Conversations On Inflation, Gold, Value and Paying a Mortgage in Inflated Dollars

by | Oct 3, 2010 | Precious Metals, Rick Blaine, Tom of the North | 34 comments

Do you LOVE America?


    The recent price rises in gold, possibility of more quantitative easing by the Federal Reserve, collapsing home prices and uncertainty about the future of the US dollar have sparked much debate about what steps to take in order to achieve maximum preservation of wealth and ensure that you are holding on to the right assets if the SHTF.

    I often correspond with SHTFplan contributor Rick Blaine, who recently posed an interesting scenario brought to his attention by a co-worker:

    Just today I was chatting with one of the other attorneys at my new firm.  It came up because he was asking me for advice on whether or not he should walk away from his house.  He is recently divorced…and he kept the house, which is way to big for him – though technically he can afford it (he makes good money now…and his family has some money).  It’s an expensive house – c. $1M…BUT he really isn’t under water because he contracted out himself. So, at the time it was completed, it was really worth around $1.5M…now worth around $1M…which is about what it cost him to build.

    I went through the math with him…and my conclusion was that it is a close call – basically because he really isn’t under water…BUT at the same time, he’s got one heck of a mortgage payment every month.  My advice to him was to see how much it would cost him to rent a “suitable” place (for his rather expensive tastes)…and see how much he could save each month.  It boiled down to him – i.e., how much he wanted to “hunker down”  – if at all.  If he would be happy in a place like mine ($1000/month), he should probably walk…

    One of his concerns was that if we did experience some legit inflation over the next decade, he would regret walking on the house – because its value should go back up then…

    One of the big issues in the discussion is how one defines inflation (or deflation) – as you and I have been over.  Just sticking to the term “inflation” for now, there are two things that can happen.

    1) The clowns at the Fed REALLY, REALLY crank up the “printing presses” in such a way that the end result is that “everyone” has more “money”…then everyone starts buying stuff – including houses…which SHOULD drive prices back up.

    2)The other, possibly related, situation would be a “loss in faith of the dollar” sort of thing (perhaps called a “fear of hyper inflation” or something) in which people start buying “stuff” because they don’t want to hold on to money.

    I THINK these two possibilities are distinct…though I guess they could be related…

    MY POINT to him (and you) is this – IMO, neither situation is likely to cause prices on “stuff” to increase any time soon.  Why?  Because the first possibility (true, “money supply” inflation) does not appear to be happening AT ALL right now.  That is, it’s not like Joe Schmoe living in Anytown, USA is sitting on a bunch of money right now and is just waiting to start buying stuff.  It’s just the opposite – for now – because people simply don’t have money right now.  Heck, they are digging into their 401Ks and such to get by.  On top of that, credit is shrinking…and banks are acting more responsibly – not making dumb loans (well, at least not to the same extent they were during the boom).

    Re the second possibility – even if we do see a “oh crap, dollars are worthless” kind of thing, IMHO, the usefulness of the dollar will vanish VERY quickly.  That is, people will just start bartering and/or using gold, etc….and just skip the rising “prices” part.  Besides, in that situation, people would still need more “dollars” in order for the nominal prices of “stuff” to go up.  IMHO, it goes back to the first possibility – people need a lot of dollars to spend in order for prices to rise – when measured in dollars.  Thus, IMHO, even if we did see a “loss of faith” situation, it would not really lead to “price inflation” – it would lead to “stop using the dollar inflation,” because people just don’t have the dollars to spend right now.

    IMHO, the second possibility is more likely in the near future – and, IMHO, if that happens, things will get uglier a lot faster than in the true, money-supply inflation scenario.

    My point to my friend was that I do not see prices on houses rebounding to their ’05 levels for a long time – because people do not have money and/or banks are not making the same ridiculous loans they were back then (which is a good thing for us…in the long run).

    Rick brought up some excellent points, and my response follows:

    In regards to the two distinct possibilities – I am seeing similarities with them. In both cases it seems to me that we have a money supply increase, but more importantly, I am currently more focused on “velocity” as being the main factor in any sort of inflation.

    With regards to your friend and his home… I agree about your assessment regarding prices not reaching 2005 levels anytime soon.. In fact, I would be very surprised if we had a return to the same prices (in REAL terms) anytime in the next 10 years…

    I understand your friend’s concern regarding the actual “price” of the home.. But the question is really more about “value” than price in my view. Say we hit a non-hyper inflation rate of 7%  over the next 10 years.  Starting with a current home value of $100,000, that price would be roughly $200,000 by 2020. So, sure, the “price” in dollars is double, but what is the actual value of that dollar? In terms of purchasing power compared to food and gas, I suspect it will be the same, all things being equal.

    Now, let’s throw in a horrible decades-long real estate market…  In this case, maybe we have an inflation rate of 7% over 10 years, but his house price may only go to $150,000 over that period. While the price of other goods like food and gas may be rising at the 7% rate, essentially doubling in that same time frame. In this respect, he actually loses 25% value in real terms, though he still “made” $50,000 in that time frame.

    This is the tricky part for most, I think.

    So, the way I am approaching this problem right now is kind of from that standpoint. What can I buy right now that will “preserve” value… I am thinking food is one of those “assets” and precious metals are another. I also have a little place in my heart for real estate, actually. However, I currently live in suburbia, where I just don’t see any value in owning the home I currently rent. A rural house, however, to me has some additional value in terms of productive capacity. Though rural/farming/ranching homes and properties may gain price and lose value at the same time in terms of dollar amount, the fact that I can utilize the extra acreage on a rural farm for production of food, livestock and perhaps a small business around these particular “assets” gives me the perception that there is more value there than one would originally spot if they were looking at just “dollar” pricing models.

