Curried Wealth Building
Finding an Edge

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April 22, 2012
Issue 195  -  Physical Is a Must
 
 
At some point in the future there will be a system "reset."  This may be a giant reset, which results in a complete change in our government or economy.  Hopefully it is a tolerable reset without huge hardships.  I'm not so sure which it will be.  What you do to prepare will determine how well you fare.  There is no way to "fix" the current system and maintain the status quo.  That just isn't possible.  There is too much debt and paper sloshing around for that to be a viable outcome.  Instead the system will lurch to a new "normal."  As that point you will be in a position of power, or weakness.  I believe the amount of physical gold and silver you have, will directly determine your fate. 
 
 
In the good old days, (when the gold certificate you see above were issued) you didn't need to have the metal in your possession.  The bank notes were "as good as gold."  At this point, that is far from the truth.  Bankers are clearly not about protecting your assets but about accumulating theirs.  You are an income stream and nothing more. 
 
To delve into the corruptness of the banks you need to understand derivatives.  Derivatives are financial instruments that serve many purposes.  They serve as hedges.  They serve as tools for leverage.  They serve as a substitute for actual ownership.  Most importantly today they serve as manipulation tools.  The derivative complex is so huge that to understand it completely you need to understand large numbers.  Here is a graphic showing a hundred dollar bill and then varying amounts of them.  Look how large a trillion dollars is in hundred dollar bills:
 
 
 
 Notice the bus compared to the trillion.  Now look how much in derivatives the largest 9 banks have alone:
 
 
That's a lot of derivatives huh?  Do you believe that there can be anything backing these instruments?  That is almost impossible to fathom.  These are not backed by much.  The amount of real stuff or cash behind these things is a tiny fraction of what they represent.  There is no way to "unwind" this many derivatives.  The powers that be must try and keep things in control.  This is becoming more difficult as evidenced by the exploding quantity of derivatives. 
 
One way I believe the elite will try and control things is through currency controls and what better way to do that then to eliminate cash:
 

Sweden moving towards cashless economy

AP) STOCKHOLM - Sweden was the first European country to introduce bank notes in 1661. Now it's come farther than most on the path toward getting rid of them.

"I can't see why we should be printing bank notes at all anymore," says Bjoern Ulvaeus, former member of 1970's pop group ABBA, and a vocal proponent for a world without cash.

The contours of such a society are starting to take shape in this high-tech nation, frustrating those who prefer coins and bills over digital money.

In most Swedish cities, public buses don't accept cash; tickets are prepaid or purchased with a cell phone text message. A small but growing number of businesses only take cards, and some bank offices — which make money on electronic transactions — have stopped handling cash altogether.

"There are towns where it isn't at all possible anymore to enter a bank and use cash," complains Curt Persson, chairman of Sweden's National Pensioners' Organization.

He says that's a problem for elderly people in rural areas who don't have credit cards or don't know how to use them to withdraw cash.

The decline of cash is noticeable even in houses of worship, like the Carl Gustaf Church in Karlshamn, southern Sweden, where Vicar Johan Tyrberg recently installed a card reader to make it easier for worshippers to make offerings.

"People came up to me several times and said they didn't have cash but would still like to donate money," Tyrberg says.

Bills and coins represent only 3 percent of Sweden's economy, compared to an average of 9 percent in the eurozone and 7 percent in the U.S., according to the Bank for International Settlements, an umbrella organization for the world's central banks.

Three percent is still too much if you ask Ulvaeus. A cashless society may seem like an odd cause for someone who made a fortune on "Money, Money, Money" and other ABBA hits, but for Ulvaeus it's a matter of security.

After his son was robbed for the third time he started advocating a faster transition to a fully digital economy, if only to make life harder for thieves.

"If there were no cash, what would they do?" says Ulvaeus, 66.

The Swedish Bankers' Association says the shrinkage of the cash economy is already making an impact in crime statistics.

The number of bank robberies in Sweden plunged from 110 in 2008 to 16 in 2011 — the lowest level since it started keeping records 30 years ago. It says robberies of security transports are also down.

