Saturday, April 27, 2013
Friday, April 19, 2013
The Argument of Bitcoins v. Gold Laid to Rest, Part II
Here is Part 2 of my article “The Argument of Bitcoins v. Gold Laid to Rest, originally released at my blog, www.theundergroundinvestor.com on April 9, 2013. Interestingly enough, because both bitcoins and gold were simultaneously raided shortly after I released my two part-series of bitcoins v. gold on my blog, I added the brief two paragraph introduction below to provide some context to reactions to my series BEFORE the bitcoin crashed happened and some context to my beliefs in gold as a far superior monetary alternative to BTCs. In fact I concluded my two paragraph intro with this thought, given BTCs’ crash and the banker raid of paper gold (bankers cannot raid the real physical prices of gold and silver for lasting periods of time as proven by Apmex’s listing of 2013 bullion American silver eagles yesterday at $ 29.01 per troy ounce when spot prices in Asia were $ 22.99 an ounce): Now is the “perfect opportunity to test my thesis that the real intrinsic value of gold and silver provides physical gold and physical silver holders a way to fight back against immoral bank price manipulations of gold and silver executed in fake paper markets” that BTC owners lack. Yes, I understand that gold has pulled back from a high of $ 1800 six and half months ago to a low of $ 1335 a few days ago for a 26% pullback (and alternatively from a high of $ 1900 if you want to go back to 20 months ago), but still this kind of pullback cannot compare to an 80% crash in bitcoin valuation from $ 260 to $ 50 in just a few days. Furthermore, because this banker raid on gold prices was one executed in paper markets with fake paper prices selling fake paper contracts of gold that reprsent millions of fake ounces of gold that do not even exist except for in the fraudulent world of futures markets, this raid compels me to desire more physical gold and physical silver right now. However, the crash in BTCs does not compel me to want to buy BTCs at its low valuation now because as I stated in Part I, I have never owned any BTCs because I just do not view them as sound money, though I think that down the road, BTCs could still serve a valuable service as a short-term medium of exchange.
The reaction to Part 1 of this article, printed on my online blog on March 28, 2013 interestingly illustrated certain aspects of human nature quite well. Though I outlined both significant strengths and serious flaws of the Bitcoin monetary model in Part I, those that support Bitcoin focused only on trying to discredit the flaws I discussed and stated that I should please stop attacking Bitcoin even though I implicitly stated in Part I that I believe Bitcoins should be able to co-exist as a competitive currency, because in the end, as long as gold and silver are allowed to return as competitive currencies as well, the best currency or currencies will always win the battle for the widest acceptance and use. On the contrary, in reaction to Part 1, those that dislike Bitcoins focused only on trying to discredit the positives of Bitcoins I stated, even though I was very careful to point out the flaws of even the positives, including that Bitcoins were open to significant manipulation in price because of susceptibility to control of its nodes and to the common trait it share with all fiat currencies – being a digital currency backed by air. Again, comments surrounding my Bitcoin article were an interesting exercise in human behavior as we tend to seek out facts that only support our point of view while paying no attention to all other facts that discredit our point of view. This is the essence of the human ego.
The truth of the matter is that since I released part 1 on March 28, 2013 both the positives and negatives of Bitcoins that I have discussed have both come true. Since the date I wrote that Bitcoins should be “viewed with skepticism in being able to provide a stable store of value over extended periods of time” due to the fact that they “have no inherent value”, Bitcoins plunged 75% in value in a 96-hour period before the recouping some of those losses in value. Furthermore, during this plunge, the top Bitcoin exchange, MTGox, issued a statement that read, “Trading is halted until 2013-04-12 02:00am UTC to allow the market to cooldown following the drop in price”, also exposing that Bitcoin redemptions are subject to the whims of one decision maker even though BTCs claim to be a “people’s money” mined by the people and for the people. On the other hand, the positives I wrote about Bitcoins on March 28, 2013 also still hold up despite the recent plunge in BTCs valuation. I wrote in “The Argument of Bitcoins v. Gold Laid to Rest, Part I” that “Bitcoins are better than fiat”. Well despite this recent plunge, BTCs have still appreciated much more than any fiat currency since their introduction into the monetary world. Unless you were one of the first adopters of Bitcoins, you probably did not purchase Bitcoins when they were $ 5 per BTC, but as an early adopter, maybe you purchased BTCs around $ 30 per BTC. Even with the plunge that brought BTC back down to $ 100, that is still a triple in price appreciation. Given that all fiat currencies have been losing massive amounts of purchasing power over the past 3 years, that still makes BTCs better than fiat currency.
And that brings us to Part 2 of my article. With a massive banker raid executed against gold and silver prices in the paper markets only (paper gold and paper silver ounces backed by nothing but air were sold off to engineer this latest coordinated attack of the Western Central Banking cartel and their puppet bullion banks against gold and silver prices), this makes it the perfect opportunity to test my thesis that the real intrinsic value of gold and silver provides physical gold and physical silver holders a way to fight back against immoral bank price manipulations of gold and silver executed in fake paper markets. So without further ado, I present to you Part 2.
In part 2 of my Bitcoins v. Gold thesis, I am going to address the curious need of bitcoin fanatics to state that bitcoins are the best currency in the world and their attempts to point out “supposed flaws” of the only true sound money in the world, gold and silver. I wouldn’t have embarked on this exercise were it not for the fact that BTC fanatics shockingly embrace a lot of Central Banking anti-gold propaganda in their defense of BTCs. Again, I’m distinguishing between BTC fanatics and advocates as I label as fanatics those that believe BTCs are the alpha and omega when it comes to real money. Consequently, I want to ensure that the majority of the rational BTC community does not let the propaganda of a few bitcoin fanatics pollute their minds about the true value of a BTC.
I still include myself among those that believe that BTCs should be allowed to persist as an alternative currency as long as the people are allowed to bring back gold and silver as competing currencies, so the people can choose which currency they believe to be best, as should be the case in a free society. If the global banking cartel allows BTCs to persist while at the same time shutting out a return to gold and silver money, this would be a development that would be very worrisome to me if I were a BTC owner. Again, I actually like BTCs because they are a means to fight against bankster corruption. I also consider myself a physical gold and silver advocate (not a fanatic), and one that can also see flaws in gold/silver as money as well. I don’t believe that there is any “perfect” form of money. However, gold and silver fit the bill of having the most desirable qualities of sound money, and yes, even more so than BTCs. I quite enjoy speaking to BTC advocates. I only have serious problems with the blind, biased bitcoin fanatics. So let’s take a look at a recent article I encountered titled “Why Bitcoins are Just Like Gold”, by Alec Liu. By analytically dissecting this article, I can explain why BTCs are most definitely NOT just like gold, and expose how the author has co-opted the same false arguments bankers have disseminated for decades to denigrate gold to build his own false case for the equality of BTC and gold as sound money.
