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Many new gold investors are concerned about the "loss of interest" on their money if they invest in gold.

The Keynesian money printers have spent almost 40 years of well oiled propaganda positioning cash as king and gold as a non interest bearing investment relic.

Let's examine the facts:

Interest is a payment or "rent" on money lent or borrowed to compensate for loss of purchasing power or opportunity cost.  The loss of purchasing power is measured by inflation.  We all know government estimates of inflation at around 2-3% are lies (just look at your grocery bills) but let's use them anyway.  Today you can get about 2-3% in a Commbank term deposit.  The interest is taxable so using a rate of 40%; your real return is actually negative.  Your money is losing value sitting in the bank!!!

If we apply a real world inflation rate of 8% you are losing about 5-6% after tax.

The loss of purchasing power of paper currency is best demonstrated by some simple and observable facts:

Prior to 1971

  • A family financial structure was dramatically different:
    • Dad could work a blue collar 40hr per week job and mum could stay home and raise the kids but they could still afford a Sydney house with a small 10 year mortgage.
    • They owned one car outright and paid cash for the annual beach holiday.
    • Kids schooling, pensions and healthcare were government funded.
    • Life was simple.

Fast forward to 2009:

  • Dad and mum are working 60 hr weeks. (vs. 1 income in 1971)
    • A 30 year mortgage buys a suburban box 1hr 20 mins from CBD.
    • Both cars are fully financed,
    • The annual holiday is paid on credit card
    • We have self funded childcare and education, personal super contributions and private healthcare.
    • Life is crazy.

This is inflation........the loss of your purchasing power.  Having to do more and more just to stand still.

Why has this happened?

1971 is the year that the US dollar replaced gold as the world's reserve currency.  The spending discipline enforced by the gold standard no longer remained.  The US dollar was now backed by nothing other than faith, a promise to pay.  All currencies would now be measured in US dollars, meaning gold was effectively replaced by the US dollar as the global monetary check and balance.

Without gold to hold government and bankers in check the printing presses have been running 24 x 7 for 38 years now.  The supply of money with nothing backing it is acting as a hidden tax for every citizen.  It has turned entire countries of net savers into net debtors with no hope of repayment.  This is why Joe Sixpack, the factory worker in 1970, enjoyed a better standard of living than most people today – inflation through paper currency debasement.  Your money is becoming worth less because more and more of it is being created.

This concept is nothing new.  In Roman times Emperors struggling to fund the expanding war effort debased gold and silver coins by slicing edges or mixing cheaper alloys into production.  History is littered with examples of how governments swindle money from its people.

Looking at recent events with the massive financial global bailouts (they are not just in the US) the printing press spigots have been ratcheted to a level never seen before.  In fact today the use of digital dollars means they don't even need to waste paper to increase the money supply.  Governments call it liquidity injections, emergency funding, temporary loans, asset swaps etc etc but it all means something very simple:  your money is being debased at record pace and inflation is going to accelerate to unimaginable levels as a result.

We are headed for a global currency crisis, hyperinflation ala Germany and Zimbabwe.  Unfortunately the masses will learn the concept "what is money" the hard way.  Their digital and paper dollars will become worth less and the kings of currency, gold and silver, will resume their rightful place as the only real money.

Still care about gold not paying interest relative to cash?????


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