    Just some thoughts on the matter and something I am struggling with here… I am definitely moving out of the city soon, but I still don’t know if I want to plop down a bunch of cash for a down payment on a farm… Still, renting a farm style home/property for the same amount I pay for my suburban home now seems to have much more for potential value for me in terms of the things I mentioned above.

    Rick responded with some additional points:

    I don’t see anything happening NOW that is going to cause the price on his house to go up significantly in the NEAR future…mainly because I THINK the only way that could really happen is with some serious inflation (i.e., prices going up because people have more money in hand to buy stuff).  It is my understanding that all the BS the Fed is doing right now is NOT resulting in people having more money…yet.

    On top of that, something I didn’t mention before, I think consumer’s attitudes have changed in such a way, particularly with respect to housing, they aren’t going to be lining up to buy houses – even if they could afford it right now.  I THINK that will also keep housing prices down for quite a while…

    My point was simply this – because I THINK that his house is not going to significantly go up in value in the near future, if he was willing to “hunker down” as to rent something more reasonable, the money he would save by having a low rent payment would probably “out run” any increase in the value of his house.  Thus, if he hunkered down, it might make sense to walk…but if he was going to rent something for like $4K/month…not so much.

    Your comments get a little more into “SHTF value” I think – with respect to the rural home having more value in a sense than a suburban one…

    As Rick mentioned to his friend, the perception of “value” is an important factor to consider and is different for every individual. In Rick’s case, value is a $1000 per month rental property, as opposed to paying a $1 million mortgage on a home like his friend with expensive tastes. In my case, a $1500 rental property in the suburbs has value, but definitely not more than a $1500 rental property in a rural area where the land can be used to generate overall productivity in terms of food, energy, etc.

    Thus, if you are making decisions on whether to walk away from a home, stay in a home, stay in the suburbs, move to the country, buy gold, or purchase hard asset commodities like rice, corn, and wheat, it will all come down to what you feel is valuable to your specific situation and what your expectations are going forward. If this is a run of the mill recession, then making SHTF considerations when deciding on what assets to acquire (or sell) may not be appropriate. On the other hand, if you are expecting a severe economic calamity on the level of the Great Depression or worse, then you will have a completely different perception about what “value” actually is.

    Political columnist James Glaser ( posed a related question in a recent email. It is likely a question on the mind of many Americans who understand the looming threat of inflation and are taking steps to protect themselves.

    James asks, “If inflation goes way up, will I be able to sell silver and gold at a high price, and pay off my mortgage with inflated dollars at the amount I owe today?”

    My response, which incorporated a portion of my response in the discussion with Rick, is as follows:

    This is a great question, and as a renter myself, it is one that I have been contemplating for several months.

    One of my web site contributors and I are actually having an email discussion on this very topic and I sent a response over to him which I pasted below. The initial discussion started when he mentioned that a coworker of his was trying to decide between walking out on his mortgage on a roughly $1.5 million (original valuation at the height of the bubble) home, because it is worth in the range of $1 million today. He built the home at around the onset of the real estate bubble. His coworker’s concern is that he would essentially be walking away and ruining his credit for the next 7 years, but he would be able to move into a much cheaper, scaled-down home and save a ton of money as a result. The question that came up was, if we are to expect inflation, wouldn’t the price of a home actually go up, and even though it is $1 million today, if inflation hits, wouldn’t the value of his home in 10 years be worth much more than it is today? And wouldn’t he then be able to pay for that home in inflated dollars?

    This was an interesting topic to explore. First, I must note I am not an economist in any sense of the word, but have found these topics to be interesting from a personal perspective, so I have spent much time researching, reading and commenting on them.

    Here is a portion of the response I sent over to my web site contributor (Rick Blaine):

    [I pasted the majority of my comments to Rick from above in which I discussed the rate of inflation, and asset values based on personal perspective. To prevent redundancy, reread my response to Rick]

    With that in mind, I’ll turn to silver and gold. While we may very well have inflation in coming years, that does not necessarily mean that the price of silver and gold will rise at the same rate. Now, obviously, precious metals are through the roof right now, breaking records regularly for the last several months, but I must point out, for the sake of accuracy, that during the 80’s and 90’s we experienced inflation at roughly 6% or so (I don’t have the exact figures in front of me, but let’s just assume for the sake of argument), but during this period precious metals didn’t go up – they actually went DOWN. My point is that inflation will not necessarily be the driving force behind precious metals. Someone who would have bought gold in 1983, fully expecting to keep up with inflation and exchange that gold into dollars and pay off their home in inflated dollars would have been a net-loser on the deal because 1) gold didn’t keep up with inflation 2) house prices kept up with inflation 3) house prices actually went up as a result of not just inflation but easy lending and government policies that promoted home ownership.. So during that time frame into 2006 or so, the price of a home sky rocketed in terms of value and price compared to gold and real estate was a much better investment.

    From what I am able to gather, PM’s respond not to inflation (or deflation as they did in the Great Depression in terms of gold stocks), but rather, to instability in the government sector – or a loss of confidence in the public sector’s ability to mitigate economic and social problems.