Let’s start with disinformation piece #1. Mr. Liu states: “The only reason gold has value is because one day, way back when, long before recorded history, society simply decided that this yellowish precious metal should represent ‘money’.” First of all, this sounds exactly like something US Federal Reserve Chairman Ben Bernanke or IMF head Christine Lagarde would say. I can’t tell you how many ways this statement illustrates the ignorance of the author. Gold has about 10 qualities I can think of that make it a better form of money than anything else including homogeneity, durability, rarity and ease of divisibility. These are just a few of the qualities that make gold a far superior form of money than other commodities and qualities that precluded other commodities from serving as money over centuries of time. By the way, BTC’s ease of divisibility into very small units is what makes BTC so appealing as well. However, the fact that gold has been coined as money for nearly 3,000 years was due to gold’s possession of these ideal monetary qualities and not simply an arbitrary decision as Mr. Liu foolishly avers. For example, though diamonds are also beautiful, diamonds’ supposed “rarity” is just another banker lie, (see this article),they are neither homogeneous in clarity or quality, and they are not easily divisible. Consequently, because diamonds lack these ideal monetary characteristics, no civilization has ever adopted diamonds for widespread use as money over long periods of time.
The second lie Mr Liu attributes to gold, again copied straight out of the Central Banker propaganda playbook, is the following: gold’s “limited quantities were never able to keep up with demand”. This statement, one that was also erroneously presented as fact in the Goldman Sach’s book of the year, The Lords of Finance, by Liaquat Ahamed, is even more foolish than Mr. Liu’s first statement that gold was simply plucked out of the air like a rabbit out of a hat in a decision to deem it as the best commodity suitable as money. Bitcoin fanatics do not realize that their arguments for bitcoins simultaneously destroy their arguments against gold because of the indefensible contradictory logic they apply when making many of their arguments. For example, I’ve often heard bitcoin fanatics state that that bitcoin’s appreciation upside is unlimited and better than that of gold’s. However, gold is a hard asset and rare while BTCs , while also rare, are backed by the most abundant element in the earth’s crust and third most abundant element in the universe – oxygen. Would it not make more sense for a rare form of money backed by a rare hard asset to have a much better chance to appreciate to a much higher price than a rare form of money backed by the most abundant element in the earth’s crust? Actually if BTCs can survive an inevitable attempt of the Central Bank, Government, Commercial Bank troika’s attempt to shut them down as a legitimate form of money, I don’t really see why BTCs can’t keep rising in value. I just don’t believe that its final price point can rise higher than that of gold due to the important distinction I’ve laid out. And this is why I also continually distinguish between bitcoin fanatics and rational bitcoin advocates. Often the fanatics dominate the online discussion forums and spread harmful disinformation.
But let’s return to the Central Bankers’ claim that gold’s “limited quantities were never able to keep up with demand” that some BTC fanatics seem so fond of parroting. Gold’s rarity was never a problem in its use as money in the past. This was just a false myth spread and propagated by bankers that have now been taken up BTC fanatics. Central Bankers and their puppets have always claimed that gold’s rarity limited economic growth in the 1920s and that the bottleneck of gold’s rarity greatly constricted economic growth during this time period and caused the Great Depression. That is as revisionist a retelling of history as a Keynesian economist can possibly conjure up. The Great Depression resulted from bankers at the Bank of England counterfeiting of the Pound Sterling during WWI, their subsequent refusal to revalue their counterfeited Pound at a lesser gold exchange rate after the war, the consequent loss of massive gold reserves due to this fraud, and their lobbying of the US Federal Reserve to start counterfeiting US dollars to stop their gold loss. The consequent massive price distortions, aka stock market bubble, that resulted as a result of these counterfeiting efforts is what caused the crash in the 1920s and consequent global economic crisis. Though every global economic crisis is deliberately “manufactured” by Central Bankers and their Commercial Banker puppets, bankers try to deceive the masses by blaming past historical economic crashes on gold. It is truly unfortunate that some fanatics (again, not the advocates) among the BTC community help Central Bankers propagate these egregious lies.
When the bankers ended the Gold Standard in 1933 due to gold’s so-called “handcuffing” of the economy, the price of gold was only $ 20.67 per ounce! By simply allowing the price of gold rise to $ 300 an ounce, bankers could have expanded monetary supply by nearly 15 times. However, bankers were too interested in artificially suppressing the price of gold so that the serfs would not discover that the true intrinsic worth of their fiat currency, as Cypriots are now discovering today, was zero. Why? A rising gold price always reveals the dirty secret that bankers are devaluing fiat currency and stealing purchasing power from the citizens. Rarity is an element to be desired, not feared, in a commodity that backs sound money. If it were not, then BTCs founders would have capped BTCs supply at 1 quadrillion instead of slightly under 21 million (20,999,999.9769 BTCs). Thus, the problem with the global economy during the Great Depression was without a doubt, NOT the gold standard nor a lack of gold.
The problem arose due to:
(1) bankers’ abandonment of the gold standard for the world’s reserve currency (British Pound) due to war;
(2) the bankers’ decision to deliberately counterfeit a second world’s reserve currency (the USD) to aid the problem that resulted from (1); and
(3) an improper valuation of gold by bankers to preserve their global banking system of fraud and fractional reserve banking.
It is absolutely feasible today to have not a 20% backed, not a 30% backed, but a 100% gold backed system, whether or not we forgive all criminally- imposed banker debt in this world, as we should. We would need to scrap all fiat currencies in use and form a new currency to replace all fiat currencies, and then revalue gold to a significantly higher price, the exact price which would be determined by whether or not we enact jubilee or not. Again, I explain the mechanisms of how this can be accomplished in my book The Golden Gift, an excerpt of which can be found here at Scribd.
Today, the same people that buy diamond engagement rings and have no problem paying the equivalent of several million dollars per troy ounce for a flawless one-carat diamond are the same people with zero logic that say a mere $ 10,000 per ounce of gold is “too expensive”. Do you know how dumb this sounds from people that just paid between $ 2.5MM to $ 6MM dollars per troy ounce for their diamond engagement ring? Yes, the price of flawless one carat diamonds when you convert the price from carats to a single troy ounce is in the millions of dollars per one troy ounce.
Finally, the last utterly wrong statement Mr. Liu makes about gold is the following: “[Gold is] backed by no one…Your gold coins [ ] won’t do much good at the grocery store [because it] lack[s] intrinsic value.” Again, another foolish argument taken straight out of the Central Banker propaganda playbook. Ask Zimbabweans and Germans living during the Weimar Republic if they were able to buy food with their gold? In fact, to give you a contemporary example, go to Cyprus, and see if Cypriots that had no access to cash for about two weeks were able to buy food and other services with gold during the time bankers blocked all access to their digital bytes of air known as fiat currency. I guarantee you that Cypriots that had gold reserves and no cash were glad they did. In Zimbabwe and Weimar Germany, gold was universally accepted as money to buy nearly anything, including food. And this is why I am careful to distinguish between BTC fanatics and BTC advocates. BTC advocates that I’ve met are rational people capable of critical independent thought that understand all banker lies about gold and monetary history. On the other hand, many BTC fanatics parrot every single piece of disinformation spread by Central Bankers about gold throughout history and serve, much to the delight of bankers, as conduits to pollinate banker lies about gold and silver among the masses. Central Bankers could not have been happier with articles like “Why Bitcoins Are Just Like Gold”, because articles like these help spread banker-originated disinformation that helps keep humanity in slavery.
