Lux Lucet

A prudent man foresees evil and hides himself, but the simple pass on and are punished.

    Proverbs 22:3

It’s been a couple weeks since my last posting in this series, but there certainly has been no break in the flow of events. In the intervening time since my last entry on 10/20/19, there have been several noteworthy bits of financial news. Of those, the most important was the announcement from the Fed this past Wednesday that they had decided to lower the Fed Funds rate another quarter point. This was the third time the Fed has lowered interest rates in the past three months.

Now any such decision by the Fed is important given the tremendous power of the Fed to push financial markets one way or the other. The big takeaway, however, is what this decision says about the Fed’s assessment of the economy. Despite all the propaganda from the administration saying the economy is doing great, the decision by a the Fed, or any other central bank, to lower interest rates is a tacit admission that the economy is not doing well. If the economy were doing well, the Fed would be raising rates, not reducing them.

When you add to the Fed’s lowering of interest rates the ongoing (permanent?) bailout of the overnight repo market and the restart of quantitative easing (i.e. money printing), it is obvious that the those closest to the situation think that the economy is seriously struggling.

One of the justifications put forward for lowering interest rates and money printing is that there is no price inflation. But even according the Consumer Price Index (CPI), the official measure of price inflation put out by the Bureau of Labor Statistics, the CPI-U (the broadest measure of inflation) rose 1.7% for the period September 2018 to September 2019. But beware of official government statistics! Over the years, the federal government has changed the way it measures inflation. And it should come as no surprise that the change has been in the direction lowering reported inflation.

Economist John Williams runs a website called Shadow Stats where he purports to calculate inflation the old fashioned way. His most recent calculations of the CPI-U tell a very different story from the figures put out by the Bureau of Labor Statistics (BLS). As you can see Williams most recent numbers come in a little higher than those of the BLS. According to Williams, the official method of calculating inflation used prior to 1990 shows inflation running at a more than 5% annual rate. If you look at this calculations with the pre-1980 method, the difference from the current official number is even more striking. The pre-1980 method of calculating inflation indicates that the current inflation rate is almost 10% annually!

If Williams is even close to being right, all this latest round of money printing by the Fed is like dumping gasoline on a raging fire, meaning we can expect to see much higher inflation numbers going forward.

Here’s a critical idea to keep in mind when talking about price inflation: Inflation is always and everywhere a monetary event. By this I mean that inflation is always the fault of money printing by central bankers. You can watch the evening news faithfully for decades on end and you will not hear this. Ditto with the financial channels such as CNBC and Fox Business. They will never tell you the simple reason for price inflation: Central bank money printing.

Why is this? It’s not an accidental oversight. The mainstream press is essentially the propaganda organ of the establishment, and central bank money printing is the financial black magic the establishment uses to increase its wealth and power at the expense of ordinary Americans. The powers that shouldn’t be – Washington politicians of both parties, Wall Street bankers and big shot investors together with a gaggle of academic theorists and news media talking heads – have a great scam going and do not want to let ordinary Americans know how badly their being ripped off and by whom.

To borrow a turn of phrase from Warren Buffett, “If you’ve been playing poker for half an hour at the table and you still don’t know who the patsy is, you’re the patsy.”

Ordinary Americans have been the patsies of the financial elite, of whom Warren Buffett is one, since the founding of the Fed over 100 years ago. The Fed’s inflation games are not only bad policy, they are also sinful in the eyes of God. The Bible unequivocally condemns “divers weights and measures” which God calls an “abomination” (see Proverbs 20:10 and 20:20 for example), which merchants of the day used to rip people off in much the same way central bankers, politicians and their super wealthy clients do today. It’s high time people woke of to this fact. End the Fed!

There’s much more that could be said about inflation and, Lord willing, I shall discuss this topic in greater depth in the future. For now, though, it is enough to know that 1) the cause of price inflation in money printing by the Fed, 2) the current method of measuring price inflation deliberately and significantly understates its true rate and 3) these facts are not reported in mainstream news outlets in order to keep the public in the dark about what is going on.

“So what,” you may ask, “does any of this inflation talk have to do with financial prepping?” Quite a lot, actually. If we understand that a falling dollar is the product of the Fed’s intentionally increasing the money supply too fast, we are positioned to understand ways of protecting ourselves against the ravages of price inflation.

Inflation – What Can Ordinary People Do to Protect Themselves?

I remember as a boy opening my first savings account at a local bank. As money came in from various sources, I’d take some and put some of it aside and make a deposit, because my parents impressed upon me the need to save.

As adults, we hear the same thing. One common piece of advice is that we should have enough cash saved up to cover six months expenses as a hedge against job loss of sudden, unexpected expenses. Generally speaking, having a substantial savings account is a good idea. But the problem is that most of us are trained from our youth up to save in terms of dollars or whatever national currency we use. The problem with this is that the dollar is constantly losing value due to Fed policy. Inflation, as discussed above, is part of the problem. You’ll often hear Jay Powell or some other Fed big shot talking about the Fed’s “2% inflation target.” Please understand, when Fed officials talk this way, what they’re really saying is that their goal is to destroy 2% of the value of your hard earned savings every year. Of course, they don’t phrase it that way, because people would immediately object. Hence, the more academic sounding language of “reaching the targeted rate of inflation.”

