Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
Central Banks Need a Higher Gold Price : Hello GATA - 3rd May 16
A Currency War Battle That Europe and Japan Can’t Afford To Lose - 3rd May 16
When the Truth is Found to be Lies, Confidence in Currency Dies - 2nd May 16
How Brexit Could Help All of Europe - 2nd May 16
US House Prices Outpacing Official Inflation Rate, Household Income - 2nd May 16
USD Still Declining... - 2nd May 16
Gold & Silver Rally Huge as Central Bankers & Analysts Flub - 2nd May 16
Stock Market Bounce Day - 2nd May 16
Stock Market Uncertainty Following Two-Month Long Rally - Will It Continue? - 2nd May 16
Stock Market Correction Underway "Upside Objective Reached" - 2nd May 16
USD, Yen and an ‘Inflation Trade’ Update - 2nd May 16
Gold Commitments of Traders and More - 1st May 16
The Magic of Gold Ratio Charts - 1st May 16
Consensus Forming: China Heading Back Into Financial Crisis - 30th Apr 16
The Next Technical Price Targets for Gold & Silver - 30th Apr 16
Stock Market Downtrend Should be Underway - 30th Apr 16
Gold And Silver – A Clarion Alarm Call For All Paper Assets - 30th Apr 16
US Economic Statistics LIES, LIES AND OMG, MORE LIES - 30th Apr 16
Stock Market Strong Elliott Wave Relationship is Developing - 29th Apr 16
Fed's Kaplan: Brexit to Factor in US June Interest Rate Decision - 29th Apr 16
Silver Miners Strong in Grim Q4 - 29th Apr 16
Is Silver a better bet than Gold in the Near Future? - 29th Apr 16
How to Use the CoT Report in Gold Investing? - 29th Apr 16
Sri Lanka is Intriguing: Areas to Consider for Value Investing - 29th Apr 16
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards - 29th Apr 16
Are We or Are We Not in a New Gold Bull Market? - 29th Apr 16
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16
Global Recession in 2016 and Beyond - The Obvious Evidence - 27th Apr 16
Why Gold Bugs Need to Stop Listening to The Fear Mongers and Start Thinking for a Change - 27th Apr 16
BlackRock’s Fink: Fed to Raise Interest Rates by Quarter Point ‘at Best’ - 27th Apr 16
Gold More Productive Than Cash?! - 27th Apr 16
Donald Trump Will Fire Janet Yellen and Be Trapped - 27th Apr 16
Money Saving Gardening by Propagating Roses From Cuttings - Propagating Rose Plants Over 2.5 Years - 27th Apr 16
Facebook Censors Pro Trump and Negative Hillary News - 27th Apr 16
This is the Era of the Democrats and Your Taxes are Going Up - 27th Apr 16
Long Awaited Gold Price Breakout - 26th Apr 16
Crude Oil Price Double Top or Further Rally? - 26th Apr 16
Madness in the Crimex Gold and Silver Trading Pits - 26th Apr 16
Britain's Prospects: GBP and BREXIT - MAP Wave Analysis - 26th Apr 16
CRB, Gold, Oil, Cotton, Coffee - 7 Must See Commodities Charts - 26th Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

Will Your Bank Account Be 'Cyprused' Next?

Politics / Credit Crisis 2013 Mar 27, 2013 - 01:24 PM GMT

By: Bill_Bonner

Politics

U.S. stocks continued mostly going up last week. But European markets fell. Gold bounced up and down... but held above $1,600.

Most people would much rather own stocks than gold. Most of the time, they are probably right. Gold pays no dividends. Nor does it invent new things or open up new markets... or any of the other things that make stocks go up.


And now most people seem to think there is a "recovery" under way... and that the authorities have everything under control. So who needs gold?

According to Kim MacQuarrie's book The Last Days of the Incas, a sailor in the 16th century earned about 8 ounces of gold for a year's worth of service.

How much does a merchant seaman today earn? A quick Google search reveals a wage of about $2,500 per month... or about $30,000 per year.

That seems a little low. It probably doesn't include health insurance and so forth. And maybe it includes all of those sailors from Indonesia and the Philippines who must earn less than the typical American mariner. So let us say $40,000, which is about the average wage in the U.S.