The characteristics that grant gold great intrinsic value are its beauty and rarity. Thus gold doesn’t need anyone to back it because its rarity AND utility grant it its value. BTC fanatics perpetually discount the fact that gold’s uses as jewelry and money, two of gold’s primary, but not only uses, grant it intrinsic value. If jewelry did not grant a commodity intrinsic value, then diamonds, rubies, emeralds, and sapphires should all be free like air (though perhaps diamonds don’t belong in this same category as they have industrial uses as well). However, this obviously is not the case. Secondly, the fact that gold is the best commodity in the world that can serve as a medium of exchange AND as a store of value, gives it great intrinsic value. Thirdly, gold is a great conductor of electricity, and the reason we only find gold used in this capacity in very high-end, expensive electronics, is due to its rarity. If gold were as abundant as copper, gold would be used widespread in the electronics industry as a conductor.
So while BTC fanatics seem to not have any knowledge of monetary history, BTC advocates, are on the contrary, very well versed in the value of BTCs today. BTC advocates understand its great value as a medium of exchange but also understand its limitations in that they do not fit sound money’s need to be backed by a commodity that is a stable and consistent store of value. Trust me, if bankers can figure out a way to convince investors to trust in a bitcoin ETF, they will invent a bitcoin ETF to fraudulently manipulate bitcoin valuations in the same manner they have used the GLD and SLV ETFs to fraudulently manipulate gold and silver prices. People can fight back against this fraud in gold and silver by dumping or refusing to buy the GLD and SLV ETFs and buying physical precious metals, as illustrated by the University of Texas Investment Management Company, who bought $ 1 billion of physical gold bars in 2011 (but who made a huge tactical strategic error by choosing to vault their physical gold in New York vaults owned by the US Federal Reserve). If bankers invented a bitcoin ETF, there would be no way to fight against the price manipulation executed by the banker management of this ETF because buying physical bitcoins that have no intrinsic worth cannot succeed in stopping manipulation. I know that BTC owners will think that this is a ludicrous idea and that anyone that understands how BTC works will never in a million years buy a bitcoin ETF. However, owners of physical gold and physical silver that understand why only physical gold and silver are real and sound money also believe that only a fool would buy the GLD and SLV ETFs as well. But this hasn’t stopped bankers from deceiving people into dumping billions of dollars into the GLD and SLV ETFs. As long as there are people to be fooled, the bankers will use them to manipulate the currency at hand. That is why, in the end, intrinsic value is a vital, necessary trait that all sound money must possess so that the people have a means to effectively fight back against fraud that bankers inevitably will inject into the system.
Read “The Argument of Bitcoins Laid to Rest, Part I” here.
(Copyright 2013 SmartKnowledge Pte. Ltd. All rights reserved. Please contact us about republishing this article. Republishing without our expressed written consent is strictly prohibited)
About the author: JS Kim is the Founder & Managing Director of SmartKnowledgeU, a fiercely independent research & consulting firm with a mission of helping Main Street avoid the deceit and chicanery of Wall Street and of triggering a wave of global economic freedom only possible through one pathway – the end of all global fiat currency and a return to sound money. Follow us on Twitter @smartknowledgeu and on our YouTube channel to view our weekly vlog.
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The Argument of Bitcoins v. Gold Laid to Rest, Part II
The Argument of Bitcoins v. Gold Laid to Rest, Part II
Here is Part 2 of my article “The Argument of Bitcoins v. Gold Laid to Rest, originally released at my blog, www.theundergroundinvestor.com on April 9, 2013. Interestingly enough, because both bitcoins and gold were simultaneously raided shortly after I released my two part-series of bitcoins v. gold on my blog, I added the brief two paragraph introduction below to provide some context to reactions to my series BEFORE the bitcoin crashed happened and some context to my beliefs in gold as a far superior monetary alternative to BTCs. In fact I concluded my two paragraph intro with this thought, given BTCs’ crash and the banker raid of paper gold (bankers cannot raid the real physical prices of gold and silver for lasting periods of time as proven by Apmex’s listing of 2013 bullion American silver eagles yesterday at $ 29.01 per troy ounce when spot prices in Asia were $ 22.99 an ounce): Now is the “perfect opportunity to test my thesis that the real intrinsic value of gold and silver provides physical gold and physical silver holders a way to fight back against immoral bank price manipulations of gold and silver executed in fake paper markets” that BTC owners lack. Yes, I understand that gold has pulled back from a high of $ 1800 six and half months ago to a low of $ 1335 a few days ago for a 26% pullback (and alternatively from a high of $ 1900 if you want to go back to 20 months ago), but still this kind of pullback cannot compare to an 80% crash in bitcoin valuation from $ 260 to $ 50 in just a few days. Furthermore, because this banker raid on gold prices was one executed in paper markets with fake paper prices selling fake paper contracts of gold that reprsent millions of fake ounces of gold that do not even exist except for in the fraudulent world of futures markets, this raid compels me to desire more physical gold and physical silver right now. However, the crash in BTCs does not compel me to want to buy BTCs at its low valuation now because as I stated in Part I, I have never owned any BTCs because I just do not view them as sound money, though I think that down the road, BTCs could still serve a valuable service as a short-term medium of exchange.
The reaction to Part 1 of this article, printed on my online blog on March 28, 2013 interestingly illustrated certain aspects of human nature quite well. Though I outlined both significant strengths and serious flaws of the Bitcoin monetary model in Part I, those that support Bitcoin focused only on trying to discredit the flaws I discussed and stated that I should please stop attacking Bitcoin even though I implicitly stated in Part I that I believe Bitcoins should be able to co-exist as a competitive currency, because in the end, as long as gold and silver are allowed to return as competitive currencies as well, the best currency or currencies will always win the battle for the widest acceptance and use. On the contrary, in reaction to Part 1, those that dislike Bitcoins focused only on trying to discredit the positives of Bitcoins I stated, even though I was very careful to point out the flaws of even the positives, including that Bitcoins were open to significant manipulation in price because of susceptibility to control of its nodes and to the common trait it share with all fiat currencies – being a digital currency backed by air. Again, comments surrounding my Bitcoin article were an interesting exercise in human behavior as we tend to seek out facts that only support our point of view while paying no attention to all other facts that discredit our point of view. This is the essence of the human ego.