    So, to answer your question, (Sorry I took so long to get here) I would say we need to look at what the collective perception of the world’s population is on global government policies related to the economy. If the people perceive that the world is about to go into a depression and all asset classes are considered risky, many will look to precious metals as a way to “store value” or “preserve wealth.” If this is the case, then let’s assume the price of a home keeps up with inflation, again taking the example of the $100,000 over ten years at 7% inflation, and the home will be valued at $200,000. Then, let’s assume the price of an ounce of gold today is $1200, and it appreciates at least at the rate of 7% inflation, doubling to $2400. This means the “value” of these assets in relation to each other remains the same, even though the “price” has changed. Now, let’s consider further global turmoil for whatever reason – economy, war, significant increases in essential commodities – and we can see how precious metals could potentially increase at much higher than the rate of inflation, simply because people don’t know where else to put their money and store their value. Essentially, we would be creating a ‘Gold bubble’, the one that George Soros spoke of earlier this year.

    So, as an example, rather than gold doubling at 7% over ten years, let’s assume it triples from $1200 to $3600 because it’s not only keeping up with inflation (which is not necessarily a foregone conclusion, but we’ll use it for demonstration purposes), but demand is increasing because of the aforementioned global turmoil. Over ten years your house only kept up with 7% inflation in terms of price, but the value either remained the same, or perhaps, because real estate is a debt based asset, the VALUE actually goes down in terms of other assets and products, while the PRICE is rising. Here you can see that, in fact, you actually create value by holding some of your assets in PM’s and actually end up paying LESS for your home in terms of gold if you then exchange the gold for dollars and quickly pay off your note.

    James, I hope that wasn’t too long of an explanation, but it is a topic that, like I mentioned, is one I have been contemplating for quite some time. I may be totally wrong here, but for the time being, this is how I am looking at the “problem.”

    The end result of contemplating these scenarios yields no guarantees. If there is inflation, we have to ask whether or not that inflation is during “boom times” like the late mid-1980’s to the mid-2000’s, or whether it will be more like the inflation of the 1970’s through the early 1980’s. The value of gold will depend on what type of crisis, if any, we are in.

    At the risk of sounding like I am making a prediction, the movement of gold over the last eight years suggests that we are not in a typical inflationary time period – in fact, we are likely struggling with deflationary pressures at this time. Yet, gold is still rising, which indicates that we are dealing with a different kind of animal – one of economic, political and social uncertainty. If this trend continues, then the price of gold will likely continue to move in the upward direction.

    At the same time, real estate prices, as well as the values of other assets that were primarily driven by debt, may collapse in “real” terms, so their value may either stagnate or drop, even though their “price” increases.

    The bottom line is, when investing into real estate, precious metals, commodities or other assets, it is important to consider not just “price,” but “value.”

    We’ll contemplate the topic of value in a future article. Incidentally, it includes yet another discussion with SHTF contributor Rick Blaine.

    A few minutes prior to running this article, Tom of the North, author of the Outside the Cardboard Box web site, sent over a chart worth viewing. It depicts the price of gold vs. the price of real estate from 1970 through 2010. You’ll notice that since 2001, the price of real estate in terms of gold has collapsed over 75% percent!



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      1. The only way something becomes “more valuable”, even during inflationary periods, is IF there is a strong market for it.   I believe the market for “McMansions” will actually decrease for several reasons.

        One:  People will figure out that the tax bills, energy costs, maintenance on larger houses are also skyrocketing, and thus lower demand for that type of housing.

        Two:  As more and more of people’s income goes to take care of just food, water, fuel, there will simply be less income to dispose of on this type housing.  Less demand = lower price.

        I believe we will see inflation in the items you need, and deflation in the ones you don’t.

        Gold and silver are going to do well as people come to understand exactly WHAT the properties of money are:

        1. A medium of exchange
        2. Easily divisible units
        3. A store of value

        That last one is where most paper fiats fail so miserably, but they manage to hide that fact by slowly inflating the paper over time.  Once the time becomes compressed, and inflation rampant, folks figure out pretty quick that last property of money.

      2. I see no mention of interest rates in your analysis of the effect of inflation on house prices. The only way to control inflation will be higher interest rates. This will be another massive negative effect on already weak house prices.


        Isn’t there some push looming out there that will force home owners to get their residences up to speed per some energy efficiency standards ala Gorebal (sic) warming and Cap n’ Trade mandates  before they can sell?

      4. the american money system is the finest and most stable ever invented in the economic history of the world. i have faith in our god-fearing country and our leaders such as mcconnell and boehner to guide american and our wonderful and powerful money on the right path.

        there is no need for gold or silver. the dollar bill will take us through all the tough times that may arise due to iran and the chinese manipulation of our dollar. save as many ten dollar bills as you can. have faith in our leaders and america’s wonderful banking system and god almighty. faith, hope and charity is america’s salvation…

      5. To my way of thinking the dangers associated to the future value of PMs is political by that anything else.

        Consider this scenario: the US and other major countries default. A major pow wow occurs where IMF SDRs (or something similar) is recommended as a replacement for the USD and Euro … perhaps even the Yen.

        A world with the critical problem of stalled commerce reeking havoc then has  a choice between:
        1) using this new fiat issued by an established, international entity (IMF) in concert with the blessing of the respective governments/banks  ….. or
        2) attempting to fabricate some local or regional currencies or exchange mechanisms.  That could take time and stalled world
        commerce would be devastating. 

        And Gold? … much as I like it and the concept of gold backed currency, my question is… who is its advocate?  Among the movers and shakers of the world, who will carry the day against the banksters fiat and supplant it with PM backed currency.

        As we’ve seen with the Fed and its interaction with the US Gov,
        Control of currency is CONTROL. Expect the powers that be to fight over it as if it was the trigger of a gun. Gold is a threat to them therefore expect moves to suppress it until such a day that central banks controlled by the bankster cartel are abolished.

      6. Great article mac.

        Spot on Andy, that is the formula hey. House prices went up in Germany along with everything else but only outsiders and those with gold or gold backed currency were buying.