Now I’m not saying you shouldn’t save in terms of dollars. There are a number of things about saving in dollar terms that make sense. In the first place, dollars are very flexible. They can be exchanged at a moment for anything you want without any discount, often at the push of a button. Physical cash is accepted nearly everywhere, and cash transactions represent one of the few sources of financial privacy in this era of big government snoops.

But while I would never tell someone not to save in terms of dollars, I would warn them against saving EXCLUSIVELY in dollars. Why is this? The aforementioned problem of central bank created price inflation. To get a better mental handle on price inflation, it’s helpful to think of rising prices as their opposite. That is to say, one way to think of rising prices is to understand them as your dollars losing value. As the dollar goes down in value, it takes more and more of them to buy hamburger at the grocery store, go to college or to pay rent to your landlord. Rising prices and the falling value of the dollar are two ways of expressing the same idea. When we save in dollar terms, the value of our savings is constantly being eroded by theft via inflation from the Fed.

Now some people may object by saying, “But I get interest on my savings account!” Yes, but have you checked the rate of interest lately” Most savings accounts pay far less than 1% annual interest. If inflation is running along at even the government’s official rate of 1.7%, you’re losing ground to inflation every year. But what if it’s closer to the 5% or even nearly 10% reported by John Williams? If you have $100,000 in a savings account earning what is now the very high rate of 1% and inflation is running at 5%, as Williams reports that’s a 4% hit you’re taking every year, which amounts to $4,000 lost due to the Fed’s monetary (and interest rate) policies.

The significant inflation we already have the America, and the promise of even higher inflation rates to come, should cause us to ask the question, What can I do to protect my savings against stealth theft by the Fed through inflation? Historically, people have used a number of different inflation hedges such as: real estate, artwork, collectibles, and precious metals.

When we think about real estate, the most common example would be private residences. Apart from having a place to live, one the reason people buy homes is that they hope the property will go up in value and they can sell it for more than they paid for it. While many people have realized a profit on the sales of their homes, this is certainly no guarantee, as those who have bought homes at real estate peaks can attest. Unless you are very knowledgeable about the real estate market, trying to beat inflation by purchasing property can be very risky. In economic downturns, real estate prices can crash through the floor. Real estate is not portable and sometimes it can be difficult to sell. Further considerations are real estate taxes and the cost of upkeep on the property.

Artwork can be prohibitively expensive for most of us. To cite an extreme example, Leonardo da Vinci’s painting Salvator Mundi sold for a record $450.3 million in 2017. Other paintings by well-know masters regularly sell for millions or tens of millions of dollars. But even if you are able to secure noteworthy work of art, there are dangers to consider. Changing artistic tastes, forgeries, and loss through theft and damage are some of the risks one assumes when owning art. Another risk in common with real estate is liquidity risk. It’s one thing to say a painting is worth $2 million. It’s another thing to actually find a buyer willing to pay that price.

Collectibles, by which I mean items such as baseball cards, comic books and classic cars, are another place people park their dollars in the hope that the items they purchase will go up in value. These can be risky for the same reasons as artwork. Another issue with collectibles is storage space. Not many of us have enough room in our garages to store a fleet of classic cars or the expertise to restore or maintain them.

This brings us to the fourth option, precious metals. There are four precious metals, gold, silver, platinum and palladium. Of the four, gold and silver are the most commonly held and my remarks below are principally concerning them. Precious metals possess a number of characteristics which, in my opinion, make them an ideal place to start for Christians interested in protecting themselves against the ravages of inflation. First, they have been universally recognized as money since the God created mankind. Genesis 2:11, 12 notes that there is gold in the land of Havilah and that “the gold of that land is good.” Genesis 13:2 reports that Abram was “very rich in cattle, silver and in gold.” In Genesis 23, Abraham is said to have weighed out 400 shekels of silver to purchase the field to buy Sarah. In Revelation we are told that the streets of the New Jerusalem are “made of pure gold.” It is safe to say that gold and silver, unlike many other places you can put your money, will never go to zero.

Silver, and especially gold, allow you to pack a lot of value into a very small space. Unlike artwork and many collectibles, you can literally carry around thousands of dollars in gold coins in your pockets. Try doing that with a ’67 Camero or a Rembrandt! Unlike collectibles, it is very easy to determine the value of silver and gold bullion coins. You don’t need to be a numismatic expert to be able to determine the value of a gold eagle, maple leaf or britannia. It’s as simple as looking up the spot prices of gold on the internet. Also, buying and selling silver and gold is much easier than executing a real estate transaction or buying artwork or collectibles at auction.

If Gold and Silver Are So Great, Why Doesn’t Everybody Have Some?

