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Barter

Ammo for Barter – Part 2: Ammo vs. Other Barter Items

By Terence Gillespie November 23, 2009

I put Ammunition after Water, Duct Tape and Coconut oil and before Fuel, Tarps, Paracord and Whiskey. But, that’s just me. On a recent trip to Peru I noticed a fresh role of toilet paper on the dash of every taxi.

A man’s got to have his priorities!

Life Priorities – (LP)

For the purposes of preparing for a non-specific crisis I’ve chosen to order life’s priorities in the following categories:

Water
Shelter
Food
Security
Health & Medicine
Communications
Power
Hygiene & Sanitation
General Tools
Transportation
Spices & Vices

Going through your own reasoning process and placing these categories in order is surprisingly useful. Knowing your priorities is key in making disciplined and balanced choices when allocating limited resources.

Any situation requiring something akin to a remote control drill is eligible for the deployment of firearms and ammunition. Contrary to mainstream media brainwashing firearms have a broad range of application: They serve needs in three out of ten of my top 10 Life Priority categories: Security, Food and General Tools.

Differences of opinion on the value of barter items will be rooted in Life Priorities. Your vision of where Food, Security and General Tools fit into the big picture –And your strategy in providing them– will change the ‘price’ and liquidity you assign to firearms and ammunition.

Informed Subjectivity

In a barter economy you are one half of the pricing system and your fellow trader is the other half. Making subjective judgments about the value of a barter item is not a weak method; It’s the only method. Barter economies have no broad pricing system other than the subjective judgments of the traders. Instead of complaining about subjectivity develop an informed subjectivity to become a better trader.

In barter price is expressed in terms of the desired item. To save myself from drowning in a sea of subjectivity I came up with Your Optimal Barter Equation. Please see that article for a description of the equation. Simply stated:

(M * N * LP)_1-n = YO Barter

Where M are the money qualities, N is how directly the item fulfills a need and LP is the Life Priority of the need fulfilled. Note the 1-n subscript. That’s because an item can fulfill needs across multiple categories of life. In fact, the best barter items do.

Money – (M)

Ammunition is compared with the attributes of Money in the first part of this series. Ammo fairs well in the comparison. On a scale of 1-to-10 where 10 is money I give Ammunition a rating of eight. It is viable, if not strong, in seven out of the 10 attributes of money; it is not fungible, is divisible only within the same cartridge and is best traded in manufactured lots. It is also destroyed or unpredictable if wet.

Direct Need Fulfillment – (N)

Bartering ammo instead of a gun is like bartering fuel instead of a car. The ‘fuel’ for these machines have more of the attributes of money yet directly fill needs for the same Life Priorities.

Because ammunition requires a gun I’ve given ammo an eight instead of a 10 when scoring its direct fulfillment (N). Before settling on eight, however, substitutes should be considered.

Ammunition Substitutes?

Security. Walking through the aftermath of Haiti or Katrina with pepper spray or rubber bullets is a weak security play. Even if you emerge unscathed what’s your strategy to provide security for your family? The stabilizing peace that follows in the wake of responsible gun ownership is dramatic, even in good times. How much more so in a crisis? Avoidance, lights, fair trade, keeping your word are minimum behaviors of rational people. However, security is not holistic until violence that may be thrust against you by less spiritual or less rational creatures can be stopped.
Food. Yes, if complete proteins are stocked in advance. Have plenty of beans & rice, whey, TVP, Hempseed, milk, eggs, soybeans, etc. You can leave hunting to hunters only with advance preparation (And hunters would be grateful if you would be so prepared).
General Tools. Need a remote control drill? Then you need firearms and ammunition. No substitutes as of 2010.

Substituting peace for violence is a noble quest undertaken within one’s own heart. Would you stake your life on all those around you achieving this state of Grace? Stockpiling a nutritious variety of complete proteins will quell your families need to hunt. Do you have this food set aside and ready to go?

At best, substitutes for firearms and ammunition are indirect and require advanced preparation. While encouraging all reasonable avoidance of violence and advanced preparation my direct fulfillment (N) score of ammunition remains an eight.

How Does Ammo Stack Up?