        The bottom line is simple, if deflation, houses go down, if inflation, no one has any money anyway and prices go down.

        The fact is most homes will never come back, ever. Like those dumps in Detroit. The lack of oil in the decades to come will make road maintenance, water main repair, electricity distribution, NON-VIABLE for the masses. Only the elite estates will have the funds for services.

        We are witnessing the end of the global suburban dream and the masses will have to actually go back to work on shovels and hoes instead of keyboards and mice. What an amazing time to be alive’

        And for all those that slander gold, who think it is useless. What is it’s value today? In the years ahead you will be able to buy a house with a single ounce of gold, like you can buy in Detroit today. But those with gold will not waste it. We are not stupid.

      7. During the Napoleonic wars the German banker Amschel Rothschild gave the following advice to  Jakob Rothschild in Paris:  When things look the worst, when the war is going badly and everyone is consumned by fear; buy.  Buy everything you can.  But when the news is good and the war looks like it is going well and the people are feeling confident; sell! 
        In Iowa an old pig farmer had similar advice about how he became a millionaire.  He said: When I was a struggling pig farmer the market for pigs would be way up so I would put all my efforts into raising pigs, but by the time I had raised them to butchering size and brought them to market the price had dropped and the price of corn had gone through the roof.  So I would put all my efforts into growing corn and when my corn was harvested the price of corn was down and the price of hogs was up.    So I changed my plan, when the price of hogs would go up I would raise corn and when the price of corn would go through the roof I would raise hogs.  And that’s how I became a millionaire…

      8. All of this talk re: prices of homes going up…
        Taxes are going nowhere BUT up.  One had better start calculating the TAX consequences of your asset rising.  Chris Martensen discusses this very scenario.  Counter-intuitively, the more your home appreciates in $’s combined with a rising tax rate in the next several years, THE MORE YOU LOSE.  As was mentioned, purchasing power decreases.  Everyone thinks they are coming way out ahead while Uncle Sam is the one draining your pockets as you feel good about your situation.
        Study history, gold typically does OK in inflationary periods but does really well in deflation.  Don’t compare the 80’s & 90’s with what we are experiencing today…NOT EVEN CLOSELY RELATED!

      9. Prediction
        Due to real unemployment rates of 30%-40% during 2011 and an even tighter ‘impossible to obtain’ credit in 2011… The recent buyers of gold will be soon forced to sell in order to put food on the table, they will take a hit on the premium they paid when they bought and they will take a hit as the supply of buyers becomes extinct.  You will all end up with the same crummy dollar as you had before… but much fewer of them. 

        This metals boom is in fact a bubble. 

        Be prepared to buy the metals only during the full crash of commodities.  You will know when to finally buy them.  When more than half of the car dealers close.  When Walmart announces the closure of a thousand stores.  When you can sell your one month old used car for only 10 cents on the dollar.  After the FDIC goes belly up and the long banking holiday.
        When thief’s stop stealing cars and only steal food and paper money.  Then and only then should you look at the price of gold and silver.

        The metals will inflate during the final chapter of the world economic and banking collapse during 2015.

        A must read:

        If you have this gold bug disease, the coming weeks may be your only window to sell at a profit.  It is unbelievable that so many got caught in this gold/silver trap.

      10. This system of living on borrowed time collapses the same, be it on a gold based system or fiat paper. 

        Say they choose a gold standard to replace the dollar, the same collapse will occur time and time again if the people and governments dig themselves a grave of debt and a life of freeloading.

        It will get worse until America solves these problems:
        1 in 5 is unemployed or underemployed.
        1 in 5 is a government employee.
        1 in 10 are here illegally and pay no taxes, yet receive billions in hand outs and free rides.
        1 in 2 get some sort of government assistance.
        1 in 95 live totally debt free.
        Trillions spent on wars.
        Billions blown on incarceration of dangerous felons that deserve to die.
        Hundreds of billions lost due to fraud.
        Trillions blown on bailouts.

        You will  have collapse regardless of fiat paper or gold.
        You will  have collapse.

      11. The U.S. is over $ 13 Trillion in debt with another $ 107 Trillion in unfunded liabilities ( Social Security, Medicaid, Medicare, Federal Pensions,,,,). This reality is the biggest reason for concern as many Americans continue to lose their jobs, savings, and homes. People across the country need to consider downsizing their lifesytles and prepare for a Lower Standard of Living. If the U.S. manages not to fall into a decade long Depression, any economic rebound could take years to bring things back to some measure of ‘ normal ‘.
        If the current plan to borrow and print our way out of this debacle continues in Washington, hyperinflation and/or default will become an increasing concern. IMHO, the Titanic is close to a nose dive. Acquire as much food as you can afford and store, and prepare as best you can. Good Luck to All.

      12. Spot on Wooba but it will probably take 3 or 4 oz to buy the log cabin I will buy in the future.  The prices will come back but what value? 