The truth of the matter is that since I released part 1 on March 28, 2013 both the positives and negatives of Bitcoins that I have discussed have both come true. Since the date I wrote that Bitcoins should be “viewed with skepticism in being able to provide a stable store of value over extended periods of time” due to the fact that they “have no inherent value”, Bitcoins plunged 75% in value in a 96-hour period before the recouping some of those losses in value. Furthermore, during this plunge, the top Bitcoin exchange, MTGox, issued a statement that read, “Trading is halted until 2013-04-12 02:00am UTC to allow the market to cooldown following the drop in price”, also exposing that Bitcoin redemptions are subject to the whims of one decision maker even though BTCs claim to be a “people’s money” mined by the people and for the people. On the other hand, the positives I wrote about Bitcoins on March 28, 2013 also still hold up despite the recent plunge in BTCs valuation. I wrote in “The Argument of Bitcoins v. Gold Laid to Rest, Part I” that “Bitcoins are better than fiat”. Well despite this recent plunge, BTCs have still appreciated much more than any fiat currency since their introduction into the monetary world. Unless you were one of the first adopters of Bitcoins, you probably did not purchase Bitcoins when they were $ 5 per BTC, but as an early adopter, maybe you purchased BTCs around $ 30 per BTC. Even with the plunge that brought BTC back down to $ 100, that is still a triple in price appreciation. Given that all fiat currencies have been losing massive amounts of purchasing power over the past 3 years, that still makes BTCs better than fiat currency.
And that brings us to Part 2 of my article. With a massive banker raid executed against gold and silver prices in the paper markets only (paper gold and paper silver ounces backed by nothing but air were sold off to engineer this latest coordinated attack of the Western Central Banking cartel and their puppet bullion banks against gold and silver prices), this makes it the perfect opportunity to test my thesis that the real intrinsic value of gold and silver provides physical gold and physical silver holders a way to fight back against immoral bank price manipulations of gold and silver executed in fake paper markets. So without further ado, I present to you Part 2.
In part 2 of my Bitcoins v. Gold thesis, I am going to address the curious need of bitcoin fanatics to state that bitcoins are the best currency in the world and their attempts to point out “supposed flaws” of the only true sound money in the world, gold and silver. I wouldn’t have embarked on this exercise were it not for the fact that BTC fanatics shockingly embrace a lot of Central Banking anti-gold propaganda in their defense of BTCs. Again, I’m distinguishing between BTC fanatics and advocates as I label as fanatics those that believe BTCs are the alpha and omega when it comes to real money. Consequently, I want to ensure that the majority of the rational BTC community does not let the propaganda of a few bitcoin fanatics pollute their minds about the true value of a BTC.
I still include myself among those that believe that BTCs should be allowed to persist as an alternative currency as long as the people are allowed to bring back gold and silver as competing currencies, so the people can choose which currency they believe to be best, as should be the case in a free society. If the global banking cartel allows BTCs to persist while at the same time shutting out a return to gold and silver money, this would be a development that would be very worrisome to me if I were a BTC owner. Again, I actually like BTCs because they are a means to fight against bankster corruption. I also consider myself a physical gold and silver advocate (not a fanatic), and one that can also see flaws in gold/silver as money as well. I don’t believe that there is any “perfect” form of money. However, gold and silver fit the bill of having the most desirable qualities of sound money, and yes, even more so than BTCs. I quite enjoy speaking to BTC advocates. I only have serious problems with the blind, biased bitcoin fanatics. So let’s take a look at a recent article I encountered titled “Why Bitcoins are Just Like Gold”, by Alec Liu. By analytically dissecting this article, I can explain why BTCs are most definitely NOT just like gold, and expose how the author has co-opted the same false arguments bankers have disseminated for decades to denigrate gold to build his own false case for the equality of BTC and gold as sound money.
Let’s start with disinformation piece #1. Mr. Liu states: “The only reason gold has value is because one day, way back when, long before recorded history, society simply decided that this yellowish precious metal should represent ‘money’.” First of all, this sounds exactly like something US Federal Reserve Chairman Ben Bernanke or IMF head Christine Lagarde would say. I can’t tell you how many ways this statement illustrates the ignorance of the author. Gold has about 10 qualities I can think of that make it a better form of money than anything else including homogeneity, durability, rarity and ease of divisibility. These are just a few of the qualities that make gold a far superior form of money than other commodities and qualities that precluded other commodities from serving as money over centuries of time. By the way, BTC’s ease of divisibility into very small units is what makes BTC so appealing as well. However, the fact that gold has been coined as money for nearly 3,000 years was due to gold’s possession of these ideal monetary qualities and not simply an arbitrary decision as Mr. Liu foolishly avers. For example, though diamonds are also beautiful, diamonds’ supposed “rarity” is just another banker lie, (see this article),they are neither homogeneous in clarity or quality, and they are not easily divisible. Consequently, because diamonds lack these ideal monetary characteristics, no civilization has ever adopted diamonds for widespread use as money over long periods of time.
The second lie Mr Liu attributes to gold, again copied straight out of the Central Banker propaganda playbook, is the following: gold’s “limited quantities were never able to keep up with demand”. This statement, one that was also erroneously presented as fact in the Goldman Sach’s book of the year, The Lords of Finance, by Liaquat Ahamed, is even more foolish than Mr. Liu’s first statement that gold was simply plucked out of the air like a rabbit out of a hat in a decision to deem it as the best commodity suitable as money. Bitcoin fanatics do not realize that their arguments for bitcoins simultaneously destroy their arguments against gold because of the indefensible contradictory logic they apply when making many of their arguments. For example, I’ve often heard bitcoin fanatics state that that bitcoin’s appreciation upside is unlimited and better than that of gold’s. However, gold is a hard asset and rare while BTCs , while also rare, are backed by the most abundant element in the earth’s crust and third most abundant element in the universe – oxygen. Would it not make more sense for a rare form of money backed by a rare hard asset to have a much better chance to appreciate to a much higher price than a rare form of money backed by the most abundant element in the earth’s crust? Actually if BTCs can survive an inevitable attempt of the Central Bank, Government, Commercial Bank troika’s attempt to shut them down as a legitimate form of money, I don’t really see why BTCs can’t keep rising in value. I just don’t believe that its final price point can rise higher than that of gold due to the important distinction I’ve laid out. And this is why I also continually distinguish between bitcoin fanatics and rational bitcoin advocates. Often the fanatics dominate the online discussion forums and spread harmful disinformation.