I took the best money substitute candidates from the 400 Item Barter List and narrowed it down to 44 Items. After assigning M, N and LP values to each item a spreadsheet was used to calculate scores using Your Optimal Barter Equation:

(M * N * LP)_1-n = YO Barter

The equation was applied to the items primary (LP1) and secondary (LP2 thru N) Life Priority categories. The top 21 items ranked as follows:

Rank	Item	N	M	LP1	LP2 thru N
1	Water Packets	10	7	1	3,5,7,9
2	Lighters	9	6	2	3,4,5,8,9
3	Duct Tape	7	7	2	4,5,7,8,9
4	Batteries	10	5	7	4,5,6,7,9
5	Coconut Oil	10	7	3	5,7,9
6	Ammunition	8	8	4	3,6,9
7	Fuel	8	6	7	4,5,6,9,10
8	Tarps	8	6	2	4,7,8,9
9	Paracord	10	6	9	2,4
10	Salt	10	7	3	5,11
11	Hemp	9	7	3	5,11
12	Silver (1 oz)	10	10	9	5
13	Eggs & Milk	10	6	3	5
14	Portable Filters	5	5	1	3,5,7,9
15	Wine	10	5	11	3,5
16	Whiskey	10	7	11	5,8
17	Handgun	8	5	4	9,3
18	Razors	8	7	8	5,9
19	Aluminum Foil	4	8	3	5,7,9
20	Aloe	10	6	5	8
21	Rifle	8	4	4	3,9

As you can see, accounting for a barter items use across multiple categories yields surprising results. I didn’t expect Lighters, for example, to rate so high. However, it’s difficult to protest a Lighter’s compactness, money-like qualities and it’s direct fulfillment of needs across six of my highest Life Priority categories. Water, Lighters and Duct Tape are clear winners (Using my values).

The next three items grouped closely; there was no clear winner among Batteries, Coconut Oil and Ammunition.

I expected Eggs & Milk to rate higher but the equation is a measure of a barter items liquidity in a barter economy. The ranked items are not a preparedness list, per se. It would be a tragic mistake to stockpile excess of the above items instead of focusing on your overall preparedness needs. However, having an excess of top scoring barter items would be among the easiest errors to correct in a crisis and might help fill in the gaps of your overall plan.

Point in Time Value

Change the scenario and change the price. A box of .357 costs less when golfing at Pebble Beach than in the aftermath of the LA Riots. The value of everything changes in time for too many reasons to list. That doesn’t mean there’s no use in taking a stab at relative value in the only moment we have: Now.

My ranking of these barter items was done in the same way as a trade: Subjectively. If I place a higher value on Coconut oil than Aloe does that make me an informed consumer of Coconut oil or an ignorant one of Aloe? You tell me, my fellow trader. The subjective evaluation of the price of a barter item is not a weakness of method: It IS the method.

Ammunition is a Barter Superfood

These top 21 barter items are the superfoods of a barter economy: They provide a kind of nourishment across Lifes’ Priorities. Even after a good meal a bag of Salt still appeals. Even with a full tank of gas a spare five gallons is not to be dismissed. And, you don’t have to be a shooter to know that a few boxes of .38 Special could be traded for just about anything.

While discussing the subject of this article with a friend he jokingly said, “Forget about other barter items. A gun is your ticket to get everything you need!”. When we were done laughing I realized he had perfectly captured the spirit of the unprepared, less rational or desperate. Unfortuneatly, even in good times there are at least 76 Reasons to Have a Gun and the ammunition they use.

Like water in the desert, food during famine or shelter in a storm, the value of a gun and the ammunition it uses is exactly equivalent to the value of the life it defends at the moment it defends it. Unlike water, food and shelter, however, the gun may not have to be fired to achieve its full value.

May only one half of that decision be left to someone else.

Ammo for Barter — Part 1: Ammo vs. Money

Banking

How To Pay Off Your House using Silver & Inflation – Part 2

By Terence Gillespie November 7, 2009

The Daily Grind

Working this plan to pay off your house doesn’t free you from the daily grind, in the short term. You’ll still need to:

Keep making the payments on your mortgage.
Keep making payments on other fixed debts and expenses.
Scrape and save whatever you can.
Store your savings into silver until you reach your target number of ounces.
Keep your head above water during this disintegrating economy.
Monitor the price of silver and be willing and able to cash in when the time is right.
Cash in, pay the taxes, make large payments on your mortgage and lay low.

Doomed From the Start?

Are you paying on a mortgage from the overvalued bubble market?