      13. Comments…..good article, but too sugary..lets get a dose of reality here…about the house…dump it! lets assume that inflation happens and the value does increase… many people in 10 or 15 years are going to be shopping for a multimillion dollar home in the USA? Nobody is the answer..if you have brains and money, you will leave before the SHTF…why go through the is too short to be miserable.. Now, lets assume that inflation happens and the price of the house is actually worth more…how much more money did you piss away paying the banksters interest on that mortgage…that money never comes back to you… Next, how much did you pay for insurance, taxes, maintenence, repairs, groundskeepers…all pissed down the drain never to be seen again..SO you have a woodie about makin 7% on your investment because of  inflation…what an idiot! You were not making a dime, you were treading water for a decade! you will loose far far more than that each year when you figure out your interest payment, taxes, insurance ect… dump the house, rent something you like and pocket the difference, which in my estimate will be between 1o to 30% of the value of that white elephant multimillion dollar albatross home annually. what you actually save each year can be put into a real investment that pays a return..FYI… good investments and good returns on investments (15% +) are all over the place..just stop looking for them in the USA. The rest of the world welcomes investors, treats you right on taxes and regulations as well as welcomes rich yankees who want to become residents.
        For Americans, since your government has robbed you blind and ruined your futures, moving to the third world soon is a good can still live like a king for waiting, don’t, once the dollar devalues to its real worth, you will be too poor to move to the third will be living it every day. As for moving to the second world..most americans cannot afford it anymore..the euro, pound, franc ect are too valuable and the dollar too cannot afford to be more than a second or third class citizen there anymore. 
        Interesting how things come round and round..remember all of the giant old victorian mansions you could buy for nothing back in the 70’s when nobody wanted or could afford em..the victorian mansion district of most cities became the ghettos.. Guess what the Mcmansion districts are becoming? thats right, the place poor folks live…stupid people…learn some history and stop making the same mistakes over and over again. 

      14. On a side note – It won’t be long before all of the “McMansions” will be worthless piles of rubble.  The only thing of value will be the copper pipe.  When the building boom was going big time around here in Northern Michigan there were “builders” everywhere.  To be a licensed builder in Michigan all you need to do is take a class for 80 bucks.  In the class they gave you all the answers to the test given by the state to get a license.  The fools were tossing houses together all over the place.   Some of these dumps are already falling down.  Imagine all the crappy homes people are leaving because they paid too much for one of these things.  There must be millions of them throughout the U.S.  These things will be pennies on the dollar.  Who in their right mind would buy one of these dumps?  It would cost a fortune to repair or bring up to current energy codes.   May as well bulldoze it like Detroit’s going to………

      15. This is such an interesting exercise in planning. Thanks Mac. Good piece here. Before I got to the comments section, I had a few items in mind, wondering if they may be addressed. Some were. Some not. So I’d thought I might share what many already may know, nonetheless.

        How about shadow inventory? As the MILLIONS of unlisted homes now in some stage of default reach the market (eventually), and when the banks get the balls to list those very properties, the choices will be plentiful, and the supply will dwarf demand, even more than today. All the while, your metals will be increasing due more to governmental and political instability, than inflation/deflation itself.

        So yes, as mentioned above, the things we NEED (food, fuel, etc.) will inflate. Just look at Russia’s new moratorium on grain exports! That’ll catch up with us! But the things we WANT (Homes, land, cars, etc.) will HAVE to plummet, I should expect.

        This brings me to my final point. I was with a group this past weekend, camping, and talking prep, gold, and the like. We actually had a guy that was almost 90 with us! You may laugh, but that offered some rare insight when I shared these same thoughts with him. He sat quietly, then nodded in agreement. During the Depression, his neighbor gave away their house for mere pennies on the dollar! Why? Because homes and land mean very little to those that haven’t prepared themselves with enough of the daily necessities. It will all be dumped in a heartbeat when you’re hungry. No charts and graphs will tell you that. Human suffering will create these opportunities to help those in need, while helping yourself with a bargain.

        My only question becomes, do you simply purchase directly with your gold and silver, avoid some of the red tape and notice of the gov? Or do you cash in your metals for the currency value of the day? I guess that depends on the seller. But I would hope for a straight, metals-for-property exchange.

        Good luck, brothers and sisters. This is a great site. Share it with those still asleep! Time is not on any of our sides, if we haven’t taken care of the essentials by now.

      16. This blog entry dovetails nicely with the article, Why Gold Is Rising, by Gary North.

        Especially the inflation aspect related to gold in the past.

        And, gold ain’t in no bubble, consider that shoeshine boys, taxi-cab drivers and the like aren’t talking it up like they did with housing.

        The future foreclosures Will impact house values, so too the Boomers retirement Plan B to sell their homes all at about the same time. The Boomers and the older generations who have paid off their homes and bought when the price was much lower can afford to sell at a much lower price and this in turn affects the comps which lowers everyone else’s home values.

        The housing bubble and the economy are spiraling down about the same as they spiraled up. There will most likely be unexpected jolts… downward, imho.

      17. The demographics for US real estate were over some years ago, which is why the banksters developed the no down, no qualifying, adjustable home loan for liars and pranksters.

        The global demographics for gold is a  different story.

      18. A property bubble is a type of economic bubble due to de-regulation lending during the Clinton’s terms, so everyone could be qualified; and at the same time politicians and CEO’s can earn BIG BONUSES & CAMPAIGN DONATIONS.  

        When the U.S. economy was in big, big trouble due to the housing crisis, the Fed printed more money to bail out big banks, Freddie Mac and Fannie Mae, but the U.S. housing crisis continued to get worse.

        The dollar is declining and this is causing a ripple effect around the world.


        That’s the reason people are buying gold in order to protect themselves.

      19. Gonner, that stupid cow running the automatic earth web site is a dumb-assed academic who spent half her life in Ivory towers. Her claims that gold will probably be confiscated, that holders will be forced to sell are grounded in her own fears and her total compliance to every dictate that comes down from government.

        We holders of bullion also hold cash you know? I hold more cash than gold and silver but how much cash do you hold? And how many stocks do you hold? How many worthless paper bonds like she advocates we put our money into. All the sheeple are flooding into bonds as a safe haven, that is the last place you should go mate. And taking financial advice from women is the last thing you should be doing, Hell they can’t even change the oil in a car.

