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Do you trust the banks? Is there money under your bed? Gold Safe Alternative

Commodities / Gold and Silver 2012 Apr 05, 2012 - 10:15 AM GMT

By: Jan_Skoyles


Best Financial Markets Analysis ArticleLast month it was reported that over £5.6 billion in cash is estimated to be kept in peoples’ homes; out of the banking system

It works out at around £270 per person; this is a lot of money to be sat around avoiding the banking system.

The statistic was announced by the Financial Services Compensation Scheme (FSCS), the body responsible for compensating savers when a bank fails; an organisation which bases its entire existence on an un-backed paper money system.

The FSCS exists because our government, central bankers and policy makers are able to create money out of nothing. It exists because banks are able to use the liberty of money creation and abuse our savings. In the meantime, the central bank are allowed to print money which the banking system is able to amplify. This devalues what little money we have managed to earn and put aside.

Do you trust the banks?

According to the same FSCS survey, 1 in 8 people do not trust the banks (seems a little low to us!). I find it ironic that the Financial Services and Compensation Scheme are using this figure to try and persuade people that this money really is better off in the banks or building societies, because after all the FSCS are the ones who will be there to return up to £85,000 should a financial institution fail; a scheme which only exists, and needs to exist, due to our paper money system.

As James Delingpole wrote a few weeks ago, we should stop thinking that what governments do with our savings and money supply is acceptable. Just because they tell us that what they are doing is the right thing, doesn’t mean that it is. After all, as Mr Delingpole himself demonstrated we shouldn’t believe everything the government and the ‘experts’ tell us.

This all leads me to think, as I have said before, that we would be far better taking as much of the economic situation into our own hands rather than into the hands of politicians and (unelected) central bankers. The past 40 or so years should be evidence enough that individuals are dangerous when placed in charge of country’s financial system. They need the reins which gold could place on them.

Safer under the mattress?

But is it really a good idea to keep your money in your own home and out of the banking system?

We are now the most indebted Western nation, where, according to Simon Rose, we now owe 5 times what we earn in one year. He also reminds us that we have a banking system which, five years ago, experienced the first bank run in 150 years. Our central bank is also the proud owner of a digital printing press; I need not remind you that the Bank of England is quickly coming to the end of its QE programme in which it has printed £325billion, creating a huge inflationary time bomb for pressure on prices and the currency.

No matter which high street bank one chooses to put their money in, it is still impossible to beat inflation. We are now experiencing negative rates of interest; you put your money in the bank and it is losing value on a daily basis. It’s not just the banking system which is a threat to your money; it’s also the erosion of your money itself.

This is true for money in the piggy bank or under the mattress; it doesn’t just apply to money in the bank.

Protect your wealth, not the banks’

Why aren’t we working harder to protect our wealth? Whole countries are working hard to protect themselves from the dangerous economic decisions which Western governments continue to take. For instance; Last month Robert Zoellick, current Chairman of the World Bank, endorsed plans for a new bank to be created between Brazil, Russia, India, China and South Africa. We have all read reports that these five countries have agreed to conduct payments in their own currencies rather than in the greenback or other struggling developed nations’ currencies.

We also wrote recently of decisions by Iran, India, Russia and China to conduct payments for oil in gold. This may partly be in response to sanctions against Iran – but why not choose a currency rather than gold? Because gold is free from government monopoly. Its value is controlled only by  natural supply rather than confidence, a printing press or political actions.

We all know that we can’t avoid the banks; our daily lives revolve around transactions which go through the banking system. But in regard to our savings perhaps it’s time to start thinking about holding something in reserve, something which has proven over the years to protect our wealth from all the threats we now see to both money and its value. I am, of course, thinking about gold.

Invest in gold, not confidence

Our monetary system is based on confidence, nothing more. It is built upon the faith and credit of the US, UK, Germany, France, etc. If entire countries are starting to realise that Western currencies are no longer worth their weight in paper then why are we, as their citizens, still using it for so much of our savings?

Our own central bank holds gold in reserve, granted, not as much as they should, but they (as well as several other central banks) still find it necessary to own gold.

Britain and her gold reserves are not worth shouting about in the playground unfortunately. At the last count by the World Gold Council we are 17th in the world for our gold holdings when measured by tonnage. But when measured per capita (in 2011 figures), Great Britain does not even appear in the top 20.

Switzerland is, unsurprisingly, top when it comes to the most gold per capita. Surprisingly, Lebanon is second. We should all learn from the Lebanese, whose Central Bank Governor (according to the Economist) slept next to the gold, in the vaults, to protect it during the Civil War years. If only the trustees of Britain’s gold had felt quite so strongly that our gold should be protected at all costs when Gordon Brown had a clever idea…

Why keep gold in reserve?

In regard to why the Bank of England keeps gold as a reserve, they refer to it as tradition. But they also cite other reasons which are still as current, and as relevant to individuals, as they have ever been in the last 40 years:

1.       The war-chest argument – gold is seen as the ultimate asset to hold in an emergency and in the past has often appreciated in value in times of financial instability or uncertainty;

Currently, emerging nations are working hard to find an alternative route to using Western currencies, namely the dollar and the euro. The international monetary system is changing and much of the shiny new version looks like it will involve gold.

2.       The ultimate store of value, inflation hedge and medium of exchange. Gold has traditionally kept its value against inflation and has always been accepted as a medium of exchange between countries;

This is something which time and time again we have repeated. Since 1967, the British pound has lost 90% of its purchasing power. This devaluation is mainly down to the inflationary practices of government’s monetary policies.

In the first quarter of 2012, 75 currencies  had lost 5.1% to gold. . The biggest losers to gold were the US dollar and the euro. We weren’t far behind; the British pound was down 3.5% to gold.

3.       No default risk – gold is ‘nobody’s liability’ and so cannot be frozen, repudiated or defaulted on;

An excellent point made by Her Majesty’s Treasury, but unfortunately one which works against them. And one which is serves the strongest argument for keeping your money out of the bank.

As the FSCS state themselves, since it was set up in 2001 they have ‘paid out £26 billion in compensation and helped more than 4.5 million’. All of those individuals needed helping because of counter-party risk. Because banks and other financial organisations lost their money. When one owns physical gold, it is yours, no-else may sell it or loan it; even if the company which stores your gold collapses, if you own ‘allocated’ gold the metal of kings is still yours.

4.       Gold’s historical role in the international monetary system as the ultimate backing for domestic paper money.

Gold is ‘The ultimate backing for paper money’. Even though our own treasury wrote this, there is little chance of them voluntarily backing the pound with what little gold we have left. But they themselves have acknowledged that it works.

Gold has proven itself thousands of years. Just why it should prove itself to a flash-in-the-pan fiat money system I do not know. We are already (1 in 8 of us) questioning this banking system. But too few of us realise the alternatives to keeping our savings either under the mattress or in a bank.

Jan Skoyles contributes to the The Real Asset Co research desk. Jan has recently graduated with a First in International Business and Economics. In her final year she developed a keen interest in Austrian economics, Libertarianism and particularly precious metals.  

The Real Asset Co. is a secure and efficient way to invest precious metals. Clients typically use our platform to build a long position and are using gold and silver bullion as a savings mechanism in the face on currency debasement and devaluations. The Real Asset Co. holds a distinctly Austrian world view and was launched to help savers and investors secure and protect their wealth and purchasing power.

© 2012 Copyright Jan Skoyles - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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