The Bureau of Labor Statistics tells us we have over 1.5 million Americans working in financial services. With such unprecedented levels of financial guidance, you may expect your mother's portfolio has been well taken care of, but admit it: Your mother has bought into the greatest lie ever told in finance. She actually believes that her savings in the bank, her CDs, and her money market funds … are rock solid investment vehicles to preserve wealth.
Even after the pain of the internet and financial crashes, Americans are still following the drumbeat of politicians and financial advisors to "stay the course … everything will be fine". If we remove our blinders and look beyond your mother's monthly bank statement, the real question is not if her dollars are still in the bank, but if it makes any sense for your Mother to hold 100% of her life's savings in that currency. You have surely seen the stats: the dollar has lost 95% of its value in the last century. Even worse the dollar has lost over 80% of its purchasing power since the 1970's.
Ask yourself: "If an asset lost 80% of its value, is that really safe?" Yet your Mother sits there, not questioning the sanity of having 100% of her "safe money" in that asset.
Can you imagine a foreign exchange desk on Wall Street that was 100% tied to one currency's success? The desk would be shut down or the manager replaced for excessive risk. But that is exactly what your Mother is doing right now. For her preservation, recognize your Mother is really acting like a closet FX trader who is "all in" and long the US dollar, the most remedial of wealth preservation mistakes.
So what is safe?
While not without volatility, gold and silver can make a unique claim on safety – Their longevity dates to the book of Genesis and an ounce of gold still buys you today what it bought you in Ancient Rome. What other currency has preserved its owner's wealth in such a fashion? The answer is none. Consider this:
If instead of choosing to save her money in US dollars when the Fed was created less than a century ago, suppose your mother had saved her earnings in the gold currency (Remember, at that time the two currencies, gold and dollars, were interchangeable just as four quarters are for a dollar bill today). $100 she set aside in gold currency would buy what $2,000 buys today whereas $100 saved in dollar currency would buy $3 of products today. How different would America's future be today if we had chosen to adhere to the wisdom of our forefathers and saved in gold currency instead of dollar currency?
If anyone ever tries to tell you that gold is not a currency then alarm bells should go off in your mind about that person's grasp of money and history. Recognizing that gold is a currency is the first step in understanding how to protect your family! If you don't believe me, look no further than the constitution of the United States which mandated that American currency MUST be one of precious metals! The Coinage Act of 1792 actually called for the death penalty on anyone found debasing the American currency in the manner it is being debased today. Why? Because our forefathers saw from history that to treat a currency as we are today inevitably leads to financial implosion.
Interestingly the inverse is playing out in China. For decades the communist Chinese forbade their citizens from owning precious metals – after all, they were communists and didn't want wealthy citizens. Just hold the paper currency the communists said. Recently the Chinese government did a rare about-face. The Chinese Central Bank admitted that it had nearly doubled its gold reserves while its holdings of dollars declined, and the Chinese government began encouraging its citizens to save in precious metals. Why? The Chinese government sees that in the future gold and silver will be the measuring sticks for wealth. The Chinese are also converting their "paper gold" (ETF's, etc.) into physical gold. Again, a good question is "Why?" What I do know for sure as it relates to that question is that their central bank knows a lot more than we do about the geopolitical stage. If they are concerned about the value of paper gold's promises to pay, then I feel it prudent to be concerned for your Mom's sake too. Like the Chinese, other central banks are starting to say that they don't want those paper gold promises, so again you probably don't want to hang your hat on paper gold either.
Your mother's financial ambush began in 1971. Being a good American she likely believed in the integrity of our nation's leaders and did not think much of the fact that the dollar was no longer exchangeable for gold. After all, on August 15th when President Nixon shattered the constitution by severing the dollar and gold he bellowed:
"Your dollar will be worth just as much tomorrow as today"
What a lie that was. Your mother might have recognized that she was under financial assault at that time but the government never sent her out a revised owner's manual for the US dollar that she held in her bank account. She was busy caring for her family expecting that if a real financial danger was imminent a warning would be sounded. But the political watchdogs were silent, and now forty years later the money she saved in the bank has imploded in value. Therein lies a root cause of the pain felt by the middle class.
The good news though is that this is not an epithet on your mother's finances.
You can still help her to diversify and protect your family's hard earned money by swapping some of your dollar savings for gold and silver savings. While both metals are more expensive than they were (gold ~$1165, silver ~$17.75) neither are near their historic peak prices in real terms (~$6,000 and $180 adjusted for inflation using 1970's era CPI). A benefit of having some physical gold and silver is that if the dollar continues to lose its purchasing power, your gold and silver will appreciate in value relative to your bank account – That is a valuable backup plan for your mom to have. Even if it feels like you are too late to start diversifying into metals, history tells us that you are not. Indeed vignettes from past currency crises portray that diversifying some of your mother's dollar cash into gold cash while gold is so far below its prior real peak suggests you will be able to rescue your mom and get her to safety.
And if you think I am just sounding the bell at the top, then sell to us - we would like to bid you for your gold. We are in the market above spot nearly daily.
Remember the 4th commandment: Protect your mother. If you don't, no one else will.
610.326.2000 | St. Joseph Partners, LLC
1776 E Lancaster Ave | Suite 210 | Paoli, PA 19301-1550