"Less cash in circulation makes things safer, both for the staff that handle cash, but also of course for the public," says Par Karlsson, a security expert at the organization.

The prevalence of electronic transactions — and the digital trail they generate — also helps explain why Sweden has less of a problem with graft than countries with a stronger cash culture, such as Italy or Greece, says economics professor Friedrich Schneider of the Johannes Kepler University in Austria.

"If people use more cards, they are less involved in shadow economy activities," says Schneider, an expert on underground economies.

In Italy — where cash has been a common means of avoiding value-added tax and hiding profits from the taxman — Prime Minister Mario Monti in December put forward measures to limit cash transactions to payments under euro1,000 ($1,300), down from euro2,500 before.

The flip side is the risk of cybercrimes. According to the Swedish National Council for Crime Prevention the number of computerized fraud cases, including skimming, surged to nearly 20,000 in 2011 from 3,304 in 2000.

Oscar Swartz, the founder of Sweden's first Internet provider, Banhof, says a digital economy also raises privacy issues because of the electronic trail of transactions. He supports the idea of phasing out cash, but says other anonymous payment methods need to be introduced instead.

"One should be able to send money and donate money to different organizations without being traced every time," he says.

It's no surprise that Sweden and other Nordic countries are at the forefront of this development, given their emphasis on technology and innovation.

For the second year in a row, Sweden ranked first in the Global Information Technology Report released at the World Economic Forum in January. The Economist Intelligence Unit also put Sweden top of its latest digital economy rankings, in 2010. Both rankings measure how far countries have come in integrating information and communication technologies in their economies.

Internet startups in Sweden and elsewhere are now hard at work developing payment and banking services for smartphones.

Swedish company iZettel has developed a device for small traders, similar to Square in the U.S., that plugs into the back of an iPhone to make it work like a credit card terminal. Sweden's biggest banks are expected to launch a joint service later this year that allows customers to transfer money between each other's accounts in real-time with their cell phones.

Most experts don't expect cash to disappear anytime soon, but that its proportion of the economy will continue to decline as such payment options become available. Before retiring as deputy governor of Sweden's central bank, Lars Nyberg said last year that cash will survive "like the crocodile, even though it may be forced to see its habitat gradually cut back."

Andrea Wramfelt, whose bowling alley in the southern city of Landskrona stopped accepting cash in 2010, makes a bolder prediction: She believes coins and notes will cease to exist in Sweden within 20 years.

"Personally I think this is what people should expect in the future," she says.

But there are pockets of resistance. Hanna Celik, whose family owns a newspaper kiosk in a Stockholm shopping mall, says the digital economy is all about banks seeking bigger earnings.

Celik says he gets charged about 5 Swedish kronor (TEMPORARY_BODY_TAG.80) for every credit card transaction, and a law passed by the Swedish Parliament prevents him from passing on that charge to consumers.

"That stinks," he says. "For them (the banks), this is a very good way to earn a lot of money, that's what it's all about. They make huge profits."

 
This is also the perfect way to effect control over a "trouble maker."  Imagine having your entire net worth at the whim of a computer key stroke.   You cause too much of stink to the elite and your assets are "gone."  That's comforting.  Especially as our one and only "safety net," is getting sicker and sicker:
 
 
Social Security’s Financial Health Worsens
By ROBERT PEAR

WASHINGTON — The Obama administration reported a significant deterioration in the financial outlook for Social Security on Monday, while stating that the financial condition of Medicare was stable but still unsustainable.

The Social Security trust fund will be exhausted in 2033, three years sooner than projected last year, the administration said. And Medicare’s hospital insurance trust fund will be depleted in 2024, the same as last year’s estimate, it said.

"The projections in this year’s report are somewhat more pessimistic than last year’s projections," Treasury Secretary Timothy F. Geithner said in issuing the annual report on the two programs, which together account for more than 35 percent of all federal spending.