Hmmm... Eight times $1,600 (the current gold price) does not take us far. To about only $12,800. So either MacQuarrie is wrong. Or sailors make a lot more today than they used to. Or the price of gold is far too low.

Sailors were probably not well paid in the Age of Discovery. We will guess that the average wage was probably closer to an ounce of gold per month.

That would be a wage of $1,600 monthly... still low by U.S. standards, but not by the standards of most of the world! By world standards, a sailor probably earns about as much, in gold, as he did 500 years ago.

Those are the kinds of problems and questions you run into when you're trying to figure out whether gold is overpriced or underpriced. All we can tell is that, on the evidence of the sailors' wages, gold is probably not far from where it ought to be.

Pizarro hit the jackpot when he conquered the Incas and stole their gold. During a four-month period, from March-July 1553, the conquistadores melted down 40,000 pounds of Incan jewelry, art, tableware and religious items. They sent one-fifth of the loot back to the king of Spain. They divided up the rest among the 168 conquistadores.

It was a bloody business (killing thousands of unarmed Incas at Cajamarca, for example). But it paid well. The horsemen in the group each got 90 pounds of 22.5 karat gold, plus 180 pounds of silver. If they had just put the gold in a safe place, to be dug up by a distant descendant in the 21st century, the fortune would be worth about $2 million.

Getting "Cyprused"

Last week, gold got a little boost when it became apparent that (1) Europe still faces huge and disturbing financial challenges; (2) governments are ready, willing and able to steal money from bank accounts; and (3) governments are also preparing to put on capital controls to prevent you from moving your money to safety.

We maintain a small bank account in France. It is used just to make repairs and otherwise keep up our house there. The woman who handles it sent this message on Friday:

"Don't put any more money in the account. We don't want to get Cyprused!"

How likely is it that the French government will freeze the banking sector and skim 10% off the accounts? Not very. France is not in that kind of a cash-flow bind... yet.

But all the countries of the developed world are headed in that direction. They spend more than they receive in tax revenues. And as their debt increases, their interest payments increase too.

Of course, ultra-low interest rate policies – enabled by central bank monetizing of government debt – keeps interest payments low... for now. But low interest rates don't stay low forever.

And as Greece, Spain, Portugal and other borrowers have already discovered, Mr. Market can be a real pain in the derriere. When he insists on higher rates of interest – fearing that he may not be repaid as promised – state budgets get shot to hell.

Then, like Cyprus, the feds get desperate for money. They will go after it wherever and however they must.

Which makes saving money dangerous, as well as unrewarding. First, the feds suppress interest rates so you get no return on your savings. Then, when they get in a jam, they "Cyprus" your savings directly.

The Cash Conundrum

We are not against holding cash. In fact, we recommend that members of our family wealth investment advisories, Bonner & Partners Family Office and Bonner & Partners Private Wealth, do exactly that.

As our old friend Rick Rule says, cash gives you the courage and the conviction to buy when everyone around you is selling. You can't expect to snap up bargains in the market without it.

But cash also makes us nervous, thanks to central banks' overzealous use of the printing presses. This is an important reason to keep your eye on gold (and own some too).

If the 16th-century sailor had taken his annual pay and buried it under a tree in Extremadura, it might still be there. The lucky treasure hunter would find himself as rich as the sailor who buried it five centuries ago.

The nice thing about gold is that not only does it hold its value over centuries, it is also a valuable that you can keep out of the banking system.

And like jewelry or antique autos, you can keep it at home. Bury some gold bars under your own tree. Keep them in your own safe. If the banking system freezes up or breaks down... you still have them. Pass them to your children. Give them as birthday presents. Or just lock them up and forget about them.

Gold is private money. Dollars, pounds and euros are public money.

Dollars, pounds and euros are given to us by governments and central banks. Gold is given to us by the gods.

Bill Bonner
Bill Bonner is a New York Times bestselling author and founder of Agora, one of the largest independent financial publishers in the world. If you would like to read more of Bill’s essays, sign-up for his free daily e-letter at Bill Bonner’s Diary of a Rogue Economist.

http://www.lewrockwell.com

    © 2013 Copyright The Daily Reckoning, Bill Bonner - 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.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife