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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 

Commentary Of The Month

May 7, 2012

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By Mark Motive

Even if we did degenerate into a Mad Max world, in all likelihood it wouldn't last for long. North America can produce more than enough food for domestic demand, and its citizens would presumably work to restore democracy and order. Society would work to rebuild the economic and financial system lost through the collapse, simply because these systems provide lubrication for a functioning society.

For example, if the dollar were destroyed by hyperinflation, a new currency would eventually be formed because the barter system is extremely inefficient. (The need for coincidence of wants creates a very high hurdle for the barter system.) Because they are fungible, divisible, portable, and non-perishable, currencies significantly improve societal wealth by reducing transaction costs, enabling lending, storing surpluses, etc.

Because it is the universal language of commerce, gold could be the new currency, but eventually a more flexible paper-based system would once again arise. Here's the critical idea: whether or not that system is convertible into gold, gold could be used to transition wealth from the old currency system to the new. As a store of wealth, gold serves as a way to transition assets from one monetary regime to another.

Throughout history, gold has been used as a means to manage these types of transitions. During times of distress, people have converted their wealth into compact chunks of gold to take with them as they escaped a dictatorship or endured a failing currency. Gold is universally accepted as a store of wealth, meaning that it can endure what other stores of wealth (stocks, bonds, paper money... even land) cannot. This is why gold can help preserve wealth across economic transitions. Arable land, and the food that it produces, may not have the same benefits.

The problem with land - even arable land - as a store of wealth and a resource is that title is registered with the government. Collapsing governments throughout history have gone after land owners by taxing them at extraordinarily high rates and even expropriating their property. In some cases, tax rates became so oppressive that land owners simply walked away from their land with whatever possessions they could carry (gold anyone?).

Here's the caveat: gold can be expropriated too, by decree or by contract dissolution. First, by the sweep of a pen, the government can make gold ownership illegal and force citizens to accept whatever paper they shove down their throats. Despite this, history has shown that attempts at outlawing gold only drove gold underground and underscored its true value. Second, contracts that provide the right to own gold could dissolve if the counterparty goes bust. A contract is only as good as the faith and credit of the signatories, and the viability of the enforcement mechanism (like our collapsed government). Investors must distinguish between physical gold ownership and a contract that facilitates gold ownership.

If you feel confused at this point, you're getting the message: there is no single, simple answer for protecting wealth and preserving life during an economic collapse. But an important component of any plan is to own and store physical precious metals outside of the mainstream banking system.