The contrast between the difficulty of paying off a bubble mortgage and buying a new house in cash is going to get extreme. If it’s too much harder then consider a short sale, rent for a while and use your silver to purchase a new home when the time is right. You might as well benefit from lower housing prices.

As mentioned in Part 1 the money the bank ‘gave’ you was conjured out of thin air because of The Awful Truth of How US Dollars are Created. It’s morally wrong to break a legal contract and I’m not advising one to do that. However, many debtors are questioning whether a mortgage is a legally binding contract since the bank doesn’t provide equal consideration (The Bank brings no risk to the contract since the money is created out of thin air using your signature).

Tax on Standing Still

Standing still will cost more dollars in the future than it does now. If you manage to come up with more dollars to stand still you’ll be taxed as if you’ve gained something.

This double theft of inflation and more taxes is ridiculous, of course. But, you’ll have to put more silver aside to pay the taxes on your non-gain. Otherwise, you’ll fall short of you’re goal to pay off the house.

How much more silver you’ll need for taxes is a function of the size of your mortgage and your current and future tax rates. It’s a moving target, but, you’ll have to take a stab at quantifying it to achieve your goal.

Federal

Buying or selling back silver eagles require no 1099 broker reporting. $1000 face value of junk silver (752 oz silver) is the threshold of reportabability. Less than 1000 oz of other forms is not reportable. A tax advisor would probably tell you that its good to know the reporting rules, but, they don’t affect the definition of when you’ve realized a capitol gain. You may, however, want to sell in increments less than 1000 oz. to minimize paperwork.

Sales Tax

Purchase in increments greater than $1500 to avoid paying sales tax on the purchase. Check your state rules for the threshold.

How Much Silver Do You Need?

Enough to pay off your mortgage, pay taxes on the non-gain and cover the spread on the buy and sell of the silver. If you can swing it why not add all your fixed debts to the mortgage amount and buy your way out of all debts?

The 1980 price of silver was $50/oz. The inflation adjusted price of $50 in 1980 is $129 in 2008. And yet, the current October 2009 spot price of silver is $16.32/oz.

Based on your belief use a silver price of anything between $35 and $129 for your calculations of the number of ounces to purchase with today’s savings. Then pick the month and year you think it will be worth that price. My number is $75.

I believe the dollar will fall and silver will rise in dollar terms so that one ounce of silver will be denominated in at least 75 dollars within three years. Tell me that its November 2012 and silver is $75 an once and I wouldn’t think you were saying anything extraordinary.

Example

Principal owed = $100K
Silver Now = $16.32
Silver Then = $75
Cap gains tax = 15%
Spread on the buy = 6%
Spread on the Sell = 2%
Ounces needed = 1537 costing $26,589 in todays dollars with buy spread
Sale price of 1537 oz. after paying sell spread = $112,969
Cap gains paid = $12,957 (costing 173 ounces at $75/oz)
Net (After taxes and spreads) = $100,012

So, for every dollar you save in silver you’ll be able to payoff 3.8 dollars of mortgage after paying the taxes on the silver gain if silver goes to $75.

How does that compare to saving dollars in a bank at 0 interest? Let’s say every dollar you have now is worth 60 cents then. That means instead of having 3.8 dollars you’ll have 0.6 dollars. That means you’ll have 6.3 times more dollars in your hand if your savings is in silver rather than dollars (3.8 / 0.6 = 6.33).

Step-by-Step

Decide what you think the price of silver will be in three years.
Look up how much you’ll owe on your house in three years.
Divide principal owed / silver spot in #1.
Add in the buy spread on the purchase
Add in the taxes on the gain.
Add in the sell spread.
Add 2, 4, 5 and 6 and recalculate #3 substituting the new number for the numerator (It’s recursive because of the taxes. I made a spreadsheet to calculate 1-7).
Find a source to purchase the silver.
Purchase the silver
Purchase a gun safe, not necessarily shipped to your own property.
Take physical delivery of your silver and store it somewhere safe — The gun safe being one of many options.
Keep making your mortgage payments and other expenses
Monitor the spot price of silver
Get as familiar and comfortable with selling your silver as you did in buying it in step 9.
Wait until the value of your silver hits your spot price.
Sell the silver in increments that enable you to minimize taxes on the gain.
As you sell the silver make huge payments on the principal of your mortgage.

Check the current spot price here and find a local coin shop.

That’s it! Don’t think about it too much or cash in the silver too early. Get back to your life.

