So, does money have any real value?

I was in a bit of a difficult conversation yesterday. We had some friends in the area and they had heard an interview with someone who was saying that the US economy was doomed. I get about 2 of these though e-mails a day. I am sure you have seen these as well, but I usually can just avoid the whole conversation (an e-mail doesn’t automatically require a reply). But this question was coming from friends, and I had to admit some of the most difficult realities for a financial planners. Money: national currency is a representative economy. It is backed by the faith of the government that prints the currency, and as time has gone by, the governments have not proved as strong as people suspect.
I have never been a precious metal trader. I have only owned precious metals as a bit jewellery, but today we are talking more then ever before about gold (and silver). This is outside my field.
The US dollar was tied to hard metals up until 1974. This meant that the US government actually had metal (either gold or silver) to cover the value of the money they were printing. This would be a classic representative economy. The printed dollar represented the metal behind it. In 1974, this standard was removed. Today’s US (and other national currencies) dollar is back only be the faith of the government. This allows the government to print as much money as is necessary.
However, for 35 years, this has been the case. Why is there so much talk about precious metals today? First, the value of both of these metal have grow substantially. The second reason, is that metals are not subject to inflation and/or exchange rate problems. It become a true international currency. This second reason is really “The” reason for most watchers. The US has significantly increased it’s national debt in the bail out of so many companies. The value of the US dollar doesn’t have the same strength as before as people are starting to not hold it as the “great international currency”. In my present home of Canada, we have certainly see the Canadian dollar function very well in light of this US weakness.
Of course, the final nuts and bolts question, is “what should one do?” Should we all run out and buy gold or silver? Gold is about 1200/oz. Silver is 18.25/oz. If someone wants to buy gold, the Canadian bank “Bank of Nova Scotia” has made this very easy. You can order it on line from 8am to 5pm EST on any weekday. Most of your other banks also offer it but they generally do a manual system. (meaning- you walk into the branch and they fill out some forms and you drop by in a few days to pick up the metal). 1oz silver bars at BNS are running about $23.51 silver coins (minted by the Canadian gov’t) are running a bit more. Some have preferred a gold and silver note, although this is a lot easier if you want to trade gold and silver, in the event of an economic meltdown the note is likely to be to cumbersome to work with. Another problem with the metals is how do you trade with them? If you showed up at a grocery store with a sack of gold, who would accept it? What rate would you get? Would would even be able to tell you it’s real?
Back as a financial planner, a man came into our branch with a silver brick and set it on the desk of my receptionist. We all stared at it. He asked “so, how much is it worth?” We all stared. We had no idea. Was it really silver? It looked heavy. It was grey and shiny. He told us he paid $1000 for the brick back a decade ago when he thought the world economy would collapse. It didn’t collapse, so he decided to bring it back. We sent the brick away to Toronto to our precious metals depository and they assessed the value as $1000.53 (or something like that). Not his best economic decision.
Let’s pretend you had the gold bars…where would you put it to keep it safe until you needed it? That’s difficult. For the present, a safe deposit box would make sense, but again, if we were in an economic meltdown and the banks closed, you would find it difficult to get back into a branch to get the gold. Do you keep it in your house? You could, but gold could be subject to loss of theft. I have had 2 total loss house-fires. We never did find any “jewellery” in the ash heap.
I guess when you come down to it, although we all want to do the best to plan for the future, planning for a complete economic meltdown would be very difficult. One financial planner and I were talking about this idea a few months back and he mentioned that when Hurricane Katrina hit, we actually found an economy where the dollar didn’t matter much at all. Batteries were the best thing to have or fresh drinking water. There was no one (as far as I know) trying to trade silver or gold. My friend, said for him “chickens” would be the best item to have around, and I tend to agree.
So, will there come a time when we can not rely on the government?…I think so. The Bible predicts a time when there would be one government and this government would be hostile to believers. In fact, it says no one could buy or trade without a mark of the “Beast”. I am confident that will someday become a reality, but for most of us, until we start to see those “end of the age signs” we might do well to not bring a bag of gold or silver to Walmart. Have a good day, Brad