But let’s return to the Central Bankers’ claim that gold’s “limited quantities were never able to keep up with demand” that some BTC fanatics seem so fond of parroting. Gold’s rarity was never a problem in its use as money in the past. This was just a false myth spread and propagated by bankers that have now been taken up BTC fanatics. Central Bankers and their puppets have always claimed that gold’s rarity limited economic growth in the 1920s and that the bottleneck of gold’s rarity greatly constricted economic growth during this time period and caused the Great Depression. That is as revisionist a retelling of history as a Keynesian economist can possibly conjure up. The Great Depression resulted from bankers at the Bank of England counterfeiting of the Pound Sterling during WWI, their subsequent refusal to revalue their counterfeited Pound at a lesser gold exchange rate after the war, the consequent loss of massive gold reserves due to this fraud, and their lobbying of the US Federal Reserve to start counterfeiting US dollars to stop their gold loss. The consequent massive price distortions, aka stock market bubble, that resulted as a result of these counterfeiting efforts is what caused the crash in the 1920s and consequent global economic crisis. Though every global economic crisis is deliberately “manufactured” by Central Bankers and their Commercial Banker puppets, bankers try to deceive the masses by blaming past historical economic crashes on gold. It is truly unfortunate that some fanatics (again, not the advocates) among the BTC community help Central Bankers propagate these egregious lies.
When the bankers ended the Gold Standard in 1933 due to gold’s so-called “handcuffing” of the economy, the price of gold was only $ 20.67 per ounce! By simply allowing the price of gold rise to $ 300 an ounce, bankers could have expanded monetary supply by nearly 15 times. However, bankers were too interested in artificially suppressing the price of gold so that the serfs would not discover that the true intrinsic worth of their fiat currency, as Cypriots are now discovering today, was zero. Why? A rising gold price always reveals the dirty secret that bankers are devaluing fiat currency and stealing purchasing power from the citizens. Rarity is an element to be desired, not feared, in a commodity that backs sound money. If it were not, then BTCs founders would have capped BTCs supply at 1 quadrillion instead of slightly under 21 million (20,999,999.9769 BTCs). Thus, the problem with the global economy during the Great Depression was without a doubt, NOT the gold standard nor a lack of gold.
The problem arose due to:
(1) bankers’ abandonment of the gold standard for the world’s reserve currency (British Pound) due to war;
(2) the bankers’ decision to deliberately counterfeit a second world’s reserve currency (the USD) to aid the problem that resulted from (1); and
(3) an improper valuation of gold by bankers to preserve their global banking system of fraud and fractional reserve banking.
It is absolutely feasible today to have not a 20% backed, not a 30% backed, but a 100% gold backed system, whether or not we forgive all criminally- imposed banker debt in this world, as we should. We would need to scrap all fiat currencies in use and form a new currency to replace all fiat currencies, and then revalue gold to a significantly higher price, the exact price which would be determined by whether or not we enact jubilee or not. Again, I explain the mechanisms of how this can be accomplished in my book The Golden Gift, an excerpt of which can be found here at Scribd.
Today, the same people that buy diamond engagement rings and have no problem paying the equivalent of several million dollars per troy ounce for a flawless one-carat diamond are the same people with zero logic that say a mere $ 10,000 per ounce of gold is “too expensive”. Do you know how dumb this sounds from people that just paid between $ 2.5MM to $ 6MM dollars per troy ounce for their diamond engagement ring? Yes, the price of flawless one carat diamonds when you convert the price from carats to a single troy ounce is in the millions of dollars per one troy ounce.
Finally, the last utterly wrong statement Mr. Liu makes about gold is the following: “[Gold is] backed by no one…Your gold coins [ ] won’t do much good at the grocery store [because it] lack[s] intrinsic value.” Again, another foolish argument taken straight out of the Central Banker propaganda playbook. Ask Zimbabweans and Germans living during the Weimar Republic if they were able to buy food with their gold? In fact, to give you a contemporary example, go to Cyprus, and see if Cypriots that had no access to cash for about two weeks were able to buy food and other services with gold during the time bankers blocked all access to their digital bytes of air known as fiat currency. I guarantee you that Cypriots that had gold reserves and no cash were glad they did. In Zimbabwe and Weimar Germany, gold was universally accepted as money to buy nearly anything, including food. And this is why I am careful to distinguish between BTC fanatics and BTC advocates. BTC advocates that I’ve met are rational people capable of critical independent thought that understand all banker lies about gold and monetary history. On the other hand, many BTC fanatics parrot every single piece of disinformation spread by Central Bankers about gold throughout history and serve, much to the delight of bankers, as conduits to pollinate banker lies about gold and silver among the masses. Central Bankers could not have been happier with articles like “Why Bitcoins Are Just Like Gold”, because articles like these help spread banker-originated disinformation that helps keep humanity in slavery.
The characteristics that grant gold great intrinsic value are its beauty and rarity. Thus gold doesn’t need anyone to back it because its rarity AND utility grant it its value. BTC fanatics perpetually discount the fact that gold’s uses as jewelry and money, two of gold’s primary, but not only uses, grant it intrinsic value. If jewelry did not grant a commodity intrinsic value, then diamonds, rubies, emeralds, and sapphires should all be free like air (though perhaps diamonds don’t belong in this same category as they have industrial uses as well). However, this obviously is not the case. Secondly, the fact that gold is the best commodity in the world that can serve as a medium of exchange AND as a store of value, gives it great intrinsic value. Thirdly, gold is a great conductor of electricity, and the reason we only find gold used in this capacity in very high-end, expensive electronics, is due to its rarity. If gold were as abundant as copper, gold would be used widespread in the electronics industry as a conductor.
So while BTC fanatics seem to not have any knowledge of monetary history, BTC advocates, are on the contrary, very well versed in the value of BTCs today. BTC advocates understand its great value as a medium of exchange but also understand its limitations in that they do not fit sound money’s need to be backed by a commodity that is a stable and consistent store of value. Trust me, if bankers can figure out a way to convince investors to trust in a bitcoin ETF, they will invent a bitcoin ETF to fraudulently manipulate bitcoin valuations in the same manner they have used the GLD and SLV ETFs to fraudulently manipulate gold and silver prices. People can fight back against this fraud in gold and silver by dumping or refusing to buy the GLD and SLV ETFs and buying physical precious metals, as illustrated by the University of Texas Investment Management Company, who bought $ 1 billion of physical gold bars in 2011 (but who made a huge tactical strategic error by choosing to vault their physical gold in New York vaults owned by the US Federal Reserve). If bankers invented a bitcoin ETF, there would be no way to fight against the price manipulation executed by the banker management of this ETF because buying physical bitcoins that have no intrinsic worth cannot succeed in stopping manipulation. I know that BTC owners will think that this is a ludicrous idea and that anyone that understands how BTC works will never in a million years buy a bitcoin ETF. However, owners of physical gold and physical silver that understand why only physical gold and silver are real and sound money also believe that only a fool would buy the GLD and SLV ETFs as well. But this hasn’t stopped bankers from deceiving people into dumping billions of dollars into the GLD and SLV ETFs. As long as there are people to be fooled, the bankers will use them to manipulate the currency at hand. That is why, in the end, intrinsic value is a vital, necessary trait that all sound money must possess so that the people have a means to effectively fight back against fraud that bankers inevitably will inject into the system.
Read “The Argument of Bitcoins Laid to Rest, Part I” here.