If You Don’t Have the Money

The savings required to buy enough silver to pay off your mortgage is small in comparison to the size of a mortgage. However, it’s by no means a trivial amount of savings.

If you don’t have enough then either buy what you can or focus on other real assets. I keep a running list of my favorite real assets in Checklist for Hard Times. In that article I recommend not buying precious metals until you have the real things needed to fulfill the needs of your family. Providing shelter (Paying off the house) certainly qualifies as providing for the needs of your family, in my book.

With all this talk of money and sliver you might be surprised that my philosophy is that Everything is Worth More Than Money.

Belief is Good (And Downside Risk is Minimal)

The technique I’m proposing will work for balanced and financially conservative reasons. Yes, silver is undervalued, but, don’t bet the farm on it. Rather, payoff the farm with it. Use the rest of your savings to hedge risk and purchase tools and seeds for the harvest.

What I’m not saying:

Buy silver because you’ll make a lot of money.
Silver is your last chance at an investment of a lifetime.
Put every spare dime into more silver.
The silver market is manipulated and will spring back with a vengence.

I can’t make these statements because markets can be manipulated and investors can be wrong longer than you or I can remain solvent.

What I am saying:

The dollar will continue to fall and there is no government plan, action or will to save it.
The dollar will not be saved by deflation (Occuring simultaneously with overpowering inflation).
Silver is the most undervalued candidate among many other choices for hard assets in which to preserve savings.
Silver is not your only alternative for this plan. It’s just what I think is the best alternative.
Silver will preserve, though not necessarily increase your real purchasing power. It is the preservation, not the increase that this plan depends on.

Whether you execute the plan depends on your belief. Writers that specialize in precious metals are better sources to hone your beliefs than I can be in this article. I’ll list my favorites, below and suggest a reading sequence.

Belief is best when it comes from your own research. I recommend reading the following articles, in this order, to optimize your time.

Banking

How To Pay Off Your House using Silver & Inflation – Part 1

By Terence Gillespie October 30, 2009

In 1980 it took 814 ounces of silver to purchase a median-price home in the US.¹ In today’s dollar 814 ounces would cost you $13,154.²

If this happens again you’ll be able to purchase a home, free and clear, for $13,154 of today’s dollar if stored in silver instead of the bank.

This article is not about buying new houses. It’s about a technique to get out of debt and own the house you live in. The debt I’m referring to, here, is fixed: Your rate and monthly payments are the same for the life of the loan.

You need only track the remaining principal on your mortgage and the spot price of silver to come up with input numbers for my proposed technique. Whether or not you execute the plan will depend on your belief.

Belief is best when it comes from your own research. I’ll provide some points of departure for that research but want to focus on execution, here.

Perhaps your belief will come easier knowing that what I’m proposing is just a . . .

Faster Version of the ‘Same Old Thing’

As a debtor, inflation helps pay off your mortgage if your wages keep up.

Every monthly payment is worth less to the bank. The inflation (Theft) is slow enough that wages get a chance to catch up. They rarely do keep pace, but, the number of dollars you receive usually does increase over time.

Three things are happening here on a normal basis as you pay off your mortgage:

Your getting paid more dollars from your employer or customers as you attempt to maintain purchasing power.
Each of your fixed payments are worth less to the bank.
The value of the balance due on the mortgage decreases by the principal portion of your payment and the inflation adjusted value of the remaining debt.

To speed up this existing process I propose that more of the the fruits of your labor be stored in silver to preserve (And possibly increase) its purchasing power. In effect, you’ll be speeding up step 1, above, by translating back your silver savings into dollars at some future date and paying down your mortgage. By that time, however, the dollar will have fallen and silver will have risen.

The silver you cash back into dollars will pay off a larger chunk of the currency your mortgage is denominated in: Dollars. Those increased number dollars may or may not have more purchasing power. But, you don’t need them to. All you need is for the silver to buy more fiat dollars to satisfy the mortgage. In other words, the mere act of preserving existing purchasing power will give the same effect as an increase in purchasing power when it comes to ‘purchasing’ debt.

In this one respect the falling dollar can be used as a One Trick Pony to help you escape from fixed debt.

Give to Caesar What is Caesar’s

As the dollar falls silver (And gold) rise in dollar terms to accurately reflect their unchanging value through the prism of a disintegrating metric (The dollar). Happily for you that disintegrating metric is what you owe the bank. Your mortgage says you owe dollars, not gold or silver. So store real value. When that real value is inevitably worth more tokens in the future turn them over to the bank to purchase your freedom.