        But if you haven’t been buying gold for the last 10 years then you are probably too late to protect yourself. When the bubble comes you will not see it’s top, you’ll get caught out and lose.

        If you have never fired a handgun then don’t give opinions on handguns. If you have never had sex don’t bother giving us advice on sex and if you have never bought bullion as a hedge why are you even commenting on it? Gold can go as high as it likes and come all the way back down to the $500 level and I will still be way in front.

      20. Comments….. Mac, nice piece. Andy you`re right.
        “During the first half of 1922 the Mark stabilized at about 320 Marks per Dollar accompanied by international reparations conferences including one in June 1922 organized by U.S. investment banker J. P. Morgan, Jr.[4] When these meetings produced no workable solution, the inflation changed to hyperinflation and the Mark fell to 8000 Marks per Dollar by December 1922. ” Wikipedia says.. .
        What do you think US debt-holders will do?
        -buy some more,
        -take a loss,
        Biggest US debt-holders are also biggest gold buyers, except
        Japan. But Japan eyes the oil in Alaska right now, in exchange
        for UST.

      21. mr. goner’s opinions are certainly amusing -and that’s all. they kinda ignore the reality of past and present economic realities. for instance,  in indonesia folks are using gold and silver coins and laugh at the government paper crap.

        the dinar is 4.25 grams of gold or 0.1447 troy ounces of gold.

        the dirham is 3.0 grams of silver or 0.09645 troy ounces of silver.

        eventually only gold and silver coinage will be acceptable for barter in the u.s.a.  .. 

        better get gold and silver coins while they’re real cheap ..

      22. WARNING……Walking away from a house is very BAD advice!!! Eventually the banks will sell these homes that people simply walked away from for pennies on the dollar but guess what,after the sale, the bank legally has FIVE YEARS to sue the walker, seize his assets and garnish his wages to make up for the bank’s losses. You are better off with a foreclosure or short sale. Walking away will destroy your credit and eventually will catch up with you potentially leaving you with nothing!!!

      23. One thing that really amazes me is how everyone continues to value things in terms of FRNs and what might happen to them in the future.  We all know what that is going to be.

        As for the guy with the house in the article,  if you can’t pay it off go buy one for cash that you can pay for.  Who knows how much time we have left before things get really ugly.  The discussions of what the house may be worth in FRNs is totally irrelevant to whether or not he should keep it.  If he has a mortgage and does not want the house, he can leave it.  The entire mortgage transaction was a fraud so he can do so with a clean conscience.  Besides, he could likely just stop paying and take possession of the house because nobody (the bank) has the legal standing to do anything about it.  As an attorney, he should be able to find that out for sure and base his decision on that. 

        If a bank can take it, he should give it back to them.  If not, why pay one.

      24. Most little thinkers would do better buying just food.  Weedle is correct with unfunded liabilities. 
        As soon as Chinese mass can buy what they produce, they will have to move fwd.  Their gov. promoting to their own people to invest in gold/silver is very smart. 
        I don’t own any, it just sits there doing nothing!  Gee, those premiums on those little 1/10 oz charm coins seemed expensive @ $65 3 yrs ago.
        Colombus was looking for gold & spices when he sailed west. 

      25. Buying all the gold and silver you can afford (or most of you – – – buying all the gold you CAN’T afford) will NOT improve your status, the economy is still rushing down the toilet. 

        In effect, your gold and silver becomes the new fiat currency because the debts and unemployment will still exist.

        If a loaf of bread costs one ounce of gold or $10,000 it just isn’t going to matter.   Do you think you can afford to live three days when TSHTF?

        When it comes time to sell your gold in a future panic, who do you think will be a buyer for your gold if the dollar is in the crapper?  And guess what currency you’ll receive in exchange for your gold LOL same crap dollar you bought it with.

        Until you fix the world debt problem and the USA employment imbalance, it doesn’t matter what currency you hold.

        Daytrade gold, don’t hold on to it and pay the premium and storage fee. 

        When they run out of cash who will be the buyer for your gold?
        Oh yeah, it is going to keep going up alright, LOL

      26. Goner, do you have any idea what your talking about? A loaf of bread for an oz of gold? Do you know how many loafs get eaten in America on a daily basis? A lot more that there are ounces of gold in individual hands I can assure you.

        You use the same arguments for a total SHTF collapse as you do for a deflationary depression as well as an inflationary spiral?

        When bread prices went through the roof in he hyper-inflations of Wiemar Germany and Zimbabwe gold was readily accepted by bakers. It was a stable unit of value and they didn’t have to rush to the dairy farmer or the flour mill before it depreciated. In recognized coin form it was the money of choice, along with British pounds and US dollars. People didn’t swap their gold for paper and buy bread, they negotiated to trade their gold for on ongoing supply of bread because the gold was so worth hundreds and hundreds of loaves.

        In the total SHTF collapses experienced during and soon after the second world war gold was similarly used directly as money. In the 1930’s US deflation those that held onto all their gold and didn’t hand it back just because the government told them to were able to legally bring it out in small amounts. They traded it directly or sold it to dealers, for a 50% profit on it’s old monetary peg value, This happening even as prices for everything else were collapsing.

        You better wake up old mate and get on board with some silver or a little gold because everything you depend on going forward is made op paper and the intrinsic value of paper is not very much.

      27. Wooba, the time to buy silver and gold will be when all you bugs are forced to sell or starve.   Large stores will not ever accept precious metals food food and goods.  Small mom and pop stores will long be boarded up.   You think your neighbor will exchange a near useless metal for food?   Until the debt disappears the USA/World is doomed to collapse on the weight of the debt.  Those that compare Zimbabwe to the USA needs to get a reality check.

