By
Tom Barrett
Following
is some very wise counsel from my friend Tom Barrett, a man I met
through our friend, Financial Advisor, Fulton Sheen. Tom has been in
the rare coin business for nearly 40 years and can surely assist you
just as he's been such a great help to us. This 10-10-10 message
REALLY got my attnetion when I first heard it. He can be reached at
561.753.5998 or emailed at RareCoins@att.net.
Enjoy
the read!
Most
of my career has been in investments, and most of my investments have
been of the traditional, Wall Street type. But since our government
has embarked on its suicidal mission to massively increase the amount
of worthless dollars it prints, I have embarked on a mission to
protect my family from the government’s recklessness. That plan
involves positioning one tenth of my assets in a way that they could
one day replace the value of all my assets in the event that our
nation experiences hyper-inflation.
I
want to concentrate on how we can protect our families from inflation
by using the 10-10-10 plan, so I won’t spend much time here
discussing the probability of hyper-inflation in the United States.
There are many great articles that cover that very well, two of which
are listed at the end of this article: “In Debt We Trust” and
“The History of Money.”
For
our purposes, consider just two things. First, from 1776 to 1933,
when the US was taken off the Gold Standard by Franklin Delano
Roosevelt, most Americans had never heard the word “inflation.”
For 157 years the cost of labor, goods, and (most important) gold was
relatively level. Over the last 76 years the dollar has lost 96% of
its purchasing power, according to Bloomberg.com and many other
unimpeachable sources. Gold has gone from $20 per ounce to over
$1,000. Every American, including kids, expects that everything will
cost more next year than it does now. Inflation has been accelerating
over those 76 years, and it will only get worse as the effects of the
trillions of dollars in bailouts and massive spending on the
healthcare and energy bills work their way through the system.
Second,
it is arrogant of America to think that we are immune to
hyper-inflation. Fully 10% of modern economies have experienced
hyper-inflation. We’re not talking about post-WWI Germany, which
saw the Mark go from an exchange rate of four Marks to the US Dollar
to 1.2 Trillion Marks to the Dollar in just four years. Nor are we
talking about third-world nations like Zimbabwe, whose dollar was
almost equal to ours only four years ago, where a One Trillion Dollar
note today is worth 3 US pennies. We’re talking about modern
economies like Argentina, which experienced inflation so horrendous
just 20 years ago that the US had to bail them out. By the way, we
forced Argentina to comply with severe austerity measures, including
issuing no money unless it was backed by gold. Today our nation is
doing exactly the opposite of the measures that fixed Argentina’s
problems. (Who will bail the United States out?)
If
you were deeply in debt, what would you think of a financial
counselor who told you to borrow more money and “spend your way out
of debt.” You would think he was crazy, and would look for a sane
counselor. Yet this is the course Washington, DC, has chosen. The
Chairman of the Federal Reserve System, Ben Bernanke, has stated
that, “The United Stated has a technology called the printing press
that allows it to produce as many US dollars as it wishes at
essentially no cost.” If you believe this will lead to
hyper-inflation, read on. If you believe it MIGHT lead to
hyper-inflation, you should still consider the 10-10-10 plan. Why?
Because even if we only continue to experience the same level of
inflation we have had for the last twenty years, the plan will help
to protect your and increase your assets.
Let
me first outline the plan, then give you the details. The
first 10
refers to shifting 10% of your assets to precious metals, primarily
gold. This is not a new idea. Since I first enrolled in the College
of Financial planning almost 30 years ago, many conservative
financial counselors have recommended putting 10% of all
non-residence assets in gold. This means calculating your net worth
exclusive of your primary residence and using 10% of that number as
your percentage for gold investment. Today, because the dangers from
inflation have increased greatly, most of those same counselors
suggest putting 10% of all assets in gold.
The
second 10
refers to the percentage of the precious metals you should allocate
to bullion. Bullion is gold in a form that has very little value
above the price of the gold itself. For instance, if the “spot”
price of gold is $1,000 and you were to buy a “bullion” coin
(such as a Canadian Maple Leaf, a Chinese Panda or a South African
Krugerrand, all of which weigh about one ounce), you would pay $1,000
plus a premium for minting and profit percentage for the dealer. The
other 90% of the money you allocate to precious metals should be put
into investment grade gold. More on this later.
The
third 10
refers to the percentage of your bullion assets you should allocate
to “junk silver.” 90% of your bullion allocation should be in
gold coins or ingots of various sizes. But allocating 10% to silver
will prove to be a smart move if there is a serious decline in the
dollar. For instance, a silver dollar that is currently worth less
than $20 could have much more buying power than that hundred dollar
bill you have in your wallet today, if we experience hyper-inflation.