Give to Caesar what is Caesar’s: The tokens he conjured out of thin air that now enslave you.

This Bubble’s For You

As people start to catch on and gravitate towards true value more will flee the dollar and buy up real assets. Silver is one of the prime candidates. The above ground silver available for purchase starts to disappear. This secondary event, in turn, causes more flight from the dollar which feeds an even more rapid rise in the price of silver. Then silver, itself, starts to rise even above its true value being one of the few worthy recipients of the flight from the dollar.

The amplification effect on price between silver scarcity and flight from the dollar continues until it takes the familiar shape of historical bubbles we’re now all familiar with. However, knowing this in advance and setting aside a modest amount of silver means that This Bubble’s For You.

I base this on . . .

A Radical Prediction that What’s Happening Will Continue

The Dollar Has Fallen 40% in the Last Eight Years. Contemplating another 40% decline in the dollar is no more outrageous than expecting things to continue as they have been.

If the dollar falls another 40% then a mortgage of $100K will be worth $60K in current value. Before shedding too many tears for the bank recall that the money they ‘gave’ you was conjured out of thin air because of The Awful Truth of How US Dollars are Created.

Apart from some temporary uptick the MSM will seize on as ‘proof of recovery’ do you know of anything being done that will save our fiat tokens?

Get On the Short List

You won’t fully benefit from the decreased value of the mortgage unless you can manage one of the following:

Your wages keep up with Inflation. If you increased your wages by 40% from 2001 to 2009 it was due to your own efforts not the silly CPI adjustments referred to as your raise.
You get paid the same wages in a currency that maintains its purchasing power. If you can manage this you either don’t live in the US or I’m reading your financial columns and watching your youtube videos. Thank you and enjoy the fresh air of the Swiss mountains or I hope your Mandarin lessons are going well, Mr. Rogers.
You use today’s dollar to purchase an asset or commodity that maintains its purchasing power.
Bingo! Now, that’s I’m talking about.
You come up with a money making idea that brings in tons of dough. Creating value for our fellow human beings is what it’s all about. Please don’t get lazy and keep the fruits of your labor in tokens.

With sharp inflation it’s a challenge to keep wages up even if you own the company. Business owners walk their own tightrope raising prices. Will the inevitable price increases be passed onto employees, immediately? Actually, they can’t.

Conducting business with a volatile currency is an expertise more likely possessed in a Banana Republic. If you’re trying to acquire such expertise there’s a fabulous little book that has a place on your nightstand: The Hyperinflation Survival Guide: Strategies for American Businesses

Stay Tuned for Part 2 of 2

I’ll get very specific in Part 2 of 2 with:

The Daily Grind
Tax on Standing Still
How Much Silver Do you Need?
Step-by-Step Implementation
If You Don’t Have the Money
Belief is Good (And Downside Risk is Minimal)

¹Guide to Investing in Gold and Silver, Michael Maloney, Page 152. Maloney uses the Case-Shiller Home Price Index January 1980 home price of $42,747 divided by the silver price of $52.50/oz.

²It’s 10/30/2009 and silver is $16.32/oz. The dollar index is 76.38.

Business

Depression Proof Your Money

By Terence Gillespie September 26, 2008

The money printing bailouts have only just begun.

Yes, we’ve had some deflationary bankruptcies to help decrease the money supply, thank God. But, as you can see, even the most staunch conservatives are now begging the government to crank up the printing presses. As history predicts, they just can’t help themselves.

Most of the strongest advocates for the bailouts know what they’re doing. They know that pumping this much fiat money into the economy will lead to hyperinflation. But, whoever gets the money first can use it to purchase valuable assets while it still has some purchasing power left. By the time the money makes its way to you and me its purchasing power will be mostly gone.

But, there’s still time. . . (As of 9/25/2008) . . .

. . .To Depression-proof your hard earned money, savings and retirement plans from the upcoming hyperinflationary depression.

If you know what to do it doesn’t take long to:

Move Your Money From Here . . .

