The following is an actual email I sent to a client of mine who was worried about the recent fall in gold and silver prices. I have written extensively on my website about the reasoning to own physical gold and silver and I had directed this client to read again what I wrote in Chapter 4 of my book “Buy Gold and Silver Safely.” This is the chapter that outlines what is occurring in the economy and predicts what will happen next.
On a side note, I have zero clients calling and selling their gold and silver. I do have many that are buying more or have taken my advice and are dollar cost averaging into a position.
Here is what I wrote to my client, outlining his concerns;
Yes, I put a lot of time into putting the pieces together for that chapter (4) of my book. One other issue that was part of the reason for the pullback, is the CME raised margin requirements. I do think the CME, banks and Fed talk to each other in manipulating prices, but don’t ever write about it because I can’t prove it.
Goldman Sachs and J.P. Morgan are bank holding companies now. It doesn’t take much speculation to assume they might be told to take the short side, collectively, of the gold and silver trade.
That said, the Fed and our government can not possibly reverse our economy into prosperity by increasing the debt burden. Japan has been trying to do this for 15 years with the result being they are the country with the largest debt to GDP ratio in the world at over 220%. But Japan has two things going for it that the U.S. does not. They are a net exporter because they produce things the world wants, and they own about $750 billion of our treasuries.
The U.S. doesn’t really produce much any longer, and we owe Japan, China and others trillions. All our economy consists of, for the most part, is shuffling what wealth we have left from one place to another.
When you add to all this the high union salaries of teachers, police, firemen, etc., as well as the military quagmire, simple math tells us it’s all unsustainable. It doesn’t matter who is elected President either. Obama was supposed to get us out of the wars and has only increased our involvement. A Republican in office won’t reverse the military expense.
Unions will stop work or riot before taking cuts in pay. Congress won’t make the necessary cuts because of lobbyists who represent special interests. They just sit and wait for their lifetime guaranteed pension and healthcare to kick in and go work in the private sector of the businesses they helped out while serving the People. But they never serve us.
Banks cheat by not marking to market their assets. They also play a dangerous derivatives game where just one bank can start the domino effect. This will occur at some point, just as it did for AIG, Bear Stearns and Lehman in 2008. But the Fed’s balance sheet is already messed up. People will lose faith in them, but Congress will still cry for help (both parties) like they did with TARP in 2008. Genther wanted out because he didn’t want to be blamed for things. He knows we’re in trouble.
Yet while one can be right about the future, they could go broke with manipulated pullbacks in gold and silver if they are on leverage. You are not on leverage. You hold physical. The short term pullback, while severe, is only temporary. Nothing has changed with the underlying economy and banking system.
Unemployment is still high. Real estate prices have zero demand as banks aren’t even lending. What bank owner wants to lock in a 4% 30 year loan? I wouldn’t. And people are still living in their houses for free as banks won’t foreclose as they would have to put that asset on the books at today’s value rather than the 2006/2007 higher value they currently have it at. Besides, the FDIC is $8 billion in the hole to begin with.
Pension plans are unsustainable. States and cities can’t afford the promises they have made. Welfare costs and entitlements are blowing sky high. Medical costs are out of control still. Nothing is getting fixed. Congress doesn’t have a clue how to fix things.
Now, with all of the above going on, add Europe and their banking troubles as well as the unsustainable promises they have made to their citizens, and problems are compounded. Same goes for England. China is also a bubble waiting to happen.
Patience is what is needed. The Bible is clear on debt. More people need to read the Bible, which is the premise of the second book I am writing.
We need to cut, cut, cut. Government employees won’t be happy, and now with so many on the government payroll, they are a large voting block. They just might vote themselves into an economic funeral.
Our entire economy is based on a stable monetary policy. We are going through a deflationary credit contraction as pointed out in Chapter 4. Instead of letting this occur, to weed out the bad companies, banks, malinvestments, we bail them all out, and then stimulate more with failed Fed policies of quantitative easing.
Adding more debt to debt is only a temporary solution. Everything is unsustainable. Banking problems will bring the house of cards down. That is the next piece of the puzzle. Gold and silver are insurance against this. They are the only insurance that will counteract it.
There will be no “healthy” economy in the next few to many years, and a new or same leader won’t make a difference. Time is all that is needed to see gold and silver take off to record highs.
Notes: For the last year I have been telling clients the best way to invest in gold and silver is to dollar cost average in. This advice still holds true today, even with the pullback we have seen in gold and silver prices.
In 2008, gold and silver prices peaked in March. They proceeded to fall while the dollar rose in price until September. It is best to take the tortoise approach to investing in precious metals than the hare.