12/04/2013
I would like to paint a picture for you to describe America's financial situation. Imagine we are all on a plane flying high above the earth. Our pilot has assured us multiple times that everything is fine with the aircraft and that things are going smoothly. We’re very easily going to make our destination on time and with no problems. If anything does go wrong though, we can all see a large closet which is labeled: “parachutes”. There are, say, 100 of us on board the plane, and we are told there are 100 parachutes. But, strangely, no one is actually allowed to open the closet up and check for sure. The pilot assures us, don’t worry, you don’t need to see how many chutes there are because there are certainly 100 there – enough for everyone. Now as the pilot is saying this, you look out the window and you see smoke coming out of one of the engines. You also see one of the wings fraying a bit. Every once in a while the engine sputters but then returns to normal. A few of your friends seem a bit concerned but no one else is really alarmed. After all, the pilot keeps assuring us that everything is okay. He’s got it all under control—and even if something went really wrong, hey, we’ve got these 100 parachutes! One of the co-pilots even pulls a parachute out to show us but, interestingly, he doesn’t let people see how many others are there. For the most part everyone is convinced by the nice pilot’s words and by the demonstration of the safety equipment. Yet, something still does not seem right.
This is where America is today. We are in uncharted territory financially. Our economy is showing clear signs of sputtering and yet we are assured that the monetary system is functioning just fine—with its lifeblood, the US dollar, in great health. But, historically, gold has served as currency, or at least has backed currencies. And nowadays gold provides at the very least a tacit backstop to any currency so that it retains some confidence. So how much gold is backing the US dollar? This information is being held very close to the chest of the federal government. We are told there are some 6720 tons of gold in the Federal Reserve’s vault in NY City. And yet, amazingly, these holdings are never audited and so we private citizens can't have any confidence ultimately that this gold is actually there. These gold reserves are the equivalent of parachutes on an airplane as they provide the ultimate security in times of monetary instability and chaos for a currency. And the fact remains, we have no idea if that gold is even there.
At some point, something is going to happen on this airplane. Maybe a wing breaks or an engine dies. Something is going to happen that causes the people to wake up and see that the plane is broken and is going down. They are going to panic and frantically search for the ultimate security that the parachutes provide. And when that happens the Fed is going to be forced to reveal its hand. If they hesitate and balk and it turns out that the parachute closet is empty, we are looking at mass hysteria and an economic collapse. The price of parachutes, need I add, is going to absolutely skyrocket.
Yes, it has been a frustrating fall season for precious metals investors. Yes, it seems that despite indicators pointing towards a surge in the value of precious metals (endless QE, skyrocketing debt, China hoarding gold, the fact that our gold is not even audited, phantom unemployment numbers from a continuously dishonest government and a nation on food stamps…just to name a few) gold and silver have been knocked down a peg or two. But, remember, the fundamental reasons for owning gold and silver have not gone anywhere. The fact remains: fiat currencies fail and the dollar is being debased hand-over-fist. The cat will get out of the bag sooner or later. Better to be two years early than a week too late.
Be wise. Be patient. And continue to invest in physical gold and silver while you still can at these incredibly low prices.
Feel free to contact me if you have any questions.
