Monday, January 05, 2009

Gold and Silver Advantages

Gold and silver have more advantages than just protecting stored value (purchasing power). At the height of a "Crack Up", they can buy you the means of production, real stuff with potentially huge value under the right circumstances, as in just as or just after the blood in the streets stops flowing.

The worst part of what Von Mises refers to as Crack Ups historically take about 1 & 1/2 - 2 years, the time period of the most upward or most near vertical part of a curve on a chart showing the loss in purchasing power of government fiat tokens.

A example of what Ludwig Von Mises called a Crack Up is happening right now in Zimbabwe.

(click to enlarge)

Numbers are from the "Zimbabwe dollar" at Wikipedia

Here is a link to "Banknotes of Zimbabwe" at Wikipedia

The above 2 pages are good ones to quickly get up to speed on the Zimbabwe Dollar (ZWD) scene.

The above chart is from Hyperinflation: Mugabe Versus Milosevic
Worth a look. It is probably as of about May of 2008. The ZWD has lost a lot more purchasing power since then and now, the beginning of January, 2009.

Here is a chart of the Crack Up of the ZWD but the sources are not given.

A check for over a quadrillion ZWDs from The Big Picture.


Final humiliation for Zimbabwe dollar as foreign currency legalised
Robert Mugabe's government has bowed to financial reality and legalised the use of foreign currency in Zimbabwe's shattered economy.

By Sebastien Berger, Southern Africa Correspondent
Last Updated: 1:28AM BST 11 Sep 2008

It is the final humiliation for Zimbabwe's battered currency, which was worth more than the US greenback at independence in 1980.

Even after two revaluations that have knocked a total of 13 zeros off it, it was trading on the black market on Wednesday at around 6,000 to the USD – or 60,000,000,000,000,000 to one in terms of the original Zimbabwe dollar.

Zimbabwe economy virtually foreign exchange-based: media
The Zimbabwe dollar continues to lose its worth as the country's chronic economic woes show no sign of abating. One US dollar is worth four million Zim dollars at the official exchange rate and three billion Zim dollars on the black market.
The Herald said the prevalent use of foreign exchange is threatening the once flourishing parallel foreign exchange market as traders get fewer people in need of the local currency.

Once a regional economic model, Zimbabwe is in the throes of economic crisis with inflation officially at 231 million percent and most families unable to afford a square meal.

By the way, the Zimbabwian central bank stopped publishing their ZWD supply numbers a while back just like the Fed did over a year ago.

The Fed/Treasury has the M3 growth rate down to about 8-10% at the moment. Gee, thanks guys. Dispite that, there is still a compound curve to the **supply** of M3, new highs. Roughly speaking, at the moment, you need to be making 8-10% on your bank accounts just to maintain purchasing power. Therefor most are loosing at an anuual rate of about 7-9% of purchasing power of their USD in their bank accounts. Such a deal!

During the last or radical part of a Crack Up, the purchasing power of gold and silver can increase a **lot** in real terms since the economy is so bad, the means to production have little value and can be bought dirt cheap. The story of the boy in Germany buying a hotel for a single ounce of gold could very well be true.

It is not easily done though. You probably should be a local who intimately knows the scene to get the best of the small deals before some of the big boyz swoop in to buy up stuff in large quantities, managed to survive, and somehow didn't need to spend gold or silver to do it, or at least has some left over to make the once in a life time buy(s).

It is safe to expect the gold price to go up into USD thousands.

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