From Bad to Worse to Catastrophic? (IV)

…all popular resolution of the European monetary crisis is nonsensical. It is nonsensical because Keynesianism is nonsensical. It is nonsensical because republican government, when not grounded in the morality of the Bible, which prohibits theft, is nonsensical. When people use politics to steal from each other, and they do it on a massive scale, baptized by Keynesianism, baptized by the political morality of the day, they are going to destroy their own economic futures. The politics of plunder undermines economic growth.[1]

Over the last three weeks I have been explaining how the policies of government debt, (particularly in the US but also in other countries) have become tragically irresponsible over many years. As a result there will be some very unpalatable outcomes.

Because the Bible warns us that “the prudent sees the evil and hides himself” (Prov.22:3), it is only being sensible to plan ahead and make some contingencies on the strong possibility that financial irresponsibility of governments of the past may very well continue. The track form of governments if followed in future, will lead to disaster. No sensible jockey continues at full gallop, if he’s warned of a deep and wide ditch 100 metres ahead.

The Christian and Precious Metals Today:                                                                

One of the things that is happening today, is that governments all around the world are doing foolish things with money. There’s nothing new about that, but this means that currencies everywhere are being steadily debased. Paper money is printed, but none of it has any gold backing. That means that governments can print a million dollars and put it into circulation, and never have it in the bank. The U.S. government in this (in cohoots with its Reserve Bank) is being more irresponsible than the Australian government. This is one reason why the U.S. dollar has been steadily devaluing against the Australian dollar.

You may hold a hundred dollar bill in your hand today, but will it have the purchasing power in three year’s time, that it has today? You probably know that it won’t. $100 today, will probably have the buying power of about $90.00 in three year’s time. And in historical terms, that’s mild inflation.

In fact, the lesson of history is that all paper currencies end up being worth … nothing. Over the last hundred years, a U.S. dollar has lost about 95% of its value, and every part of that has been a direct result of government policy. An item worth a dollar today, was worth about 5c a hundred years ago. So, a prudent person begins to consider (as I hope you have), “how can I protect my fixed assets? What can I do to stop the value of my money being consistently eroded through inflation?”

Anyone reading this article today has resources. You probably have a computer, possibly a house and a car, and a bank account. Almost everything we buy today, depreciates when we take it out of the shop.

But the precious metals (silver and gold) are different. The price will certainly fluctuate due to variations in supply and demand, but the precious metals have enduring value.

Right from the beginning, God placed value on gold and gems, having created them as reflections of His own glory and beauty. The original value of precious metals and stones was therefore aesthetic rather than economic; their economic significance grew out of the fact that they were valued for their beauty. Aesthetics is prior to economics.[2]

At present, there are two factors driving the price of precious metals consistently higher over time.

The first is international uncertainty and suspicion among investors about the wisdom of the government borrowing and spending programs, which are endemic in the western world. Many countries are thus teetering on bankruptcy, especially in Europe. U.S. government spending is essentially out of control, and there is no real likelihood that this will change before there is some form of financial calamity.

“Investors are frustrated with US monetary policy. They’re saying the heck with the dollar, the heck with currencies and they’re buying metals,” said Ira Epstein, of the Linn Group.[3] Like an alcoholic who ransacks his wife’s purse to steal her new credit card for another drinking binge, the U.S. government keeps finding new ways to borrow, slap the extra loan on top of the other unpaid loans, and say “Who cares?” This cavalier attitude, resulting in rapidly growing debt has been continuing for thirty years, with no concern of the future. It will lead to a crisis.

Debts must be paid. The alternative is default. The U.S. government’s debts cannot be paid. Yet voters cannot bring themselves to face the reality of default. There has always been a way to delay the day of reckoning. There has always been another central bank rabbit to pull out of the fractional reserve hat. There has always been a way to move the decimal points to the right on the asset side one more time, and move the liabilities off budget. There has always been a way to persuade lenders to lend the drunken government enough money for another night on the town.[4]

The Chinese government appears to be seeing some of the writing on the wall in relation to the folly of the West, and is reportedly buying hundreds of tons of gold annually in response.

The second factor is that the Chinese and Indians populations are moving into forms of middle-class capitalism, and their demand for precious metals both for jewellery and saving (especially gold), has been rapidly accelerating now for years. Australia is the second biggest gold-mining nation, producing 261 tonnes of gold in 2010, but we could only supply the start of the annual gold demand for these two nations. For jewellery alone, they needed over 1,100 tons of gold in 2010.[5]

Furthermore, these nations’ communities have historically been investors in precious metals: Indian fathers traditionally give their daughters gold as a dowry at their wedding.

What is a person to do?                                                                                                        

a) Make wise choices, based on what you know about God and His dealings with people, human nature, and history. Accountability before God is a fact of life for all of us.

b) Don’t trust in government promises. There is no “quick-fix” to our international economic and financial problems. They have been building for two generations.

c) Prepare for further severe international economic upsets: they will come, and many will be caught short. The Bible teaches us that “the prudent sees the evil and hides himself, but the naive go on, and are punished for it” (Prov.22:3).

d) Gold and silver have been considered precious, ever since the Book of Genesis. They have been genuine stores of wealth throughout history.

e) Consider how to fit precious metals into your investment portfolio. Individuals should consider having some of their cash assets in silver and gold.[6] Demand for precious metals is partially seasonal, so they are generally cheaper mid-year, and more expensive in December.

f) Seek to preserve and grow your assets for your old age, and the sake of others, so you are not dependent on government promised taxpayer-funded pensions. The government pensions of today may not be with us forever. “A good man leaves his inheritance for his children’s children, and the wealth of the sinner is stored up for the righteous” (Prov.13:22).

The future is uncertain. The Bible warns us about this. Man cannot know everything perfectly. He cannot know the future perfectly. Yet he has to deal with the future in terms of his knowledge and his resources today. Men must count the cost of reaching goals in the future. And what we know is that we all, constantly make mistakes when we try to estimate future costs and future rewards.[7]

Conclusion:

Most people only learn some things the hard way, and few today remember the pains of the Great Depression. But Christians are remarkably privileged people: we have the Bible to guide us, so we know that human nature is fallen, we understand the shocking results of large-scale abuse of power which are apparent everywhere today, and we understand how God brings everybody, everywhere, to judgment.

This is why I think people should buy gold and silver coins. This is why they should buy currencies other than their own domestic currencies. This is why they should live in a town where there is some sense of civil order, and that order comes from the moral character of the people in the community, which is not imposed by the police department.[8]

We also know that when God’s people have a properly balanced attitude to money and possessions, and we are acting obediently and faithfully towards Him, He is willing to bless abundantly. He said that “you shall remember the Lord your God, for it is He who is giving you power to make wealth, that He may confirm His covenant which he swore to your fathers, as it is this day” (Deut.8:18). Gold and silver have historically been evidence of His blessing.

 


[1] Gary North, “Political Leadership and Gold,” 24/8/2012.

[2] David Chilton, “Paradise Restored,” 1999, p.35.

[3] Quoted in ‘Gold, Silver rise to Record Highs,’ “The Weekend Australian,” 17/4/2011.

[4] North, G., “The Billion Dollar Loser,” 15/4/2011.

[5] Reuters, Factbox, “Gold and Silver Trends in 2010,” 15/4/2011.

[6] Precious metals in Australia are available at www.ausbullion.com.au

[7] Gary North, “Unconditional Surrender,” p.263.

[8] Gary North, “Political Leadership and Gold,” 24/8/2012.

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