Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17
The Only Article You Need to Read to Understand the Trump Phenomenon - 17th Mar 17
Janet Yellen Just Popped the Stock Market Bubble - 17th Mar 17
Financial Crisis, Steve Eisman: Smart, Lucky, Abrasive & Now One Of Them - 17th Mar 17
Gold Cup – Horse Racing’s Greatest Show, Gambling and ‘Going for Gold’ - 17th Mar 17
Trader Education Week - Free Event to Help You Learn to Spot Trading Opportunities - 17th Mar 17
$1.4 Trillion of SPX Notionals Due to Expire - 17th Mar 17
Preserving Order Amid Change in NAFTA, U.S. Sovereignty v. WTO - 17th Mar 17
3 Maps That Explain Why Syria Raqqa Battle Will Drag On - 17th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

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