(Copyright 2013 SmartKnowledge Pte. Ltd. All rights reserved. Please contact us about republishing this article. Republishing without our expressed written consent is strictly prohibited)
About the author: JS Kim is the Founder & Managing Director of SmartKnowledgeU, a fiercely independent research & consulting firm with a mission of helping Main Street avoid the deceit and chicanery of Wall Street and of triggering a wave of global economic freedom only possible through one pathway – the end of all global fiat currency and a return to sound money. Follow us on Twitter @smartknowledgeu and on our YouTube channel to view our weekly vlog.
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The Argument of Bitcoins v. Gold Laid to Rest, Part II
Tuesday, April 9, 2013
Even the Money Printers Are Loading Up On Gold
Anyone who wants to get to the truth behind the inflationary threats to their wealth should ignore everything the Central Banks say about inflation and look instead at their actions.
Worldwide gold demand in 2012 was another record high of $ 236.4 billion in the World Gold Council’s latest report. This was up 6% in value terms in the fourth quarter to $ 66.2 billion, the highest fourth quarter on record. Global gold demand in the fourth quarter of 2012 was up 4% to 1,195.9 tonnes.
Central bank buying for 2012 rose by 17% over 2011 to some 534.6 tonnes. As far as central bank gold buying, this was the highest level since 1964. Central bank purchases stood at 145 tonnes in the fourth quarter. That is up 9% from the fourth quarter of 2011, and the eighth consecutive quarter in which central banks were net purchasers of gol
http://247wallst.com/2013/02/14/central-banks-buy-the-most-gold-since-1964/#ixzz2LMLOfBPK
Note… Central Banks, while talking down money printing and denying the presence of inflation, bought more Gold in 2012 that any year dating back to 1964. Indeed, However, since becoming net buyers of Gold in 2010, the Central Banks have been increasing their Gold purchases rapidly.
In 2010, Governments worldwide bought 77 tonnes of Gold. In 2011 it was 457 tonnes. And last year it was a whopping 535 tonnes. All told, they’ve accumulated 1,000 tonnes of Gold since 2Q09. At today’s price of $ 1600 per ounce, this stash is valued at over $ 56 billion.
The key issue here is not the amount ($ 56 billion in Gold purchases is nothing compared to the over $ 10 trillion in new money Central banks have printed since 2007), but the trend: Central Banks were net sellers of Gold for decades until 2010.
Other major investors are looking to get their hands on Gold… not the promise of Gold, but the actual metal.
Germany has the second largest Gold reserves in the world behind the US. Since the early ‘80s, it has stored the majority of these reserves with the NY Fed (45% vs. 13% in London, 11% in Paris and the remaining 31% in Frankfurt).
With that in mind, everyone needs to be aware that last Monday Germany’s Bundesbank announced it will be moving a major portion of its reserves from the US and all of its reserves from France back to Frankfurt.
Nearly half of Germany’s gold reserves are held in a vault at the Federal Reserve Bank of New York — billions of dollars worth of postwar geopolitical history squirreled away for safe keeping below the streets of Lower Manhattan.
Now the German central bank wants to make a big withdrawal — 300 tons in all.
On Wednesday, the Bundesbank said that it would begin moving some of the reserves, the second-largest stock in the world after that of the United States. The goal is to house more than 50 percent of German gold in Bundesbank vaults in Frankfurt by 2020, up from a little less than a third today, the bank said…
The new policy will include the complete withdrawal of 374 tons of German gold stored at the Banque de France in Paris, about 11 percent of the total. Bundesbank officials were quick to note that the decision was not a reflection of French trustworthiness. Rather, because France and Germany now share the euro, there is no need for reserves as insurance against currency crises.
This announcement came with the usual political statements that the decision had nothing to do with a lack of trust between the Bundesbank and the US Fed or Bank of France, but the message is obvious: Germany sees the writing on the wall and is moving to secure its Gold reserves.
The same goes for Texas:
Texas Republican State Representative Giovanni Capriglione authored the bill demanding state owned gold bars be returned to the Lone Star State. The legislation to pull $ 1 billion in gold reserves from a Federal Reserve vault in New York is supported by Governor Rick Perry.
The financial crisis in Cyprus which prompted a run on the bank and ultimately a closure of the financial institutions reportedly bolstered support for the Texas gold bar return bill. State Representative Capriglione had this to say about why he penned the bill:
“For us to have our own gold, a lot of the runs on the bank and those types of things, they happen because people are worried that there’s nothing there to back it up.”
Governor Perry stated that if Texas owns the gold, then no one else should be able to determine if the state can reclaim possession of the bars of precious metal. Representative Capriglione also noted that Texas is not interested in implementing its own gold standard. According to the Republican’s statements about the gold bars bill, he simply wants to bolster the state’s fiscally secure reputation. The Texas public servant also feels that such a solid financial persona would be beneficial in case an international of national fiscal crisis occurred.
The legislation notes the state does not merely want gold certificates from the Federal Reserve, they want the actual gold bars to store inside a planned Texas Bullion Depository. Moving $ 1 billion in gold bars from New York to Texas would be a huge task, one some are calling impractical. State Representative Capriglione suggested selling the gold currently housed inside the New York vault and then repurchasing the same amount in Texas.
http://www.inquisitr.com/600185/texas-wants-gold-stored-at-federal-reser…
Investors forget that the single most important role played by Central Banks is to maintain confidence in the system. For that reason they will NEVER admit inflation is a problem. But if inflation isn’t a problem, WHY ARE CENTRAL BANKS LOADING UP ON GOLD?
With that in mind, now is the time to be preparing for inflationary disaster.
We’ve just released a Special Investment Report outlining the threat of inflation to your financial well-being. It’s titled, The Inflation Secrets Your Broker Won’t Tell You and it outlines three HUGE secrets that 99% of the investment community don’t know about inflation.
These include
- The surprising industry that suffers as prices soar, despite being considered "inflation proof" by many investors…
- Which investment Warren Buffett loves even more than gold…
- Why U.S. Treasury Inflation-Protected Securities (or TIPS) don"t work — and what investment could be your best alternative.
This Report is a $ 79 value, but we’re giving it away for free to investors today. To pick up your free copy, swing by:
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Best Regards,
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PS. We also offer a FREE Special Report outlining, What Europe Means For You and Your Savings.
In this report, we outline the risks Europe’s banking crisis holds not only for those in Europe, but for savers around the world. We also explain how this crisis will most likely unfold, including which areas are most at risk in the financial system. And we cap it off by listing multiple backdoor plays on Europe that investors can use to profit from Europe’s Crisis.
You can pick up a FREE copy here:
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Even the Money Printers Are Loading Up On Gold
Tuesday, April 2, 2013
Inside the NRA"s Koch-Funded Dark Money Campaign
“This election is going to be won on the ground,” Chris Cox, the National Rifle Association’s top lobbyist, told me early last year as the gun lobby prepared to launch its all-out campaign to defeat Barack Obama. Historically, pro-gun voters have favored Republicans by a margin of 2- or 3-to-1, but that only matters if they vote. And, Cox stressed, millions of gun owners were not registered yet.
