Fractions are not your friend
There have been quite a few exceptionally tragic “natural” disasters lately – mostly affecting some of the poorest areas of the world. The probability of “ongoing” occurrences of dramatic destruction and resulting “reduction” of the affected local human population in the near future is something to consider – as is the possibility that human influence on what happens on this planet may at the same time be at least fraction more and less than many people might suspect. Humans are certainly capable of causing all sort of upheaval – especially economically.
A man-made “shake up” of currency may not be far off. Much of the current “financial crises” is the result of a “fractional reserve” central banking system issuing fiat currency and a “market” that allows the trading of “derivatives” (where a fraction of something is sold for more or less than the thing itself is actually worth). Those with inside information and ability to manipulate market perception and prices continue to profit while most other people are taking huge losses (in income, assets, and opportunities) and face increasing costs, expenses, and debt – that few can “afford” (to pay or owe).
Fiat currency around the world may finally get some “backing” (by something of value) – but only fractionally. Gold and silver reserves are leading candidates for central banks to give national currencies more value than just the paper it is usually printed on. But unlike the commodity standards of the past, where each note in circulation could be redeemed for a known value of gold or silver, in our current fractional reserve banking system (where loans need only be backed by 10% in actual assets), it is VERY likely that currency backing will only be for a fluctuating percentage of notes in circulation. China (or some other country) with larger gold and silver reserves may introduce a gold-backed currency – forcing ALL other countries to do the same. The “new” currency might initially be backed entirely or partially – but is VERY likely to have an “adjustability” that works to the issuing country/bank’s advantage (once investors have bought in). I would be surprised if eventual backing was ever more than the fractional reserve required for loans (which is typically now about 10%). This means that, like loans, the actual (monetary/financial) value of what is actually in anyone’s possession is far less than what it is usually claimed to be “worth”.
A LOT of people could lose all their “money” very quickly when(ever) the percentage of backing fluctuates or “adjusts” – as it VERY likely would. Like earthquakes, tsunamis, and other “natural” disasters, most people will not see it coming or be prepared – and will suffer as a result. The people affected least will be those who own some of the commodity that backs the currency. Most investment paperwork has a clause about the possibility of losing all of one’s money. Precious metal investments do not have this requirement since it is virtually impossible to lose everything investing in things that have always had value – especially in a time when supply, demand, and conditions favor their VERY likely (extreme) appreciation and increase in value.
Gold and silver prices are currently fluctuating and have yet to increase to their predicted monetary value in the near future. This means it is still possible to purchase them (if you can) at a fraction of what they may soon be worth.
In 2009, China “produced” 1,070,000 ounces of gold – exceeding all other countries. Their production continues to rise while many top producing countries are in decline. Last year China also “revealed” that it had an “extra” 600 metric tons (of gold) which is 1,322,773 pounds or 21,164,368 ounces! At only $1100/oz that would be worth $23,280,804,800. The Chinese government encourages citizens to put at least 5% of their “savings” into precious metals like gold and silver – to preserve their “wealth”. The Average Chinese annual income is $2,775/yr in cities and $840/yr in rural areas. 5% of $2,775 = $138.75; 5% OF $840 = $42. That wouldn’t seem to allow the average worker in China to buy much at all – let alone very much gold, silver, or any other precious metal or asset of value. $2,775/yr is $231.25/mo or $53.36/week or $7.60/day. $840/yr is $70/mo or $16.15/week or $2.30/day. Workers extracting silver from e-waste (using methods that severely compromise their health and longevity) receive up $8/day in China – which they consider very good pay! If the Chinese population were to (suddenly) drop – both the percentage and the actual amount of gold and silver available for monetary investment would increase dramatically.
Most silver is used for industrial manufacturing (not monetary use). Manufacturers are now reserving tonnage of silver to make iPhones and all sorts of other electrical devices. The U.S. discards 130,000 computers every day – and over 1 million cell phones. “Cash for Clunkers” was a Chinese idea. The cars were shipped to China were they were recycled and mined for precious metals. China is United State’s biggest creditor and biggest debtor. E-waste is a major growth industry (already in the billions).
“Motor City” (Detroit, Michigan) is not producing cars like it used to. China, however, is making a LOT of cars (with American names). How Chinese wages allow the purchase of an Escalade is beyond my comprehension, but sales of many products Americans can no longer afford seem to be brisk in China. MOST products sold in the United States (especially at Wal-Mart) are at least partly made in China. China is increasingly reducing both the raw materials and finished products it is making available for American consumption – preferring instead to bolster its own economic development, growth, and power.
Many things are no longer what they seem (to have once been). Chrysler is now owned by Fiat (and thus is an Italian company, not an American one). Muhammad Ali was born Cassius Clay. Cash is sometimes treated as “king”, but it’d be better to think of cash as “clay” – since both the form and the worth of fiat currency is only what a government claims. Real value and wealth tends to be in tangible assets – like real estate, and profitable businesses.
Cities in Ontario pays Michigan to accept its trucked in trash to fill American landfill rather than clutter up Canada. Rather than just being a dump, there is an opportunity to mine, recycle, and harvest e-waste for increasingly valuable precious metals (like gold and silver) that are increasingly in short supply in the ground.
Michigan has waterways, trucking, and trains. People are being encouraged to leave and not come back. All that open space and drastically reduced-cost abandoned or foreclosed housing and commercial property is available at bargain process for people like Warren Buffet – who recently made the largest investment in his life when he bought a rail road – servicing coal trains – with tracks from Mexico to Canada. Mr. Buffet is also a big believer in buying the American Silver Eagle. Of course, he only pays $4 per coin, unlike most people today who will have to pay $20 or more. If even a fraction of what I’ve written makes any sense to you, then you might want to consider what you will do if currency becomes fractionally backed (by e-waste?).
© 2010, Oren Pardes. All rights reserved.