        Gold/silver only has a value only because people now say it does.  If it becomes a currency after dollar collapse, then it too is fiat and is subject to the same doom due to the worldwide debt.

        THINK HYPER DEFLATION FIRST, then when that hits the fan and most of you are homeless and jobless (buy gold then, just before hyperinflation), then comes HYPERINFLATION as the products on the store shelf’s become scarce due to the collapse of the supply chain.

        Cash money,  jobs, credit are all about to become scarce with the new Obama taxations, mainly from his Health Care bill.  QE2 may occur, but that money WON’T end up in the hands of the people.

        I’m fine, thanks for caring, retired early, no debt what so ever, own my own places, vehicles, tons of paper, even got some gardening and canning going.   I guess you could say I’m a happy fan on the sidelines during this collapse.  I know what will happen next, it is not what the bugs think.

        Gold bugs remind me of those that bought tech stocks when NASDAQ was double of now.  Enjoy paying the premiums.  Try selling it when there are no buyers.

        There will be a time to buy gold, when people are begging to sell for a penny on the dollar.  Good luck to you, I am happy.

      28. Goner, there’s something inherently off-kilter with your view of metals in this situation. I don’t mean that disrespectfully. In fact, you have a situation for survival that many are quickly striving to attain. But metals are NOT fiat. They cannot be printed at will, and have quite some intrinsic value. Note also on the ‘mom and pop’ statement you made. Did you realize that there are NOW such cafe’s, gas stations and the like, sprouting up across the US, accepting…wait for it….silver coins and bullion for payment of their goods and services, as they choose to extricate themselves from the shackles of the Fed’s funny money. Yes, now.

        To say that people won’t be interested in gold or silver because it’s “Only worth what we assign to it as value” holds little support. Isn’t that what we’re doing now? With paper? Printed at will? Currency will STILL be needed in some form or fashion that cannot be printed at will! Add to that, every Central Bank is now coming for their gold. So obviously, it is ready to be accepted worldwide (again), as it has been for millenia.

        And to support the reasons for gold and silver useage as a currency, it’s also in the Constitution. But here’s a very useful snippet from an interview by the Gold Report to Doug Casey. He nails some real strong reasons why gold is the perfect tender. Silver will fall into much the same category:

        TGR: We spoke earlier about inflation and the likelihood of the U.S. government printing its way out of debt. Do you see a point in time where the United States or even other governments will go back to the gold standard?
        DC: It’s both essential and inevitable. That’s because they have no reason to trust one another. They need a medium of exchange and a store of value that’s not faith-based.
        All the other governments of the world know that the U.S. is bankrupt and the dollar is nothing but a floating abstraction. Why should they hold billions or in some cases trillions of these things on their balance sheets? They’re going to go back to gold because it’s the only financial asset that’s not simultaneously somebody else’s liability.
        It’s not because gold is magic in any way. It’s just because it has characteristics that among the 92 naturally occurring elements make it uniquely well suited for use as money. It’s durable. It’s divisible. It’s convenient. It’s consistent. It has use value in and of itself. And it can’t be created out of thin air by some government. It’s a better combination of those things than any of the 92 elements. It’s infinitely better than paper. So yes, I think they’ll go back to gold within this generation.

      29. p.s. Here is the site for the full interview, as pulled from Lew Rockwell:

        p.p.s. Good luck in timing the moment where inflation ends and hyper-inflation begins! This isn’t a day trade, this is for survival. And prices are rising now. That split second break into something wildly uncontrollable (ala Weimar) will happen overnight, and will indicate a complete abandonment of confidence in the US and its currency. So until a NEW currency comes to the fore, you better have something to exchange beyond your good looks, if you’re even priveleged with that.

      30. Good luck. 

        My posting here makes as much sense as a paleoconservative posting on the Obama board.   I am not a troll, I could care less of what you do.  It is the reasoning why people think they will be better off with gold going into the deflationary collapse that I object to.

        Look up the word fiat regarding when/if gold becomes currency.   Metals are “put into the system”  much the same way paper money is.   And if gold becomes currency, yes indeed it would be fiat.  And the world would still have the same debt and employment problems, regardless of what is being used as a currency.

        The demand for the metals will soon be gone due to people and governments having no more money and credit available.  It is that simple.

        QE2 will be used to pay off portions of the interest only on our debt, while our debt goes up billions more each month  on top of that (due to the millions of moochers and the war).

        QE2 will not filter down to the peasants.  There will not be hyper inflation until after TSHTF, after the transportation delivery system collapses and after your store shelves are first bare.

        DEFLATION COMES FIRST, and it has been all around you since 2007. 

        When the masses are starving, then it will be time to buy gold, I figure around 2015-2017ish.   The price of gold will fall like Niagara when there is no price demand/support.    I hope you have plenty of mattress cash for that one.

      31. Definition of FIAT MONEY

        : money (as paper currency) not convertible into coin or specie of equivalent value (as per Merriam Webster Dictionary).

        Now that that’s settled, Goner, you seem to be set on the idea that deflation and inflation happen in some kind of linear fashion, as you EXPECT it to. Deflation will strike hard on things we want, but don’t necessarily need. Such as homes, property and cars. That hasn’t even begun yet, given all the shadow inventory of property out there. So it’s going to drop like a rock. It has certainly happened on technology already, to be sure.

        Inflation is already underway in the forms of what we need. Food, fuel, etc.  Russia has imposed a moratorium on wheat exports. Weather patterns are destroying crops all around the world. GMO foods are reducing what farmer’s can produce from season to season. And QE2 is by its very definition, inflation. And why again must this wait until deflation has run its course?