The NRA’s get-out-the-vote effort, its most ambitious ever, would target gun owners from all angles. Its field workers would register them at gun shows and gun shops in battleground states such as Florida, Ohio, and Virginia. The NRA spent millions on TV spots; one seven-figure ad buy last October attacked the president for “chipping away” at Second Amendment rights, urging Americans to “defend freedom.” Chuck Norris, a spokesman for the NRA’s Trigger the Vote campaign, warned apathetic gun owners, “I’ll come looking for the people who sat this election out.”
Mobilizing the NRA’s estimated 4 million members “is always a critical part of the equation for us on the Republican side,” says Charlie Black, a veteran GOP operative who was an adviser to Mitt Romney’s and Sen. John McCain’s presidential campaigns.
But 2012 was different: The NRA wasn’t simply reaching out to its core constituency—it was reeling in big checks from conservative funders eager to take advantage of its grassroots muscle. The arrangement was mutually beneficial: The NRA burnished its reputation as a political force to be reckoned with, while donors invested in the kind of all-out GOTV effort they had once expected from the Republican Party itself.
Inside the NRA"s Koch-Funded Dark Money Campaign
Saturday, March 30, 2013
Monday, March 25, 2013
Sunday, March 24, 2013
UKIP Leader Nigel Farage Says "Get Your Money Out of Spain While You’ve Still Got a Chance"
UK Independence Party (UKIP) leader Nigel Farage makes the same common sense plea that I have been stating for some time. Farage says “Get Your Money Out of Spain While You’ve Still Got a Chance“.
The UK Independence Party leader said that the European Union had “crossed a line” by trying to extract funds from savers under the terms of the abandoned Cypriot bail-out.Mr Farage said: “Even I didn’t think that they would stoop to actually stealing money from people’s bank accounts.
“There is going to be a big flight of money and that flight of money won’t just be from Cyprus, it will be from the other eurozone countries, too. There are 750,000 British people who own properties, or who live, many of them in retirement, down in Spain.
“Now that we see the EU are prepared to resort to anything to keep alive their failing euro project, our advice to expats living down in the Mediterranean must be, ‘Get your money out of there while you’ve still got a chance’.”
Surge in Support for UKIP
The latest poll shows Ukip only 10 points behind Tories.
The Conservatives and Liberal Democrats have suffered a double blow as Nigel Farage’s UK independence party soared to 17% in the latest Opinium/Observer poll, and a large majority of voters have said they believe coalition economic policies are harming the country.Labour has dipped by 2% to 39% – also a likely victim of the UKIP bounce – while the Tories are down by the same amount to 27%, one of their lowest ratings of recent years.
The personal ratings of the leaders of the three main parties in parliament have all dropped, with David Cameron’s having fallen by 8 points in two weeks from -18% to -26%. That of Labour leader Ed Miliband has dropped 5 points in a fortnight to -20% while Nick Clegg’s rating has crashed a further 7 points from -46% to an alarming -53%.
But the findings on the economy will reverberate most at Westminster. Just 20% of all voters now believe the government’s economic policies have been beneficial to the economy, against 58% who say they have been harmful.
Let’s hope there is a run on Spanish banks. The sooner this mad experiment in the eurozone ends, the better.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Mish’s Global Economic Trend Analysis
UKIP Leader Nigel Farage Says "Get Your Money Out of Spain While You’ve Still Got a Chance"
Reader Asks "Where"s the Money?"
Reader Robert at Americans for Limited Government asks an interesting question.
Robert writes …
Hello MishWe are led to believe that taxing Cypriot deposits in the amount of 5.8 billion euros will make the banks solvent. I have a question: Why the need for capital controls after “recapitalization”? How can deposits be used for taxation but not withdrawals?
Robert
I believe that’s a rhetorical question. Robert knows the answer. Even with the EU kicking in 10 billion euros (a loan not a gift), the money is not there.
If the banks were sufficiently capitalized, there would not be a need for capital controls.
End of the Single Currency in All but Name
Jeremy Warner at the Financial Times has an interesting article on this very subject. Warner says If capital controls are introduced in Cyprus, it is the end of the single currency in all but name.
With the European Central Bank threatening to pull the plug on Monday by denying further liquidity support, and showing absolutely no sign of blinking, Cypriots have little choice in the matter. The present plan is only slightly more palatable than the last. The two most problematic banks are to be restructured, with uninsured creditors taking a 40 per cent hair cut. That gets the Cypriot authorities some of the way towards the €5.8bn they need, or is that €6.7bn? Reports suggest the beastly Troika has upped the ante. In any case, the balance, whatever it might be, is going to come from “taxing” uninsured deposits above €100,000 in other banks in the way originally proposed.However, the perhaps more widely significant part of the proposal is the planned application of capital controls. This is of course entirely necessary to prevent a further run on the banks the moment they open their doors on Monday. Many Russian depositors are threatening to remove their spoils if they are subjected to any kind of a haircut. This would quickly render these organisations essentially insolvent regardless of the recapitalisations. Almost no amount of capital is sufficient for a bank which has lost the confidence of its depositors.
Yet the point is that if capital controls are introduced, it basically makes Cypriot euros into a national currency, rather than part of wider monetary union. The capital controls will severely limit your ability to get your euros out of Cyprus, rending them essentially worthless in the wider eurozone. It would be a bit like telling Scots they can’t spend their UK pounds in England. Monetary union is many things, but above all it is about free movement of money and a uniform value wherever it is spent. When these functions are disabled, then you cease to be part of a single currency.
This is precisely what happens in a fractional reserve lending system when faith is lost. And faith certainly has been lost. Why shouldn’t it be lost? The entire global financial system would be recognized as insolvent if even 25% of the people tried to get their deposits.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Mish’s Global Economic Trend Analysis
Reader Asks "Where"s the Money?"
Saturday, March 23, 2013
Reader Asks "Where"s the Money?"
Reader Robert at Americans for Limited Government asks an interesting question.
Robert writes …
Hello MishWe are led to believe that taxing Cypriot deposits in the amount of 5.8 billion euros will make the banks solvent. I have a question: Why the need for capital controls after “recapitalization”? How can deposits be used for taxation but not withdrawals?
Robert
I believe that’s a rhetorical question. Robert knows the answer. Even with the EU kicking in 10 billion euros (a loan not a gift), the money is not there.
If the banks were sufficiently capitalized, there would not be a need for capital controls.
End of the Single Currency in All but Name
Jeremy Warner at the Financial Times has an interesting article on this very subject. Warner says If capital controls are introduced in Cyprus, it is the end of the single currency in all but name.