Bank Accounts
Savings Accounts
CD’s
Government Sponsored Bonds
Money Market Accounts
US Domestic Stocks
Financial Stocks of Any Kind, in Any Country
Treasury Bills
Municipal Bonds
Mutual Funds Made Up of Primarily US Domestic Equities
Bonds and/or Bond Funds of Any Kind
Under Your Bed
In Your Backyard

. . .To Here

Swiss Franc Bonds
Foreign Stocks that pay dividends
Agricultural Indexes
Gold
Silver
Real Estate (Low Prices and Hyperinflation can payoff your house!)

It might only take one hour to preserve a lifetime of savings!

Talking Heads

Judging from the reactions and interviews on TV many wealthy people were blind-sided by the financial crisis’ of the past week. After those talking heads get off the air you can bet they’re moving their money and assets around to protect themselves.

I like Ben Stein. He’s a smart, likeable and decent human being. He’s also more wealthy than the average Joe and is frequently seen on TV commenting on economic and investment issues. Unfortunately, Ben didn’t see this financial crisis coming.

When history is used to predict or avoid an outcome the correct past event has to be chosen as the model. The dollar is losing its status as the world’s reserve currency. Central banks around the world are covertly dumping dollars and purchasing gold and other real assets. And the US government is largely powerless to do anything about it. In fact, the stewards of our currency are printing up their own personal bailout packages just prior to their exit from the world stage.

This is not a normal recessionary business cycle we’re witnessing. The talking heads on TV telling you to “Stay the course” are giving you the correct advice for the wrong time. If they didn’t warn you of a financial crisis of this magnitude then why would you trust their advice now?

Return OF (Not ON) Your Investment

In times like this the perfect is the enemy of the good. If you haven’t already reallocated your investments then you don’t have time to be a perfectionist. Think in terms of preserving the purchasing power of your money and consider any increase a bonus. Look at the list of destinations, recommended above, and choose one you’re comfortable with.

Brokerage Accounts

Correctly choosing the particular holdings in your brokerage account is much more important than choosing the brokerage firm, itself. People who were using Bear Sterns or Lehman Brothers to hold their investments did not lose the holdings in their accounts. It was the stock of the brokerage firms, themselves, that plummeted, not the investments they held for you as custodian. I don’t use this firm myself, but, one company that is getting it right is Peter Schiff’s Europac.net. Check them out if you’re looking to make a switch.

Banks

Even with a bank you’ll probably get money less than $100k back if you want it. You may have to stand in line, be limited to partial withdraws and be inconvenienced, but money you have in the bank will most likely still be returned to you. But, the dollars may not have much purchasing power when you get them back. The FDIC does not have enough to insure all the deposits in banks that are about to fail. But, the government will just create more money for the FDIC to keep functioning when they run out.

If you want to be spared any inconvenience for your short term banking then choose one with a high star rating at www.bankrate.com.

Silver May Not Be an Option

In the Bailout Plan sent out two months ago I recommended silver as my personal favorite way to store and preserve value. There is very little physical silver left for purchase. I still recommend calling your local coin shops to check. However, you may end up having to purchase gold instead of silver. If so I recommend gold eagles, austrian philharmonics and any denomination of bullion bars from a well-known mint.

You could purchase shares of the silver ETF SLV, but, this is a far less attractive alternative to keeping the physical metal in your possession. See my article SLV is Not Silver for more on the pitfalls of investing in SLV.

For a broader perspective on precious metals read my article Silver and Gold Do Nothing or Why is Gold Money?

How Much Inflation and When?

10% and now. One, three, six months from now? Increasingly more. But, isn’t 14% and climbing enough?

Start making decisions now while your dollar still has enough purchasing power to purchase things that have lasting value.

Checking Account Alternatives

If you’re losing 14% a year in your checking account due to inflation then even simple things around the house start to be a better “Investment”. You should probably have at least three months of expenses in your checking account. After that, if you’ve already paid off your credit cards and reallocated your Retirement account then here are some alternatives for the money left in your checking account:

Food That Stores for Long Periods like cereal, canned goods, rice
Water, Water Filters or Storage
Computer Upgrades
Software
Prepaid Utilities like gas, electric, cable, cell phone
Prepaid Property taxes

Or anything else you’re going to have to purchase in the next year or two. Why not purchase them now while the purchasing power of your money is stronger and you still have a job?

Web Resources

This article is an update on the Your Optimal Bailout Plan I sent out at the end of July. See that article for more background.

www.europac.net

www.shadowstats.com

www.lewrockwell.com

www.allamericangold.com

www.silverstockreport.com

Children

Why I Live With My In-Laws!

