles, Maple Leafs etc. you are hedging against a financial meltdown or rampant inflation should the gov. chose to run the printing presses to stave off problems. There is some risk you could lose - but the value won't go to zero. The value of the paper currency could go to zero. Just as you might buy a generator you may never have to use, an allocation of part of your assets into precious metals is an insurance policy against some problems that look very probable at the present time.
-- Rick Evans (firstname.lastname@example.org), July 12, 1998.
Thanks to all who answered my original question Gold and Silver economy? This has been helpful to me and I suspect others who have read it. I had been repeating mindlessly to my friends that good preparations included owning gold and silver. That was until a few gave me some good why? questions that I couldnt answer. Then I started asking questions that prompted the original post. If I could be so bold, I will summarized what I have learned here.
The reasons that gold and silver should be a part of your disaster preparations are: 1) G&S is compact and portable wealth. It is grab and go wealth. Most other tangibles take some effort to transport. 2) G&S is real money. Historically people have put confidence in gold and silver as money. Paper as money depends on the peoples perceptions that it actually represents something. These perceptions are subject to political and social influence beyond anyones control. If peoples confidence in the paper money goes to zero, its value goes to zero. G&S value will never go to nothing. 3) G&S is a known for the unknown. You cover more disaster scenarios with gold and silver than paper money. Could we be facing raging deflation or runaway inflation? Precious metal are useful and valuable in both situations. 4) G&S is a good investment. Gold and silver are priced low right now. Remember buy low, sell high? Historically precious metal prices have done well in troubled times. 5) G&S might be the only money in a big crash. In a big disaster, the economy could revert to precious metals as a medium of exchange. Or, more likely, they would be valuable as barter sweeteners.
Okay there is five good reasons I learned from you all to make gold and silver part of my plans. Am I missing any here?
I thought of one minor thing. If there is a big crash, bribery may become an institutional fixture like it has in many other troubled economies around the world. It would be easier to bribe me with a gold eagle then a bushel of tomatoes. Unless of course you really liked tomatoes.
Thanks again for all your wisdom
-- Timothy Rebman (email@example.com), July 12, 1998.