With the European Central Bank threatening to pull the plug on Monday by denying further liquidity support, and showing absolutely no sign of blinking, Cypriots have little choice in the matter. The present plan is only slightly more palatable than the last. The two most problematic banks are to be restructured, with uninsured creditors taking a 40 per cent hair cut. That gets the Cypriot authorities some of the way towards the €5.8bn they need, or is that €6.7bn? Reports suggest the beastly Troika has upped the ante. In any case, the balance, whatever it might be, is going to come from “taxing” uninsured deposits above €100,000 in other banks in the way originally proposed.However, the perhaps more widely significant part of the proposal is the planned application of capital controls. This is of course entirely necessary to prevent a further run on the banks the moment they open their doors on Monday. Many Russian depositors are threatening to remove their spoils if they are subjected to any kind of a haircut. This would quickly render these organisations essentially insolvent regardless of the recapitalisations. Almost no amount of capital is sufficient for a bank which has lost the confidence of its depositors.
Yet the point is that if capital controls are introduced, it basically makes Cypriot euros into a national currency, rather than part of wider monetary union. The capital controls will severely limit your ability to get your euros out of Cyprus, rending them essentially worthless in the wider eurozone. It would be a bit like telling Scots they can’t spend their UK pounds in England. Monetary union is many things, but above all it is about free movement of money and a uniform value wherever it is spent. When these functions are disabled, then you cease to be part of a single currency.
This is precisely what happens in a fractional reserve lending system when faith is lost. And faith certainly has been lost. Why shouldn’t it be lost? The entire global financial system would be recognized as insolvent if even 25% of the people tried to get their deposits.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Mish’s Global Economic Trend Analysis
Reader Asks "Where"s the Money?"
Sunday, March 17, 2013
Saturday, March 16, 2013
Thursday, March 14, 2013
5 Big Reasons Why Americans Don’t Save Their Money
Imagine your car needs a new transmission. It’s going to cost $ 2,000. Can you scrape that together within the month? If so, you’re better off than nearly half your fellow Americans.
We’re used to thinking of the nation’s economic woes in terms of unemployment. But even our sobering jobless rate masks a deeper economic sickness. In 2011, the National Bureau of Economic Research reported that 44 percent of Americans say they would have trouble coming up with two grand in 30 days if they needed to. These “financially fragile” households—one medical bill or busted furnace away from bankruptcy—cut across low-income groups and the middle class alike. What unites this huge swath of America is not an employment problem, but a savings problem.
Savings aren’t just important for buffering life’s emergencies; research shows that financial assets, more than income, are a strong predictor of upward mobility. They’re also crucial later in life. In 2010, 75 percent of Americans who were approaching retirement age—many of them in the tidal wave of aging baby boomers—had less than $ 30,000 in their retirement accounts. According to economist Teresa Ghilarducci, about half of middle-class workers will live out their golden years on a food budget of about $ 5 a day. So here’s the question: Why don’t Americans save?
1. Because It’s So Easy to Borrow
In 1923, a battle for the soul of the American consumer economy took place in Detroit. General Motors was eating Henry Ford’s lunch, thanks to a revolutionary innovation: consumer financing. For the first time, ordinary folks could borrow against future earnings from a big corporation. Ford, who despised finance, parried by offering savings accounts at his dealerships. You could sock away money for a new Model T—and you’d earn interest! But Ford’s idea didn’t stand a chance. In modern American history, the availability of credit and the savings rate stand in an almost perfectly inverse relationship. And GM’s peculiar new business model was just the beginning of credit’s availability to the average man. When usury laws were rolled back in the 1970s, easy credit flooded the market. According to analysis by the Federal Reserve Bank of San Francisco, changes in the availability of credit can explain about 90 percent of the long decline in American savings—down to where we are today, with an anemic savings rate of about 4 percent.
–Consumers and the Economy, Part I: Household Credit and Personal Saving, by Reuven Glick and Kevin J. Lansing, January 2011
2. Because We Throw Bones to the Wrong Dog
As a nation, we spend about $ 130 billion each year through the tax code to encourage people to save for the future. Trouble is, almost all of those tax benefits accrue to the wealthy—who of course don’t need the help and would save anyway. According to this paper from the Pew Charitable Trusts, the highest income quintile receives 70 percent of the benefits from these tax incentives. The lowest income quintile receives only 0.2 percent.
–A Penny Saved is Mobility Earned: Advancing Economic Mobility through Savings (pdf), by Reid Cramer, Rourke O’Brien, Daniel Cooper, and Maria Luengo-Prado, November 2009
3. Because So Many of Us Live Off the Financial Grid
Roughly 30 percent of Americans have no savings account, while 8 percent have no bank account at all. Absent a relationship with a bank, it’s incredibly hard to build wealth. American banks don’t make it easy for small depositors: minimum balance requirements and onerous fees regularly drive financially fragile savers away. When unbanked Americans need financial services, they often turn to expensive, down-market, sometimes predatory options like payday loans, check-cashing services, and money orders, whose high costs further erode wealth and potential savings. It doesn’t have to be this way: European nations like France, Germany, and Belgium have special banking systems for small depositors—often in the form of post office banks—and boast savings rates in the neighborhood of 10 percent.
–2011 FDIC National Survey of Unbanked and Underbanked Households(pdf), September 2012
4. Because You’re Kind of a Jerk to Your Future Self (Unless You Get to Know Him or Her)
Economic models predict that all of us, as rational agents, will arrive at some optimal ratio of savings to income during our earning years so we can maintain a comfortable level of consumption through retirement. But it just isn’t so. Real-life, flesh-and-blood humans engage in “temporal discounting”—we prize immediate gain more than future well-being. Neurological studies have even found that when we think about our future self, we might as well be thinking of a complete stranger. With these findings in mind, a team of scholars writing for the Journal of Marketing Research recently set out to find a way of helping people identify with their future selves. What they found: subjects who were shown images of themselves digitally morphed to look old set aside significantly more money for retirement.
–Increasing Saving Behavior through Age-Progressed Renderings of the Self(pdf), by Hal E. Hershfield, et al, 2011
5. Because our D.I.Y. Retirement System Just Doesn’t Work (But Would Improve Dramatically With One Simple Change)
As defined benefit pensions disappear from the landscape of American employment, it’s becoming clear that our 30-year experiment with a voluntary, private retirement system—401(k)s, IRAs, and the like—is a near-catastrophe. But behavioral economists have found that one tweak to the standard company’s 401(k) plan can vastly improve people’s savings behavior. Typically, workers must “opt in” to a company retirement plan: decide on a contribution rate, fill out paperwork, and then walk it all down the hall. This works fine in firms that only hire “rational economic agents.” In the real world, such a system puts the fate of households—and nations—at the mercy of procrastination. Better to put inertia in the service of the greater good: when workers are automatically signed up for retirement plans and assigned a contribution rate (with the freedom to opt out or tweak their rate), they generally stay the course.
–The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior (pdf), by Brigitte C. Madrian and Dennis F. Shea, November 2001
Wed, 03/13/2013 – 17:08
5 Big Reasons Why Americans Don’t Save Their Money