Posted on 05/13/2010 6:31:17 AM PDT by blam
Beyond the Point of No Return: You Need to Buy Gold - Bud Conrad
by: The Report
May 13, 2010
"We're heading toward government devaluing its currency to devaluate its debt in order to survive. That means you need to protect yourself. You can't just have savings accounts paying no interest. You need to go and buy gold," says Bud Conrad, chief economist with Casey Research, in this exclusive Gold Report interview. Despite the grim outlook for the U.S. dollar and other paper currencies worldwide, Conrad believes he and other speakers at the recent Casey Research 2010 Crisis and Opportunity Summit have information you need to both prosper and protect yourself during the coming economic storm.
TGR: Today we are talking with Casey Research Chief Economist Bud Conrad who recently presented a riveting talk during Casey Research's 2010 Crisis and Opportunity Summit. Here are four major points from his talk:
The world economy is in a calm between a credit crisis turning into a currency crisis as the collapse of the private debt bubble is replaced by a government debt bubble that will also collapse. The world is at a point of no return for government debt as debt-to-GDP approaches 100%. When debt becomes too big, governments cannot control the interest rates and currency. The lead warning is Greece, much the same as Lehman Brothers was in the credit bubble crisis. Peak oil. The wealth of humanity has been built on energy. Half the world's conventional oil supply is already used. That means that the quantity of oil produced each year will not increase much from the current level even as demand from developing countries like India and China increases. Wars over oil have already started. Energy prices will rise. We will see a substantial rise in the cost of food, as food production requires energy. The U.S. can prosper and stay ahead of the rest of the world by developing and investing in three forms of technology—the Internet and cell phones, new medicines through biological breakthroughs and new sources of energy. All are good investment opportunities and are necessary for human expansion. TGR: What lens were you using as you developed these themes?
BC: I was trained as an electrical engineer and I spent much of my career in the computer business, so I look at things from a total system point of view. Whenever somebody has an issue I say, 'let's look at the data.'
We have sort of a blue sky overhead right now, as people think things are improving, but I think we're in the eye of the storm. We had heavy winds blowing from the credit crisis and we all know what happened. The governments came along to bailout the problems and purchase all the toxic waste of sub-prime mortgages and bad debt from too much private lending. Governments now have a huge credit bubble, just like we had with the housing mortgage bubble. I think that the government debt bubble will burst and that will be the other side of the hurricane, as the winds swirl around and hit us from the other direction in terms of a currency crisis and government debt collapse.
TGR: Are you at odds with the strategy the U.S. government is using to stave off the recession?
BC: If we decide we're going to build a few roads, maybe build a bridge, hand out some money for basketball programs or some other idea that seems to be part of large government programs, then we won’t have achieved much. Last year, the government spent about $1.5 trillion more than it collected in taxes. The Federal Reserve also spent $1.5 trillion buying mortgage debt to keep that market from further collapse. So the government spent $3 trillion dollars to give us the current blue sky of a small recovery. The current blue sky could be measured as 3% of GDP. GDP is about $14 trillion, so that's about $400 billion of economic growth. Well, $3 trillion spent for $400 billion of economic growth is a pretty bad return on your investment. Add to that several trillions of guarantees and future government obligations for Fannie (FNM), Freddie (FRE), FDIC, PBGC etc., and I have the basis for believing that these obligations are big enough to cause the collapse of the sovereign debt of the United States Furthermore, I don't think it's just the U.S.; I think it's worldwide. In other words, we're going to have debt crisis in the U.S. and Europe and other countries that have expanded their government debt too.
TGR: Is Greece the bellwether for this potential doomsday scenario?
[snip]
blam you’re gonna be a contrarian topping indicator :-)
You can’t eat gold. ;)
Goldbug ping
Mail me to get on or off the Free Republic Goldbug Ping List.
Hee, hee.
Perhaps someone can explain to me why it would make sense for a regular (non-investor) to purchase gold - especially now.
It’s freaking expensive - my entire paycheck would buy a single coin.
Currently, it is impractical for virtually all day-to-day transactions.
Most importantly, I could instead buy food, tools, and other hard goods that are more likely to be useful for trade and barter than a gold coin should the dollar become worthless.
I don’t see the logic in buying gold right now - even if it soars higher. What am I missing?
Thanks for the advice on Gold, however it’s way out of my price range.
“What am I missing?”
You’re not missing anything. People who are already in gold would like to see it go higher. Hence they try to scare you into buying it.
They never mention that the gvt could outlaw private ownership of gold, like they’ve done in the past. And that they can simply set a price for it when they buy it from you.
Brass, copper, lead.
All valid points. Silver coins would be better for day to day use if we really get to a TEOTWAWKI situation.
But that point is Mad Max stuff. Most of the interest in the gold price is as an investment. Many here have written that they will never sell their gold; I myself am a trader, so when we get into the bubble area, I’ll just be making another short term trade.
Go to www.apmex.com or www.providentmetals.com. You can buy bullion gold in 1 gram sizes as well as fractions of a troy ounce. The price ranges are small enough for most people to buy. The other precious metal is silver at 20 bucks a troy ounce. They also can be brought in fractions of a troy ounce.
Just a little logic... the only reference point we have for gold going through the roof during high inflationary times is the late 70’s. The problem with that measure is that it also was the beginning of gold trading as Nixon closed the gold desk in 1973. It was an asset bubble. We’re doing it again as gold-bugs and cash-laden sovereignties (China) buy it up. Meanwhile, there are other sovereignties selling into this market to take advantage of the price. It’s a commodity, not a panacea.
Now, what would really happen in the scenario laid out for us in this article? Well, like every other market, gold requires demand in order for its value to hold or rise. If the world’s economies actually collapse... who’s going to demand it? If you hold it, what will it be worth to the local market when you want to buy food? If it is truly valuable, you’d better pray to God for the strength to keep it if word gets out that you have it.
I agree with another poster on this thread. If you truly want to thrive in a post-economic world, you should hoard up on food, energy, tools and the means to defend them. These will be sorely needed and will have value... at least enough value to take care of your family. For most people, this recommendation means building shelters, food grains, and oil wells (or tanks)... not very practical in an urban or suburban environment.
During Weimer Republic hyper inflation, the people in the middle class that survived personally owned some silver or gold. Most of it was family heirlooms or jewelry handed down from one generation to another. People who did not have any precious metals but paper money savings lost everything. Just a note - Jews traditionally required each generation to accumulate up to 10 to 25 percent of their assets in precious metals or diamonds, as an insurance just in case the country they live in collapses or kicks them out. You can go anywhere with gold, silver and diamonds and convert it into local currency and start all over again. Since they have a history of wandaring from one country to another, the rest of us can learn from them.
Buy silver then - it tracks close to gold as a precious metal, and it it more “spendable” when the currency fails.
We have the same portfolio.
My view is that Greece is trivial when California is salvageable and will actually be the critical straw.
Most of the TGR statements are smoke
The buying power of gold has remained static for millenia. One oz. for a horse, about 50 oz for a house, and so on.
If America ever reverts to the bronze age then gold will carry the same buying power that it did then. People will trade their excess produce for it.
......salvageable....
Actually, unsalvageable
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