Let’s
talk about that first 10% - the percentage of your total assets that
you should consider investing in precious metals. Before we do, let’s
get the disclaimers out of the way. I am retired from the financial
services business. I am no longer a broker or financial planner. I
let all my many licenses expire when I retired. I am not giving
investment, accounting or legal advice. These are general suggestions
only. If you need specific investment advice, consult your investment
advisor, accountant or attorney.
With
that said, in general, I believe most people should seriously
consider “tithing” their assets into future protection of their
families wealth in the form of precious metals, primarily investment
grade gold that will increase in value. If your circumstances allow
putting more than 10% into precious metals, give serious
consideration to doing so. I am personally targeting 20%. I have a
friend who is a world-renowned expert on this subject who has 50% of
his family’s assets in gold.
The
chart below illustrates very graphically why gold will almost
certainly rise as the dollar falls. The US Dollar index is shown in
Green, while the World Gold Index is shown in Gold. You will notice
that for the last 17 years the two have had an inverse relationship.
That is to say, when the Dollar goes down, Gold goes up, and vice
versa.
Since
there is very little likelihood that the dollar will strengthen over
the next few years, this means that there is a strong likelihood that
gold will continue to climb.
Some
people say that now that gold is over $1,000, it is too high to buy.
They have been saying that for the last nine years, during which time
it has risen over 300%. And they will probably still be saying that
when gold tops $3,000.
Why
do I mention $3,000? Because many people much smarter than I are
predicting that gold could hit $2,000 in as little as six months to a
year, and $3,000 in the next two to three years. If we have
hyper-inflation, many experts say that gold could go as high as
$5,000 to $8,000.
Before
we go on, we need to understand a very important concept. While the
PRICE of gold may fluctuate, the VALUE of gold does not. This is
because gold has been recognized as the only true money in hundreds
of civilizations over thousands of years. There has never been a
paper currency that has stood the test of time, because eventually
every nation starts to counterfeit its own money.
The
Romans invented the concept of government counterfeiting when they
needed more money to pay for public works projects to make the
senators popular. (Sound familiar?) Unlike our Fed Chairman, they
didn’t have a printing press, so they started melting down their
silver coins as they came through the government mint, and mixing in
base metals. This is called debasement of the money. In 54 A.D.
Rome’s primary silver coin, the denarius, was 94% silver. By 218
A.D. it was down to 43%, and just 50 years later it contained only 1%
silver. The citizens’ loss of confidence in their money was one of
the primary factors in the fall of the Roman Empire.
Over
the years other nations followed Rome’s example. The invention of
the printing press made it much easier for governments to steal from
their citizens through counterfeiting. Our own government sanctioned
wholesale counterfeiting with the advent of the Federal Reserve
System. (See LINK below to the article, “The Non-Federal Fed.”)
No longer was our money backed by gold. Instead, a collection of
private banks was given the franchise to issue paper money backed by
– nothing.
On
the US Treasury website I found the following in a Question and
Answer section. I have known this to be true for many years, but was
surprised to see the government admit it publicly. (See the Resources
area below for the LINK.):
QUESTION-
What are Federal Reserve notes and how are they different from United
States notes?
ANSWER-
Federal Reserve notes are not redeemable in gold, silver or any other
commodity, and receive
no backing by anything.
This has been the case since 1933. The notes have no value for
themselves, but for what they will buy. In another sense, because
they are legal tender, Federal Reserve notes are "backed"
by all the goods and services in the economy.
What
does this have to do with the value of gold? Gold’s value remains
constant. But as the currency in which gold is denominated
fluctuates, the price of gold changes. So what appears to be
fluctuation in the value of gold is really nothing more than
fluctuation in the currency. Since the paper currency is backed by
nothing, it is not real money like gold is. It is basically a
promissory note – an I.O.U.
To
demonstrate the fact that gold’s value doesn’t change, consider
this: The price of a new three bedroom home in the United States
today is about $200,000, or 200 ounces of gold. 100 years ago a
similar new home would have cost $5,000 – about 200 ounces of gold
at that time. A skilled stonemason makes about $1,000 per week today
– the cost of an ounce of gold. In 1776 he made about $20 per week
– the cost of an ounce of gold at that time. And in Jesus’ time
the same skilled laborer made the equivalent in silver of one ounce
of gold for one week’s labor.
What
this means is that, while gold bullion is a good hedge against
inflation, it is not necessarily a good investment. This is best
illustrated by an example. Let’s say you have $10,000 in cash, and
you believe that gold is going to go to $2,000 in a certain period of
time. If that happens, considering the inverse relationship of gold
and the US Dollar, we can expect that the dollar will lose 50% of its
value. You can do one of three things with the $10,000:
1)
Hide the cash under your mattress or put it in the bank. You’ll
make about 1% at the bank ($100), so the results will be pretty much
the same.
