By David Galland
One of the memes among the sound-money community is that one day things will get so bad that the public will come to its senses and throw the bums out, and then things will get better. Recently I came across an article by Daniel Amerman on GoldSeek offering an alternative perspective. He also discusses a very plausible threat to gold investors, stemming from a possible government action to outlaw cash – a topic I have written fairly extensively on.
Amerman’s basic thesis is that either gold will again be used as cash, in which case the gold you own will skate by tax free, or cash itself will be outlawed, in which case gold owners could be severely disadvantaged.
Here’s a quote:
For this illustration/exploration of possible futures, we will assume that there will be a deadline date when all cash must be deposited and converted to electronic form, and after that date – any payment with cash that can’t be electronically tracked will be a felony. This would, of course, include any payment made with gold or silver as well, meaning spending a silver coin in a manner that didn’t generate an electronic tracking report would be an automatic felony.
And here’s a link to the full article.
Please note that I have done no diligence on Amerman and have no idea if the products he actively touts are worthwhile, but I do believe his thinking offers an important perspective. Gold is a better form of money than the paper/electronic sort so casually ginned up by sovereign issuers these days, but it is not immune from deleterious actions taken by those same sovereignties. They have the guns (figuratively and literally) and so get to make the rules.
Underscoring the point, I recently came across this potent reminder that things can change, and be changed, almost overnight.
As you will note in the large type at the bottom of the notice, the fine for failure to turn in your gold was $10,000, or 10 years in prison – or both. For the record, in today’s dollars, that fine would amount to about $165,000. That, and the potential for ten years in prison, might make you think twice about squirreling away some coins or trying to trade them “off the grid” for some product or service, eh?
Now, please don’t get me wrong. In the current circumstance, with monetary inflation (quantitative easing) raging, not having a healthy allocation to gold and/or silver would be an act of insanity.
But it is essential, in my view, that you keep things in perspective. There are other ways to diversify out of the way of inflation worth considering. In the hyperinflation of Weimar Germany, simply owning the currencies of your neighboring countries – the British pound, French or Swiss francs – would have completely preserved your wealth. And, in fact, given you some serious purchasing power; as the inflation in Germany raged, people from France would drive across the border and buy heirloom antiques for the equivalent of pocket change.
Buying foreign real estate is another choice, or even shares of solid foreign companies.
Again, it is not my purpose to talk down the precious metals, but rather to broaden the discussion so that you will at least entertain the idea that even something as relatively simple as banning cash, something the government could do in the blink of the proverbial eye “for the public good,” could be a game changer.
Would anyone really care if the government banned cash? Sure, but not many. As Amerman points out, and as is consistent with my own experience, entire weeks go by where I carry no cash at all in my wallet.
I don’t perceive any immediate threat to cash – and by extension gold – but this is definitely something to set your radar to.
In the meantime, the precious metals remain a very important tool in wealth preservation (though it may not seem that way if you are new to the market and have experienced pain from the current pullback).
Moderation in all things, including your allocation to precious metals.