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Buddy, can you spare a troy ounce? How to Prepare for the Inevitable Inflation Ahead

My mom is an octogenarian who still works two to three days a week and loves what she does.

She tells me that she just sent her invoice off for the current billing period and was excited over the prospect of a big paycheck. She then turns to me and asks the dreaded question:

“Son, I’ve got xxx dollars in my savings and 401K accounts.  What should I do with all that cash?  I most likely won’t survive to spend it all and I’ve heard you talk about inflation and how our dollars might be devalued, so what do you think, should I buy something, like real estate?”

Do I think she has far too much fiat currency in the bank?  Do I think she should move it into a different asset class to hedge against inflation and preserve some of that ‘wealth’?  Am I risk averse with the disposition of my own ‘fiat currency’? Do I put some of my saved ‘fiat currency’ where my mouth is (precious metals)?

Absolutely yes, to all of the above.

At the end of the day, will my 88-year-old mom, a product of the Great Depression era, let go of any amount of the ‘money’ she has in the bank to invest in a hedge asset to preserve her wealth?  Absolutely NOT.

When you spend a lifetime working for a living, constantly repeating the mantra of “saving up for your retirement, don’t buy on credit, a penny saved, etc.,” you don’t easily embrace the idea that the thing you have worked for all of your life is becoming more and more worthless by the day.  I am old enough to have the same reaction when my sons ask me about investing in that newfangled thing, Bitcoin.

However, if money becomes worthless, what do we do?

I tell her that President Biden has just signed a bill that injects $1.9 trillion (with a ‘T’) of additional debt into the economy – which our liberal friends refer to as stimulus.

This new debt will be added to the already massive amount of U.S. debt. The Associated Press reported this week that the “The U.S. government’s budget deficit through February hit an all-time high of $l.05 trillion for the first five months of this budget year [October through February], as spending to deal with the coronavirus pandemic surged at a pace far above an increase in tax revenue.” This represents an increase of 68 percent from the year earlier period.

According to the Associated Press:

It easily surpassed the previous five-month deficit of $652 billion set in 2010 when the government was spending to try to lift the country out of the deep recession caused by the 2008 financial crisis.

The Congressional Budget Office has projected that the deficit for the budget year that ends on Sept. 30 will be $2.3 trillion. However, that estimate does not include the cost of President Joe Biden’s $1.9 trillion COVID relief measure, which cleared Congress on Wednesday.

Not only is the new stimulus, in and of itself, an enormous amount, but it turns out to be a dog’s breakfast of drunken-sailor spending.

Now, Mom is the kind of person who has always managed to balance her checkbook, so she really doesn’t appreciate that the U.S. government cannot do the same.

I didn’t have the heart to inform her of the following news from Fox Business News’ Megan Henney, who provides a closer look at some components that you may be surprised to discover were included in the relief bill:

$500 million for museums and libraries:

Roughly $500 million will go toward doubling the budgets of the Institute of Museum and Library Services and the National Endowment of the Arts and Humanities.

About $200 million in the bill is set aside for The Institute of Museum and Library Services, an independent federal agency that provides grants to libraries and museums, and also helps to fund policy development and research. Its budget in fiscal year 2019 was about $240 million.

The relief measure also allocates $270 million for the National Endowment of the Arts and the Humanities, an institute that had a budget of $253 million in fiscal year 2019.

“The legislation would appropriate $480 million for grants to fund activities related to the arts, humanities, libraries and museums, and Native American language preservation and maintenance,” the Congressional Budget Office said in its analysis of the proposed measure.

$5 billion for ‘disadvantaged’ farmers:

Introduced by Sen. Raphael Warnock, D-Ga., the $5 billion Emergency Relief for Farmers of Color Act, which is part of the stimulus bill, will provide direct payments to Black, Hispanic and Indigenous farmers.

It also includes $1 billion to address systemic racism at the U.S. Agriculture Department and provide legal assistance to farmers of color.

I can see the latest screed from the mainstream media now: “COVID devastates American agri-business, farmers of color hit hardest.”

Affordable Care Act expansion:

It will fully subsidize ObamaCare subsidies for people earning up to 150% of the federal poverty level and unemployed individuals. The measure also makes Americans earning more than 400% of the poverty level — about $51,000 for one person, and $106,000 for a family of four — eligible for subsidies for the first time and will cap their premium costs at 8.5%.

The subsidy boosts, which Democrats have sought for years, will only last for two years, through 2022.

Sure, only last two years, wanna bet?  Remember, they don’t think its YOUR money they are spending.

So, now what do I tell mom?

I tell her about physical silver and gold, one more time. “Just buy a little and protect the rest of those ones and zeros you have in the bank from the inevitable inflation.  Mom, you don’t want to have to take a wheelbarrow full of greenbacks to the market to buy a loaf of bread when too many dollars are chasing too few goods and services.  Democrats (okay, Republicans are guilty too, but to a lesser degree) are only going to add to the problem.”

Regardless, at some point, someone will have to pay for this unchecked spending.