2)
Buy bullion gold with the money.
3)
Buy investment grade gold.
The
probable results of these three courses of action are:
1)
Your $10,000 will still be $10,000, but due to inflation the loss of
purchasing power of the dollar will mean that you will only be able
to buy $5,000 worth of today’s goods or services.
2)
Your bullion will be worth $20,000, but due to inflation the loss of
purchasing power of the dollar will mean that you will only be able
to buy $10,000 worth of today’s goods or services. You broke even.
Buying the bullion was a good idea – it was a good hedge
(insurance) against inflation – but it was not a good investment,
because it did not increase in value.
3)
If you put the $10,000 in investment grade gold, it could be worth
anywhere from $30,000 to $50,000 or higher, depending on how long it
took for gold to hit $2,000.
“All
right,” you’re asking, “what is ‘investment grade gold’?”
This is gold that has more than the intrinsic value of its gold
content. It is gold that has the extrinsic value of rarity. We are
talking about rare gold coins. For many centuries, in turbulent
economic times, investors have turned to rare gold coins as a way to
both preserve and grow wealth in a small, portable manner that is
simply not possible with gold bullion.
So
here are two new principles. Gold bullion preserves
wealth. Rare gold coins create
wealth. Gold bullion will always track inflation, so you won’t lose
purchasing power. But you won’t make real profits, either. On the
other hand, rare gold coins go up when spot gold is up; they just go
up more. And when spot gold is down, they still go up; just not as
much.
Now
let’s look at why you want to own bullion at all, since investment
grade gold coins are a far better place to put your money. The reason
for holding 10% of your precious metals allocation in bullion is that
it is more liquid in case of an economic collapse. I am not convinced
that there will be such a collapse. If I were, I would keep a larger
share of my money in bullion. But there is a high enough likelihood
of a serious crash of the dollar that I want to have some readily
negotiable coins to deal with day-to-day needs. There has always been
a market for rare coins in the most severe economic conditions. But
since each rare coin represents more wealth by weight than bullion
coins, it will take longer to liquidate them. The 90% of precious
metals allocated to rarities should be saved for larger purchases, or
used as a savings account to be traded for smaller bullion coins as
needed.
Your
bullion gold should not be all in large (one ounce) coins. If gold
goes to $5,000 or higher in a severe collapse, you don’t want be
carrying a $5,000 coin with you to buy groceries. Diversify your gold
so that you have some half ounce, some quarter ounce and some tenth
ounce coins. But keep in mind that the minting and seller’s
premiums are almost as high for a tenth ounce coin as they are for a
one ounce coin, so you should have mostly one ounce coins. When
currency becomes worthless, entrepreneurs appear to handle things
like exchanging larger coins for smaller ones (for a small fee, of
course).
Finally,
let’s discuss the last 10, which refers to “junk silver.” This
term refers to non-rare silver coins (dimes, quarters, halves and
silver dollars) minted prior to 1965. Yes, our government followed
the lead of Rome and started counterfeiting our coins as well as our
paper money; it just waited a few decades to do so. In 1964 a
fifty-cent piece contained 90% silver. Five years later it was down
to 40%. Today it contains none.
Junk
silver can be used for smaller purchases. A handful of silver coins
that today might be relegated to a jar on your chest of drawers might
someday buy food and fuel for your family for a week to a month.
While I don’t believe silver will rise nearly as much as gold
percentagewise in a normal market, in a hyperinflationary market you
could see silver make dramatic moves.
Junk
silver can be bought fairly cheaply in mixed bags at many coin
stores. Because of the low price of silver, and its weight, it is
probably best to buy it locally. If you are looking for rare gold
coins or gold bullion, send me an email. I have done lots of research
on this, and I will be glad to share the best ways to buy gold so
that you can be sure of the value of your purchase, and so that you
can buy at discounted prices. Because gold is hot today, 90% of the
people who are selling gold today weren’t even around a few years
ago. They have jumped on the bandwagon to make a quick buck, and in
many cases their prices are ridiculous. I only buy from reputable
people I have known for 15 to 20 years.
So
there you have it. 10-10-10. Having at least 10% of your assets in
precious metals could make all the difference in the world in an
economic crisis. 10% of that in bullion will keep you liquid. 10% of
your bullion in silver will let you carry real money without carrying
too much.
The
90% of your precious metals allocation in rare coins can mean one of
three things. If the dollar completely collapses, it can make the
difference in whether or not your family survives. If we just have
severe inflation, you could be the wealthiest person in your
neighborhood, because you will have real money. And if we just
continue to have the same levels of inflation we have had for the
last few decades, you will have made a better investment than
anything else I know of after over 30 years in investments.
