As you're surely aware, the currencies of the world are backed by nothing and derive their value from faith in the institutions that control them. In the U.S. that would include the Federal Reserve, Congress and the President. Lets take a quick look at their fiscal and financial track record:
- Congress and the office of the President have grown the U.S. national debt to nearly $16 trillion
- The Federal Reserve has created so much money out of thin air, the U.S. dollar has lost 96% of it's value over the last 100 years
- Unfunded liabilities (Medicare, Prescription Drugs & Social Security) are...gasp...nearly $120 trillion
- Millions of homes have been lost because of a housing bubble partially caused by the Federal Reserve's loose monetary policy
- Thanks in large part to the aforementioned housing bubble, the average family's net worth has shrunk from $102,000 to $66,000 over the last five year
- Food stamps are now used by 1-in-7 Americans
I could write dreary statistics all day but you get the point. Thanks to an inept and fiscally irresponsible Congress/President and a Federal Reserve who's answer to every problem is to shower the world with more currency units, the U.S. along with pretty much every developed country is heading straight toward a fiscal cliff. Do they have the opportunity to slam on the brakes and stop a financial catastrophe? Yes, absolutely. Will they?...I really doubt it, just read this story about how concerned they are with the deficit, they couldn't even agree to cut $1 billion/year from the $80 billion food stamp program, by tightening program participation. This is sadly unsurprising and typical.
At some point this fiscal mess is going to cause major problems. Just look at Greece and Spain, they went along for years spending more than their revenues. All of a sudden the WHAM moment hit, their interest rates skyrocketed, their economies went into depressions and they have had one bailout after another just to keep the government functioning.
I'm certain that same moment is coming for the U.S. One day the bond market will revolt as they realize there is a zero percent chance the debt will ever be paid back. But here's the rub, unlike Greece, there's no one to bail us out. The only option will be to either a)default on the debt or b)print a seemingly endless stream of dollars to pay for the debt. I guarantee they'll try option b first. That's how you get hyperinflation. It's a nasty mix of too much currency and a loss of faith in that currency. When that happens you get riots, depression, mayhem and the government normally invokes a police state to try to keep order (and stay in power). You're also likely to see the value of your financial assets drop to near zero as the value of the underlying currency is swept away.
That's where gold comes in. No matter how big of a hit your other financial assets take, gold will retain it's value. In fact, it's value will probably skyrocket in my scenario. I'm a proponent of every investor having 5-10% of their assets in gold, acting strictly as insurance. As such, you should not be concerned about the daily volatility in the value of your gold. This is for protection purposes. If it goes down significantly, that means the financial markets expect a financial catastrophe will be averted and, therefore, your other investments should be doing quite well.
I hope this article has given you a reason to consider gold a valuable asset to own in today's fiscally challenged world. It can truly save your family's life. Just ask someone who went thru a hyperinflation and watched their entire life savings vanish thanks to a reckless government.
In : Gold and Silver
Tags: gold hyperinflation "fiscal cliff" "why own gold" "how much gold should i own?"