LOSING GROUND
My friend Joe called me last week. He had gone to McDonalds for lunch. There was an old couple in line ahead of him. “How much for a chicken sandwich?” he heard them ask the cashier. “Maybe we should just order one,” the woman said quietly. They left the line for a corner table. He watched them count out a few wrinkled dollar bills and a handful of dimes, quarters and pennies. They couldn’t afford two chicken sandwiches. Joe has a brusque exterior, but inside he’s a softy. “It’s been bothering me all day. I should have bought them lunch. I wish I had.”
“There’s something wrong in a country that spends billions for a war and old people can’t get a chicken sandwich,” he complained. “Joe, that’s not it,” I replied. “It’s the money. They keep watering down the value of the money and people on fixed incomes are getting killed.”
In the 1930s my father scrimped and saved to pay for a $10,000 life insurance policy. He was a drummer on the Saskatchewan prairie driving from one town to another taking orders for envelopes, napkins and paper products. He described to me how he would wear a bandana to keep the thick dust out of his nose and often stop to scrape the grasshoppers off his windshield. The insurance policy was going to secure his retirement, but when he retired, it was only five percent of what he and my mother would need.
Despite what the government statistics on inflation tell us, the watering down process proceeds at warp speed. Savings and money in the bank face a growing rate of devaluation. That’s why savings are at such low ebb in this country. Government policies are destroying the savings ethic. A nation that doesn’t postpone gratification, or has no incentive to save, cannot last.
The government denies that inflation is a problem (one of its making). They refuse to count the exploding rates of asset inflation. Tangibles such as land, real estate, art and antiques soar upward in value with special categories such as ocean-front properties ($8 million for a double lot in SW Florida) or great art ($23 million for a John Singer Sargent) escalate at a torrid pace. If you own some of these things, you feel wealthy. If you don’t, and you’re of retirement age, you have legitimate worries.
The liberals and socialists among us would agree with my friend Joe that there shouldn’t be an expensive war while every person can’t buy a chicken sandwich. But, if the government arranges for that, then people learn to look for the government to feed them rather than feed themselves. Dependency grows when it’s subsidized. That’s another reason for low savings. People fritter their money away when they know the government will provide basics for them. Gambling casinos are full of retirees who know their old age is secure, no matter what.
The people who have the problem are those that want to live independent of government retirement homes and other subsidies. Even people of means have a problem when their income from a job, profession or business ends. Everything changes when your living off of capital. Especially when the purchasing power of that capital is rapidly eroding and you hope to live a long time. Investment income helps offset the loss of income from work. However, bonds lose value as do other forms of paper savings. Inflated stock prices are risky too. The way that money and credit are force fed to the public these days suggests further chronic debasement of the currency. Everything you need will likely become far more expensive in the future. As an example, we cite all forms of insurance – health, auto and homeowners. They just keep rising.
Our answer is to put 10% of your net worth into precious metals. On a historic basis, when measured against the amount of paper in the world, gold and silver look entirely reasonable in price. Ted Butler thinks buying silver today is like buying the first condo they built in Aspen. It’s going to more than offset inflation. You can’t park your money in the bank anymore and expect a long-term retirement that’s worry free. You have to be nimble, understand the inflation process and own some tangible assets that are liquid and a good value. That’s hard enough to do by itself. What’s even harder is to also prepare for the possibility of a downturn or asset deflation. Then there’s also the chance of an inflationary depression. I know it sounds self-serving, but I can’t think of many things better than silver to cover all these bases.