        They can and will happen simultaneously. Either event makes your metals the benefactor. They may drop in the short run when panic sets in, and liquidation becomes the mantra for the day. Within days after, sensibility sets in that there is no value in your paper FRNs. Those will dissolve in your hands through the debasement now in full bloom. Why is this so tough to understand? Where is your sense of history? Do you know that metals bought the survival of many during WW2? Do you realize they were never NOT accepted as currency? You don’t have to ‘eat gold’, just trade it, as it is so well accepted across the globe. And I’m not a religious guy, but I have read the bible. If that’s your thing, you have support in what I’m saying in those very pages. Goner does not trump God, I’m sorry to say. Your emotions and personal beliefs are clouding what’s already proven to be.

        On another note, seeing as though we’re discussing the supposed uselessness of said metals, how about the 400% increase in gold since 2001? How about the fact that my silver has gone up 5.7% in just the past two days?

        You must think a guy like me ought to be embarrassed to see the rest of his year’s expenses covered, from the time I went to bed Sunday night, all to the time I’ve had my morning coffee this morning. Yeah, it’s worthless, huh? Well, I’ll take anything worthless that can perform like that. And being as though it’s not in a bubble, and will only increase as the uncertainty of the planet persists, I have time to cash in without missing the boat.

        Until you are living and transacting in metals yourself, you are simply flying on personal theory with no practical experience. Come to the light, Goner. Leave the darkside. It ain’t all it’s cracked up to be.

        Maybe by tomorrow, I’ll have enough gains to buy a new tractor. I’ll have to let you know.

      32. (Regarding the Automatic Earth article above): I am with Wooba on this one. Plenty of fear in her words, and no rationale for the statements made. All conjecture. Williams works with facts and history, and has the track record to back up his statements. Although, he is very bold to call a date on hyper inflation. That’s usually ill-advised, but he may be entirely correct.

        But this is where the dis-info kicks in, and has no basis for reality:

        “This is at odds with The Automatic Earth’s view of where oil prices are heading in the short term. Our prediction is that falling demand (where demand is not what one wants, but what one can pay for) will lead to falling prices, but that more rapidly falling purchasing power (due to the collapse of the credit that represents over 95% of the money supply) will ensure that lower future prices will be less affordable than higher current ones.”

        First of all, oil is priced in gold. Gold is shooting upward primarily due to the free fall of the dollar right now. When the dollar slides, and weakens in such value, the Saudis are going to ask for MORE of those dollars to compensate for weaker purchasing power. Oil is not going to plummet at this time. This is not a resource we can likely assign to anything deflationary, though that is just what the site is saying. Just lumping it in with all the other stuff Americans won’t be able to afford. A little critical thinking on that front is in order.

        You can also add to that, like our own Fort Knox, Saudi oil fields have not been inspected by outside authorities since 1980, when the US inspectors (and former owners of the well) were booted from the premises. And oddly, the Arabs keep amping up their available supply! Use a billion barrels here and a billion barrels there, and somehow the oil reserves have increased until now? That’s some kind of math! And why would they do that? The rule is, the more OPEC nations CLAIM to have in the ground, the more they’re allowed to pump from the ground! Much truth will soon come forward in this area at a time when the oil situation reaches some kind of code red status.  None of it makes for lower oil prices going forward, is the bottom line.

        So yes, let’s not use that site as a source of reason or authority.

        p.s. And Goner, where on EARTH did you get $10,000 for a loaf of bread?? Not to belabor what’s already been addressed, but…..there is silver bullion and junk silver before we ever get to gold! Wow! That better be some damn good bread, I’ll tell ya that!

      33. (Regarding the Automatic Earth article above): I am with Wooba on this one. Plenty of fear in her words, and no rationale for the statements made. All conjecture. Williams works with facts and history, and has the track record to back up his statements. Although, he is very bold to call a date on hyper inflation. That’s usually ill-advised, but he may be entirely correct.

        But this is where the dis-info kicks in, and has no basis for reality:

        “This is at odds with The Automatic Earth’s view of where oil prices are heading in the short term. Our prediction is that falling demand (where demand is not what one wants, but what one can pay for) will lead to falling prices, but that more rapidly falling purchasing power (due to the collapse of the credit that represents over 95% of the money supply) will ensure that lower future prices will be less affordable than higher current ones.”

        First of all, oil is priced in gold. Gold is shooting upward primarily due to the free fall of the dollar right now. When the dollar slides, and weakens in such value, the Saudis are going to ask for MORE of those dollars to compensate for weaker purchasing power. Oil is not going to plummet at this time. This is not a resource we can likely assign to anything deflationary, though that is just what the site is saying. Just lumping it in with all the other stuff Americans won’t be able to afford. A little critical thinking on that front is in order.

        You can also add to that, like our own Fort Knox, Saudi oil fields have not been inspected by outside authorities since 1980, when the US inspectors (and former owners of the well) were booted from the premises. And oddly, the Arabs keep amping up their available supply! Use a billion barrels here and a billion barrels there, and somehow the oil reserves have increased until now? That’s some kind of math! And why would they do that? The rule is, the more OPEC nations CLAIM to have in the ground, the more they’re allowed to pump from the ground! Much truth will soon come forward in this area at a time when the oil situation reaches some kind of code red status.  None of it makes for lower oil prices going forward, is the bottom line.

        So yes, let’s not use that site as a source of reason or authority.

        p.s. And Goner, where on EARTH did you get $10,000 for a loaf of bread?? Not to belabor what’s already been addressed, but…..there is silver bullion and junk silver before we ever get to gold! Wow! That better be some damn good bread, I’ll tell ya that!

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