The central message of the new report was the same as in recent years: the two programs are unsustainable without structural changes that have so far eluded Congress and the administration.

Social Security Commissioner Michael J. Astrue, a trustee of the two programs, said Social Security’s disability insurance program faced the most immediate threat, with its trust fund expected to run out of money in 2016, two years sooner than predicted last year.

For the disability program, as for Social Security over all, tax receipts would be sufficient to pay about 75 percent of promised benefits after the trust fund was exhausted.

The estimates, a perennial source of political ammunition in the debate over federal spending, debt and taxes, come as Republicans and Democrats are noisily blaming each other for the problems of the popular programs, which provide benefits to more than 55 million people…

Of course the system is actually in even worse condition than reported.  This system is NOT going to supply you with much if anything.  While you might receive your checks, what you won't be guaranteed is the VALUE of that check.  Not the nominal face value, that will be printed on your check or deposit, the problem will be the purchasing power of the money you receive.  I believe the money will be depreciating rapidly and its buying power is suspect.  Projecting what you will receive from social security is a crap shoot.   
 
Why is this inflation continuing unabated?  Because that is the only possible way of prolonging the charade.  Credit expansion is only way to go and it has been that way since the closing of the "gold window."
 
 
Credit has become the defacto way of life.  As you can see before 1970, there was virtually no credit.  This has turned into a sort of monster from the black lagoon, growing out of control and without limits.  As you can see in the graph, credit is turning up again.  There is a limit here and sooner or later, that will be hit. 
 
We have heard how badly the Euro zone countries are doing in regards to their indebtedness, well guess what?  We are in worse shape: 
 
 
All of this debt leads you to one and only one investment: precious metals.  As I've recommended for years, this is the only sure fire way to protect yourself as the system hyperinflates.  Wouldn't it be interesting if gold and silver were in limited supply?  Wouldn't it be interesting if the ability to pull them out of the ground had peaked?  May be they have:
 
Mineral Resources

Is the World Tottering on the Precipice of Peak Gold?

Worldwide, gold production has hardly budged in the past decade. It's not for lack of demand. Gold may not fuel economies the way oil does, but gold for jewelry—its primary use—has been much in demand, and that demand will likely increase. Investors' interest could be intense for years longer. But to judge by the mining industry's modest success of late in finding new deposits of gold, production will not be much higher in the next decade. Miners and analysts agree that most of the easy-to-find, easy-to-develop gold has been found. To discover still-hidden deposits and at least maintain production, let alone increase it, miners will need continued high or even higher gold prices, revolutionary new technology, and the cooperation of often reluctant host countries.

 
The idea that there may be peak gold only adds to the attractiveness of it as an investment.  Even if we aren't at a peak, we do have dwindling supplies in silver.  Here is a chart showing how much silver the COMEX has in it's registered category.  As you can see, compared to 2008, there is much less:
 
 
The Comex supposedly has the largest cache of silver in the world.  If this cache is dwindling, what does that tell you about the silver supply?  To me it suggests that you want some silver in your possession.
 
So the final question comes back to timing.  When is a good time to buy?  If you have no gold and silver at this point, you buy right now.  Today.  I believe It's just not worth having no insurance at this point in time.  Gold and silver may, and think will, fall further over the next 6 months but you must have some in your portfolio.  If you already have some, then dollar cost averaging is probably the way to go over the coming months.  Buy some each month on a given day until you have a sufficient amount.  I would have at least 20% of your portfolio in gold and silver.  That is the MINIMUM for basic safety. 
 
Of course the other way to invest here is the shares.  They have performed very poorly (outside of GORO) over the last year with many stocks at their lows.  Here is a chart showing the value of the XAU (a precious metals stock index) versus the value of gold:
 
 
Would I buy these stocks now?  Again, I still believe that gold and silver will fall further.  However, the shares have been performing so poorly, that they probably have much less room to fall.  The shares could also be bought on cost averaging basis here too with fairly good safety.  The bottom line is that you need gold and silver in your possession.  
 
I'll close this week with a "people are awesome" video, have a great week!