By Terence Gillespie August 28, 2008

I can’t claim credit for the idea that my father and mother-in-law move in with us. Or that we move my mom from her nursing home into my office. . . .

. . . .Because that would be five people and two dogs in the same house with a baby on the way!

Oh, no. It was my optimal Wife that came up with this masterpiece. She saw the mounting nursing home bills, knew a baby was coming and swung into action. By the time she was finished laying it all out, one night after work, she had a way to upgrade all of our lives. And that upgrade goes double for her. But, what can I say? It was her idea.

Her radical plan was to have us all living together. We would divide up tasks according to our abilities, split costs where we could, spend time together, help her parents ramp down from a lifetime of work and bridge the 3000 mile distance between our baby and its grandparents.

She was proposing we live like a family. A multi-generational family.

It was outrageous!

The American Way?

Why wasn’t this anti-radical vision my idea?

Because I grew up in Florida in the late 70’s/early 80’s. A period in American history when we were doing all we could to make ourselves into personal sovereign nations.

Families were relocate-able units set up to follow the money wherever it lead. Women’s lib ‘freed up’ mom to go to work. Dads were encouraged to do whatever to ‘find themselves’. And the kids watched Miami Vice and thought the drug dealers were way better off than Crockett and Tubbs. The only question was how we were gonna get one of those Ferrari’s and live in a mansion in Miami without getting arrested?

Family. Aren’t those the people you live with until you get a job? Everyone knows the goal is to decrease the number of generations in one house from two to one!

Not so fast.

What was left over from mom’s check after taxes barely paid for babysitting and Friday night pizza. Dad got sick of microwaved hot dogs and found out how much better life was with mom around. Mom didn’t like office politics. And my brother and I were hard pressed to improve on my father’s job, which he loved. We were living pretty well and dad
still managed to retire at 52.

Panic

But, what’s happening here? Isabel and I have only been married for 16 months and we’ll never be alone in the house together again for at least 18 years or more! How could we stand that? Doesn’t everybody feel on top of each other? Who pays for all the food, mortgage, utilities, cable and what about all the potential noise and distractions all the time of everyone in the kitchen?

The Decision

Most of what makes life good or bad is set by five decisions or less.

Make them well and you eliminate 95% of the life’s friction. Make them badly and you’re plagued with problems that aren’t even solvable. This was one of those decisions.

For all my talk about optimizing everything and making balanced decisions from every vantage point my wife just fell asleep with a problem and woke up with the solution. But, Making the final decision gave me a headache for the next three weeks.

If I list everything that concerned me over living as a multi-generational household it would be the length of the phone book. Everything is affected by a decision like this.

Take the big things like space, time, money, personalities, family, daily activities, food, alone time and noise. Then imagine how each one affects the others on the list. Then factor in that we’ve only been married for 16-months. Add in that we would be taking on the full-time care of my mom who had two strokes, last year. And don’t think too much about that baby on the way or you might go a little nuts.

“Don’t make such a big deal about it.”, Isabel said.

First of all, you can’t get all the facts to make a decision like this. The permutations are not computable because you don’t have solid data for input. Its all anecdotal evidence from people you don’t know. How do I know these people share my values and preferences?

In the end, I used three tools to help make the decision: A mind map, a stop-loss provision and a leap of faith.

On the mind map I listed out every concern that came to mind. I drew lines connecting every box that affected the others (There were a lot of lines). I googled as much as I could to get other peoples’ experience. I tried to come up with a creative solution to anything that still caused concern. Then I slept on it, woke up, and did the same thing again. For Three weeks.

After all that I was ready to consult my newly informed intuition.

The result? Few problems that couldn’t be worked out. Everything depended on the personalities and character of the people involved. And these were unknowns in the circumstances under consideration because none of us had had lived this way before.

Several times in our brief marriage I asked my wife to have faith in something I felt strongly about and she went along. Things turned out as predicted and I’d like to think she’s more comfortable with my judgment. Now the shoe was on the other foot and she was asking me to have faith in her instincts. You might say, I owed her one.

You might also say there’s no way to eliminate the “Leap of Faith” aspect to a decision like this. But, her certainty did make the leap easier.

OK, so it might work. But, what if we’re wrong? Is there any way out?