I then try to explain why gold and silver can inflate in value, keeping pace with inflation, as more and more dollars in circulation will need to be supported by something other than the full faith and credit of the U.S. government.

She understands, but it’s a tough sell. In her world, ‘money’ in the bank is all you need. “Who will buy my gold or silver,” she asks. I tell her that if worst comes to worst, the grocery store and the gas station will take an ounce or two when she goes to shop. Understandably, this rattles her. To be honest, it rattles me, too.

Are metals the best way to protect your dollars? My bank thinks that while gold might have a decent future, it doesn’t pay dividends and has other ‘headwinds’ against its (value) price.

Business Insider’s Carla Mozée wrote last month:

A decline in physical demand for gold by central banks has been a challenge for gold, says Bank of America…

Jewelry sales have been disappointing as the COVID-19 pandemic suppressed customer activity…

A “lack of interest” from investors in buying gold has also been a pressure point for the market…

Yet, out of the other side of their teller cage, comes the following prediction: Gold prices traded around $1,790 an ounce on Wednesday. Bank of America still expects prices to average $2,063 in 2021, a forecast it set last year.

Hence, the age-old question: What’s a mother to do?

Personally, I am going to keep asking her to buy some precious metals, hedge a little of what is in her bank accounts and spend the rest of her stash on Hawaii cruises and excellent wine.

Is this huge addition to our national debt for COVID relief necessary? Some, but not all.

Our economy is on life support and many of our neighbors aren’t making it. We do need to reach out and help them. But that ‘other white meat,’ pork, seems to appear far too often in the bill’s line-item details. It is, after all, OUR money.

Let’s help those who need it, but only those who need it.

If you think our government’s excessive spending, money printing and growing national debt, under the guise of a COVID bailout is an American Crisis, leave a comment below.

— Richard Edward Tracy

2 replies »

  1. Dearest Richard Edward Tracy,
    You must consider Roosevelt’s executive order 6102 in 1933.
    This outlawed hording gold during a national crisis, the great depression. Any POTUS could invoke a similar order anytime.
    Today our federal government hands out the cash to avoid the Depression era money tightening than probably extended the pain back then.
    Have we over done it. Yes. The federal debt to GDP ratio has gone from 60% (20 years ago) to 108% prior to the current Biden gift. Obama, Trump and now Biden pumped the debt well, for what reasons? We could discuss at nauseum.
    Mom is correct in saying gold won’t buy bread or most any other commodity at the checkout counter.
    Fungible should be on the lips of any saver/investor. Labor, credit, barter and yes even fiat currency are easily recognized “fungible” devices.
    Gold and other precious metals, rare jewels, cars, real estate and stocks/bonds are usually converted to more readily acceptable fungible devices prior to allowing modern transactions to take place at a common level.
    Few of these inflationary preventive devices pay interest or dividends (save stocks and bonds and possibly rent, but who wants to deal with renters?). The buy/sell markets allow for increasing shares to hedge market corrections. Thus, increasing fungible assets like regular interest and dividends above inflation.
    Inflation is defined by our federal banks. They have manipulated the numbers for decades to keep their borrowing/pensioning low and to stimulate a national obsession with buying things on credit at peak.
    It’s all so very complicated. I call it a game only the astute seem to win.
    The taxes on divesting hard earned 401k and IRA contributions is a very end-loaded con game (minimum distributions, higher social security tax, higher tax brackets during distribution and inheritance)…
    Watch out for buying too many hard assets. Big money begets bigger money invested wisely. A few hundred thousand dollars at a meager 5% can create a lovely monthly income while protecting the principle. A million dollars at 5% can buy alot of cruises, and daily fun for anyone, even 80 year olds.
    P.s. any govt can shut down crypto currency at anytime. Govts love their fiat over high tech fiat. Crypto still has to be converted today. Not many grocery stores accepting yet…

  2. Hi Publius,

    Thank you for taking the time to comment and opine. Your comments are very thoughtful and its interesting to hear someone else’s point of view / ideas.

    I’ve thought about the government outlawing previous metals as they treated gold in the past and I agree it could be a risk. That being said, I am less risk averse by holding the metals vs. almost any other commodity. I can convert the metals, as you point out, to other types of assets, although I’d rather not have to….

    At one time, I had monies in 401 vehicles and then an annuity.. And you are so correct, when I surrendered them, I paid through the nose in taxes.

    I was influenced to hold metals as a hedge from a family member; when she was a younger woman, she wound up standing in line to sell her jewelry so that she could by groceries. Not much else in her economy was generating enough value to keep food on the table. The ruble never recovered and their economy didn’t either…

    Completely agree with you about crypto! I think its nothing more than a new scheme for storing ones and zeros that you buy using fiat currency…. I’ve wondered that if the dollar does collapse, what really happens to crypto? If you bought the crypto with dollars, what is really propping the crypto up other than those dollars? That is the main reason I like gold and silver – I could be very wrong, but I do feel that they have and will maintain an intrinsic value.

    Hopefully, we will never have to live in an economy that has to use precious metals as an emergency hedge.

    best regards and thanks again for your comments,

    Richard Edward Tracy

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