Even advocates of gold and silver will tell you that only a tiny fraction of all investable funds are held in precious metals. I’ve read from several reliable sources that less that the total amount of money held in precious metals amounts to less than 1% of all assets. Since this is the case, it’s worth asking why, if precious metals are such great investments, do not more people hold them?

The principal answer to this question is that the political and financial elite don’t want people to hold them. Gold and silver are honest money, and for that reason are hated by the dishonest banking and political elite, who seek to rig the political and financial systems in their favor at your expense. You could even say that gold and silver are to central bankers what Kryptonite is to Superman, they rob them of all their power. As noted financial writer Jim Rickards has observed, the objection to gold as money is that “it stands in the way of theft” (The New Case for Gold, 10).

As a result, gold and silver were methodically removed from the American monetary system over the period of about 50 years until both metals had been completely demonetized. In the United States, it owning gold was actually illegal from 1933 until 1974. Apart from demonetization – the US Constitution requires that only gold and silver be used as legal tender, but that proved to be no bulwark against the predations of the financial and political classes – the financial establishment attempt to discourage people from holding silver and gold, either by not talking about it, or, when they do talk about it, subject gold and silver and those who advocate using precious metals to propaganda campaigns designed to discredit them. For example, the Wall Street Journal ran an article in 2015 titled “Let’s Be Honest About Gold: It’s a Pet Rock.” Those who promote the precious metals are often derided as “gold bugs” which is a way of calling them financial cranks.

But as bad as the propaganda is, it’s not the only thing arrayed against the precious metals. There’s also the matter of market manipulation. Governments and central banks have every incentive as well as the ability to manipulate the price of gold and silver to keep if from rising. If you think about it for a moment it makes sense. As we noted above, another way of talking about price inflation is to speak of the dollar losing value. If the price of gold and silver are rapidly rising in dollar terms, this means the dollar is going down in value compared to the two items that have functioned as money since the days of Abraham. As they say, not a good look, at least if you’re a government official or work for the Fed. So what’s a central banker to do with the dollar price of gold begins to skyrocket? Cheat, or course! In the case of the Fed, this means manipulating the price of gold and silver through the COMEX futures market. There is far more that can be said about price manipulation by the government and the Fed, but that will have to wait for another time. Suffice it for now to say that, were gold and silver not constantly suppressed, they would be trading at levels multiples higher than they currently are. In fact, if gold and silver were allowed to trade freely, it is highly likely in my opinion that the financial system already would have collapsed. This is why the powers that be fight so hard to suppress it.

But despite the contempt in which gold is held by the power elites, at least in their public statements, and most peoples’ ignorance of it, despite all the manipulation of it and propaganda heaped upon it, gold is still money. How do we know this? Simple. Central banks and governments still own it. According to official government records, the US Treasury has over 8,000 tonnes of gold in its possession, officially the largest gold holding in the world. And this as not, as Ben Bernanke once stated to Ron Paul in his testimony before the House Banking Committee, the result of tradition. It’s because, when push comes to shove, as much as the power elites hate to admit it, gold and silver are money

Another reason people don’t own gold and silver is that they don’t know how to buy it. Since gold and silver ownership is now encouraged, most people never learn how or where to go to purchase it, and are, for that reason, intimidated from doing so. But, as stated above, buying gold and silver is actually much easier than many other types of transactions such as buying home or a car, things people do all the time. It is certainly no harder than purchasing other financial products such as stocks and bonds.

A final reason people don’t consider saving in terms of gold and silver is the perception that it is too expensive. As of this writing a one ounce gold coin is going for about $1,500. Not chump change to be sure, but a lot less than other items people purchase regularly. But here’s the thing, there are a lot of ways to buy gold that don’t require nearly that much money. You can by 1/10th ounce gold coins for less than $200. 1 gram gold bars run around $60 each. Silver eagles, the standard 1 ounce US silver coin, will set you back about $21 each. In other words, even if you are on a tight budget, you can still save in terms of gold and silver.

Hold Your Gold And Silver Outside the Banking System

When you save in terms of gold and silver, don’t make the mistake of storing it within the financial system. If you keep you give a financial institution custodianship of your metals, there really isn’t much reason to buy them in the first place. You must either hold your metal yourself or with a trusted, non-financial third party. The whole idea behind holding precious metals is that you are eliminating what is known as third-party risk. If the banking system collapses as it did in the US during the Great Depression, there’s a good chance you could lose a portion, or even all, funds held within the system.

Closing Thoughts

There’s much more that I’d like to say about gold and silver, but time constraints require that I wrap things up for this week. The big takeaway for this week is this: The dollar is being devalued by the Fed with the encouragement of the political establishment and if your save only in terms of dollars you are going to get hurt; for that reason, it is wise to put some of your savings in gold and silver held outside the banking system. Lord willing, I shall come back to the topic of gold and silver in future posts. But that’s all for this week.

In the next installment, it is my hope to discuss career prepping.