Everyday I am more convinced inflation will be the most destructive force in the New Depression. Both the European Central Bank and the Federal Reserve Bank are prepared to print as much money as necessary to fight deflation. Unfortunately, they don’t seem to realize that deflation is actually good for the economy. The reason is because it brings prices down, making it easier for unemployed people to afford necessities. Since people are still able to buy the things they need, eventually the economy gets moving again. (Here’s a more detailed explanation.)

Why You Should Own Precious Metals Instead, the central banks have been printing on an unprecedented scale which has resulted in a sort of tug of war between inflation and deflation. However, I believe inflation will win this tug of war because of the Fed’s insistence on doing whatever it takes to stop deflation. We’re already seeing the effects of this in the prices we pay at the grocery store. That’s why I believe owning precious metals is more important than ever. And now that there’s talk of QE3, gold and silver prices are only going to go up.

I know some people who are skeptical of owning precious metals. The reason is because you can’t eat gold and silver. This is actually a good point. The basics (food, water, medical, etc.) should be your top priority. But if you’ve already stocked up on those things and you still have some money to spare,  you ought to get at least a few precious metals. Let me explain…

During most disasters (earthquakes, hurricanes, etc.), cash is king. With the power offline, stores have no choice but to accept cash. This is why I recommend you have some of your savings in cash rather than in the bank. The same is true of a sudden economic collapse. If the food trucks aren’t moving and the banks are closed, people will rush to the stores to buy up whatever is left, and most of those stores will only take cash.

But what if neither of these scenarios occur? What if prices slowly get higher and higher until one day you realize food is taking up most of your monthly budget? Imagine food is five times as expensive as it was a couple years ago. That won’t be a problem if you own PM’s because your gold or silver will also be five times as expensive. You could stop at a pawn shop and sell a few silver coins on the way to the grocery store. This is exactly what Fernando Aguirre did during the hyperinflation in Argentina ten years ago.

Here’s another situation where PM’s might be more useful than cash. Let’s say hyperinflation has gotten so severe that your country’s currency is practically worthless and many people have resorted to barter. You own a chicken coop and have some surplus eggs. Your child is sick and you desperately want to trade those extra eggs for medicine. But the only person you can find with the type of medicine you need doesn’t want your eggs or anything else you have. He needs a new water filter. Now you have to find someone with an extra water filter who also happens to want eggs.

You can see how complicated things can get in a barter society. That’s why people naturally start using currency anywhere trading is done. But if people don’t trust paper money anymore, they’re going to use something they can trust. Some people might use bullets. Others might use salt or spices. But I believe everyone will trust the value of gold and silver. Why? There are limited quantities, they can be divided into various sizes, they’re portable, and they’ve been considered valuable for as long as anyone can remember. In the example above, you could just give your neighbor a few silver coins in exchange for medicine, and he could use those coins to buy the water filter. This saves everyone a lot of time and stress.

However, if you do decide to buy precious metals, don’t fall for some of the scams you might have heard about on the radio. They claim that if the government confiscates gold (like it did in 1933), they won’t take numismatic coins. Therefore, you should spend double for the same amount of gold simply because it’s a collector coin. This is completely false. If the government decides to confiscate gold, they’ll take all of it. I higly recommend you check out goldscams.com.

Next week I’ll talk about how to keep your gold safe from the government and looters.

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  • Dragonheavyflamer

    Deflation is good for the lenders, as it makes the money they lent out worth more when they get it back.  Deflation actually will hurt virtually everyone else as businesses won’t want to borrow as they will need to pay back both interest and the deflation, people won’t buy items as they will cost less tomorrow, and wages will go down in order to match the deflated price.  In effect, the deflation policy will help the banks and screw everyone else.  Also, gold and silver are not effective mediums for exchange, currently, as they are heavy, priced to the point where a five dollar speck of gold could be blown away in a weak wind, and if you purchase gold now, you will get screwed later in a housing market style bubble. The price of gold is inflated due to fears of inflation, and has been increasing for the last four years.  To buy now is akin to purchasing a house in 2008 because prices have been increasing for a decade.

    A better idea is to purchase a light, useful item, like matches, which will be valued due to how it is necessary rather than a heavy item that depends on people liking shine and accepting that it has value, which is neither sure nor will be the same across the board.  Also, if you are trading gold after a society crash, you need fairly complex chemical or weight measurement tools to ensure that you aren’t trading for 9/10 lead with gold foil, or some similar rip off item.  

  • alanz11

    Deflation is actually worse for lenders because it’s more difficult to collect when people have less money. But with inflation, they can spend the new money on real assets before the money is devalued. And it’s not always a bad thing if businesses don’t want to borrow. During a recession, businesses need to save money rather than make the underlying problem even worse. Also, people will still spend money even if prices are going down. They’ll just only spend money on things they actually need. This increases the savings rate and puts the country on more stable ground. Gold and silver work great for exchanges. No one would try to spend $5 worth of gold. That’s what junk silver is for. Gold coins are good for larger purchases. And there can’t actually be a bubble in gold the way there was in housing because there will always be a fixed amount of gold (relatively fixed, as miners only add about 2% a year). With the housing bubble, there got to be too many houses and people realized they weren’t worth as much. 

    Now I agree that things like matches will be great for trade. This site has an article about barter items. http://urbansurvivalsite.com/barter-trade-items-in-a-survival-scenario/ And I think people should concentrate on preps and things in that list first. But for people who have more savings, gold and silver is a great backup plan if inflation gets severe or if you can’t find anyone who wants what you have to trade. And fake gold and silver is pretty easy to spot. You can tell by the sound they make when you drop them, and gold and silver eagles are hard to fake. 

  • Elfus

    Silver is good to have and is still within reach ………….unless you already have some ….forget about gold , its so far off the charts at this point that it would be a waste of money , use that same money to buy things you will need every day ….like food and other things .
    just my 2 cents .

  • alanz11

    I still like gold if you can afford it because I think it has nowhere to go but up. But yea, silver is probably a better investment for most people.