Tuesday, September 12, 2017

GOLD CROSS

Every time William Devane appears on my television screen pitching for Rosland Capital, my dander goes up.

I always wonder whether I am the only person who sees the inherent contradiction in his message.

What he is telling us is simply this: You can’t rely on paper money. If you want your wealth to be safe, you have to buy gold. In the process of making that argument, he warns us against “paper money being printed by unstable governments.”

Devane is making his pitch on American television, for heaven’s sake. He is talking to Americans. In some commercials, he talks about the national debt of the United States. How big it is. How it grows and grows out of control.

In one of his commercials he is standing under a cannon on the USS Iowa  bemoaning the fact that our country used to flex its muscles and the world would listen; then insisting that we need to return to those days.

The bottom line: Mr, Devane and his employer, Rosland Capital, believe that you can’t rely on the Yankee dollar. It may well become as worthless as a wet scorecard. That’s what they are saying to us.

Then, oddly enough, he immediately urges us to support our military.

I don’t get it. The United States military budget for 2018 is 824.6 billion dollars. It is the second largest item in the federal budget, exceeded only by a trillion dollars for social security.

Exactly where does Mr. Devane think that 824.6 billion dollars is going to come from?

The federal government basically gets its money from two sources: taxation and borrowing. If the wealth of our nation consists of gold buried in the back yard, how are we supposed to “support the military”?

I suppose Devane would argue that you should buy gold as an investment to pay future taxes, since gold appreciates more than such conservative investments as US Treasury Bills.

I did a little calculating. In 1982 gold was selling for $447 per ounce. For $10,000, you could have purchased 22.37 ounces of it. Today gold sells for $1,348.70. Your gold would be worth $30,170.

My research found that prescient investors who saw fit to buy $10,000 in 30-year Treasury Bills in 1982, would have pocketed $40,000, when the bonds matured in 2012.

So which is the better hedge against inflation, gold from Rosland Capital or bonds from the U.S. Treasury?

And which purchase does more to help Uncle Sam buy battleships and jet fighters?

Mr. Devane is correct , of course, in noting that the United States now issues what is called “fiat” currency. Fiat is a Latin word which simply means ‘let it be.’ So when our federal government prints a dollar bill and says “Fiat” or “let it be worth a dollar” the piece of paper becomes a dollar. Real money. Like magic. Abra Cadabra.

Is there a specific amount of gold in Fort Knox to back up every fiat dollar?

Of course not, And every time the government printing presses grind out another fistful of dollar bills, the amount of gold backing each one of them is less and less.

After WWII, at Bretton Woods, the U.S.A. agreed to buy back its paper dollars with gold at a price of $35 per ounce. Presidents Kennedy and Johnson struggled to keep that promise, using various economic strategies, without success.

In 1971, President Richard Nixon announced that the U.S. would no longer redeem its paper money. William Jennings Bryan must have have rejoiced that Americans would be spared the ignominy of crucifixion on a “Cross of Gold.”

So we have been playing with Monopoly money for almost fifty years.

Perhaps William Devane should stop leaning on the panic button.

2 comments:

  1. Well said, Judge. I've had the same feeling toward the commercial that you mention. My experience with metals has been that there is a seller on every corner, but go out and try to find a Buyer!

    ReplyDelete
  2. Unfortunately, our 20 trillion dollar debt is leading other countries to give serious consideration to abandoning the dollar as the world's reserve currency. There are some who say first moves toward that end have already been made. Paper money is rumored to be on the way out, replaced by digital currency and valued on some abstruse method created by the IMF. Should this happen, the US dollar's value would drop significantly, rapidly, and with very little warning. Trying to pay off 20 Trillion in debt with devalued dollars will impair America for a generation. I don't know if gold is the answer but Devine is definitely not wrong that the US dollar is at risk. Cowardly politicians have buried us under a mountain of debt and the federal government will face the same problems America's large democratic controlled large cities face. As my dad used to say, "money doesn't grow on trees" and eventually the time comes when you must pay the piper for all the fun you had dancing to his music.

    ReplyDelete