Thanks to the recent excellent article by John Waggoner in USA Today, “Real assets create real riches,” I feel more confident than ever regarding the new bull market in gold, silver and other commodities. John sums it up well:

Some of the sharpest minds on Wall Street are betting that you’ll make more money in metals than Microsoft the next few years. The new bull market is in stuff, not stocks, they say. We’re talking about land and oil and gold, the commodities that once made John Jacob Astor, John D. Rockefeller and the Hunt brothers very rich men.

So, tangible “stuff” is where the big money is moving and that means we are still in the early stages of a bull market that could last another decade. This is excellent news for the individual investor if they are willing to first invest some time to learn before earning.

Let’s apply some common sense

Common sense seems to have become rather uncommon in today’s complicated world. Therefore, when faced with financial decision, I find it is best to look at the facts objectively first and discover the truth myself using my common sense. Then, after I am confident in my decision, I often will seek someone trustworthy to see if it makes sense to them as well. This process of using common sense has served me well over the years most of the time.

Common sense says that understanding America’s economic future must be based on an accurate assessment of the present, and a working understanding of the past.

Today the undeniable economic fact is that America has become a debtor nation, as evidenced by:

  1. The world’s confidence in the U.S. dollar is faltering, nevertheless they loan us more.

  2. The world loans us about $1.8 billion per day, totaling about $7.6 trillion.

  3. The U.S. government debt of over $44 trillion – between Medicare and Social Security “trust” fund.

  4. The U.S personal debt has grown to a staggering $9.3 trillion.

Add it up and we have about $60 trillion in acknowledged U.S. debt. Divided by roughly 100 million employed U.S. households and you get about $60,000 debt per household – up from $25,000 just a few short years ago.

My point is that common sense says that borrowing from tomorrow to pay for today is dead wrong – yet we whistle by the graveyard, pretending that we are “Donald Trump” wealthy – that is, for appearance sake only. Americans, like the central bankers who pull the big money strings, pretend they are above the laws of economics. But they – and we – are not. It is this type of American pride that could bring this debt-driven economic house of cards down.

The “money” confidence factor

Confidence is defined as believing in someone or something that is trustworthy, or belief in truth or the reality of a fact.

All true money must be derived from a commodity, or at least have a substance to back it up, or it will gradually become fraudulent, or “fiat” money and then, over time, public confidence erodes the value of the “money” – internationally first, then domestically.

Have you seen the chart for the U.S. dollar recently? It sure does not look like a “strong” dollar to me – especially if you look at a dollar chart spanning the last 92 years, since the Fed first started “helping” the government maintain public confidence in the dollar.

Historically, the most common substance used as a medium of exchange and a store of value has been gold or silver coins of a standard weight and fineness.

The U.S. Coinage Act of 1792 specifically defined a “dollar” as “one twentieth of an ounce of gold (25.8 grains of 90 percent fine) or a silver coin containing one ounce of silver (421.5 grains of 90 percent fine).”

The Founding Fathers specifically prohibited the federal government from issuing Bills of Credit (paper money) in the U.S. Constitution.

Congress shall have Power to coin money and regulate the value thereof … No State shall make any Thing but gold and silver Coin a Tender in Payment of Debts.

– Article 1 Sections 8 & 10

America’s system of constitutional, commodity-based money functioned well in our nation for 125 years, from 1792 to 1913. Then “We the People” made a big mistake – we allowed a privately owned corporation called the Federal Reserve to begin creating paper money instead of gold and silver coins as the Constitution requires.

Trust money?

The Federal Reserve’s monetary manipulation began with a promise to create paper money that could always be redeemed for commodity money – gold or silver coin. This 100 percent redeemable money is referred to as fiduciary or “trust money.”

The creation of fiduciary money assumes that the promise of payment in substance by the issuer is redeemable at some future point. Trust money was used as a medium of exchange even though it consisted largely of an intrinsically valueless substance – paper.

Since the U.S. government was prohibited by constitutional law from issuing this trust money, the Fed – a private corporation – was created to soften and manipulate the economic down-cycles in 1913. The price we have paid is surrendering our substance money (gold) for trust money (credit/debt). In my view, central bankers took the mine … and we got the shaft. Why do I say that?

History has proven time and again that neither bankers nor governments possess the discipline needed to limit the amount of credit (or paper money) to equal the true supply of gold and silver coins. So the supply of paper money (credit/debt) must continually rise.

The result is always disastrous in the long term because the economy suffers through cycles of inflation, deflation, artificial growth, recession and depression. Because U.S. citizens did not protest the use of trust money, our economic system then began to degenerate into untrustworthy or fiat money.

Welcome to the new commodity-driven era

So, what’s next. Inflation? Stagflation? Should you adjust your portfolio to reflect this 21st-century shift from a “stock-driven era” to a new “commodity-driven era”? USA Today again sums it up well:

A new inflationary cycle is starting … The Federal Reserve, desperate to head off recession from 2001 through 2002, flooded the economy with money, primarily by making loans dirt cheap. In addition, we have a massive federal deficit. That, combined with easy money, has weakened the value of the dollar, but driven up commodity prices. All this signals not-so-good news for stocks. The bottom line is that rising commodities prices mean higher expenses for most companies. Higher expenses mean lower earnings, and lower earnings mean lower stock prices.

In the meantime, Kevin Lipton reports that both collectors and savvy investors are snapping up high-quality numismatic U.S. coins at record prices and in record volume. Last week’s national trade show in Florida sold over $77 million of rare coins in three days.

As we pointed out in our “21st Century Investment Scorecard,” tangible assets that you can touch, see or taste have soared. While the CRB index of commodities is up 36 percent since the end of 1999, gold bullion is up 54 percent, U.S. rare gold coins are up 230 percent, silver bullion is up 30 percent, while rare silver coins are up 76 percent. Clearly, the higher quality gold and silver coins have outperformed their bullion counterparts, as we have often told our readers.

WSJ: More money in collectible coins than metals

Wall Street Journal recently published “Investors Flock to Coins Amid Rising Metal Prices,” by Jeff D. Opdyke in December 2004, saying:

Rare coins are starting to attract investors more at home with stock brokers than coin dealers. The interest in coins comes as sophisticated investors are increasingly looking for assets outside of the U.S. stock market, which many market observers expect to post only modest gains during the coming year. In buying rare coins, individuals not only acquire a collectible asset, but they are also getting exposure to precious metals. The prices of gold and silver, from which many popular U.S. coins are made, are both rising smartly … Of course, you don’t have to be rich to invest in coins. In fact, the lower end of the market is booming, too.

Now if that is not good news for the small- and medium-size investor, I don’t know what is. Morgan Silver Dollars were the top-performing tangible asset in 2004, up 54 percent! But I believe that the best is still yet to come. As financial reckoning day approaches, all roads will lead to metals in general, and high-quality numismatic gold and silver coins specifically. As for Microsoft … well, it may be tops on the NASDAQ, but it will likely play second fiddle to the new bull market in tangibles.

Please take some time to consider the advantages of owning some tangible U.S. gold and silver coins – not just for profit potential, but for safety and privacy. Remember, the proof is in the pudding, not a paper promise of pudding later.


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