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Why we buy gold and silver

The main reason to buy gold and silver is to protect against currency debasement, which is brought on by massive deficit spending that requires the Fed to print dollars to cover debt that could not be sold to private investors.

If all the Treasury’s debt we sold to private parties, that would not result in currency debasement and would not result in inflation; however, private parties are not buying all the Treasury’s debt, which is rarely reported by mainstream media.

In 2015, the official debt rose $851 billion to $18.99 trillion, which puts the national debt at 100% of Gross Domestic Product. That ratio is high by all measures, except compared to Japan’s, which stands at 249%.

Consequently, defenders of deficit spending like to point to Japan’s numbers and conclude that we’re healthy. If two cars are going of a cliff, it doesn’t matter which one goes first. Both are going to crash.

But, is the official debt of now $19 trillion a real measure of US Treasury liabilities? According to many studies, the federal government’s off-balance sheet liabilities, which includes funds not yet set aside for such as the guaranteed retirements for military personnel, deposit insurance, loan guarantees, etc., stands somewhere north $100 trillion.

That is a debt that can only be paid by printing still more money.

Historically, governments never repay debt. They either default–flat out not pay it–or they print to pay their debt, giving debt holders money that has been debased and has significantly less purchasing power. When too much money is printed, hyperinflation sets in.

During Zimbabwe’s recent printing binge, the cost of an egg went to Z$1 trillion. History is replete with other examples of government printing presses out of control, and the stage is set for massive money creation around the world as all large countries have adopted Keynesian economics.

Japan is increasing it’s quantitative easing program; Mario Draghi, the ECB’s head, is promising still more QE starting next month. China is loosening its monetary policies. Now, there is speculation that the Fed will back away from raising interest rates in 2016.

If the Fed doesn’t back away and still raises rates to save face, it will probably go with another form of quantitative easing. Although many analysts are saying that the slowdown in China is responsible for the worst stock market start ever, down 8% so far this year, other analysts are saying that the Fed’s position on interest rates share a big blame for stocks declining.

Regardless, easy money is the future, and the proven hedges against currency debasement are gold and silver. Timing could not be better, with both trading at four-year lows.

2 Responses to “Why we buy gold and silver”

  1. Eli

    Whats the best way, in your opinion, to stack silver? I’m not knowledgeable enough to be a collector, and not sure i want to be one, but I hear the argument…”Buy rounds, more silver for the buck” and then…” Buy medium priced coins and they will bring in a higher price in years to come”

    • Bill Haynes

      Stay away from collectible coins, gold as well as silver. In a financial crisis, they will liquidate for the value of their gold/silver content, and you will lose the premium you paid.

      Lowest premium silver bullion products are 100-oz silver bars. Silver rounds carry higher premiums because of a higher cost of production, and because they are more time consuming to handle. Still, they have greater utility when liquidating or trading for goods and services.

      Consider also pre-1965 US 90% silver coins, often called “junk silver coins” because they have no collector value.

      Follow price of Silver Bullion Products here.


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