To feel more comfortable in taking the first steps we put a few stop-loss provisions in place:

Fabio and Martha rented their house in Florida rather than sell it.
I made a two-year commitment to see if it would work.
I designed an addition to the house in case we didn’t have enough space.

With the mind map to mentally sort through the details, the leap of faith I owed Isabel and the above stop-loss provisions there were no excuses left to postpone the decision.

I was satisfied the downside to giving it a try had been minimized.

Moving In

Martha

Martha came first. She put in her notice to St. John’s, put on a baby shower for us and said her goodbyes to all her friends in Orlando. She was getting out of retail at the perfect time. She had been on her feet for 20 years and it was time to take a break and be with her daughter and grandchild-to-be.

In the weeks leading up to her arrival the boxes trickled in at the front door and were hauled up to the jungle, our safari theme guest room, one-by-one. If there was a time of nervousness for me it was watching the boxes arrive and wondering what we were getting ourselves into.

Martha is only 11 years older than me and only 3 years older than my friend, David, so there is no generation gap to speak of. When she arrived it was more like greeting a friend than a mother-in-law. It felt like a friend was spending a few weeks with us.

Mom

We had to get training to learn how to take care of my mom. They taught us how to transfer her from the bed to the chair, from the chair to the shower, how to prepare food and ways to help her do exercises. There was also a strict drug regimen that took some getting used to. Support equipment trickled in from the UPS guy. Stuff like wheelchairs, a shower chair, transfer poles and oxygen bottles were arriving every other day.

Then it was time to move my mom into the house. The actual move was the last step in a long project, beyond the scope of this article. It was quite a balancing act to prepare for her full-time care because she’s confined to a wheelchair and needs quite a range of care and attention. Martha took the sting out of all if this and everything went smoothly mostly because of her.

Mom was thrilled in a hundred different ways to be living at home.

After about two months of adjustments and many sessions with physical and occupational therapists we started to get the hang of the work involved. There were lots of medicare forms to sign and equipment to set up. Isabel set up all moms prescriptions to be automatically filled every quarter by just logging on and checking what we were running out of.

Fabio

My mom and Martha were here for about two months before Fabio came. By that time we had most things worked out and running smoothly.

Fabio gave a 45-day notice to the law firm he was working for. Along notice because he was working for his nephew Rodrigo and there was a lot of planning needed for a smooth transition.

When he arrived the house felt more balanced. I didn’t realize the balance had shifted so much to the feminine until he swayed it back to neutral.

Fabio’s first adjustment was what to do when the phone doesn’t ring. Back in Orlando he was getting ten calls an hour on the job. Now there was only the sound of the breeze on the patio, the geese flying overhead and the TV if he turned it on.

It wasn’t long before Fabio’s talents as a chef were put into swing when six cousins came to visit for a week. That brought the total in the house up to eleven for the week!

How’s It Workin’ Out?

After four months it’s working out better than my wife expected with advantages I didn’t expect.

Space

We dodged the bullet on space issues by having a larger house from the start.

We saw 76 houses before choosing this one. Our goal was to avoid having to move again before our kids went to college. The most obvious weakness would have been lack of space and 3049 square feet has been enough. More importantly, the layout is efficient, functional areas are separated and it handles people well. Hallelujah!

Bedrooms

Four of the five bedrooms are taken. The last one is ready for the baby coming next week. Since all kids get their own bedrooms, nowadays, we won’t have space issues until a second child comes along.

Alone Time

Alone time is more than having your own room. We have four options that can be used by anyone in the house:

The living room is off by itself.
The patio.
The outside front of the house on the “Silla de Navidad” or Christmas Chair.
On the golf course trails.

These areas don’t have doors. However, it’s not easy to find you unless you know where to look.

Guests

When guests come the blow-up beds from Costco come out and go into my office or one of the common areas. My office is perfect for that and the common areas feel like you have your own room.

I think its a waste of house to have rooms set aside only for guests. Many people think guest only rooms are mandatory. I think the mandatory rooms are for people who live in the house. I have no problem giving up my bedroom for a guest and can easily blow-up a bed and sleep in my office for a few days.

Noise

Noise has not been a problem other than my reluctance to sing loudly and write songs when people are around. As a musician I’m sensitive to noise. If its not a problem for me then it probably won’t be a problem for someone else.

Sometimes its hard to watch TV in the family room as people accumulate in the kitchen. But, we have one of those large family rooms connected to a large kitchen. What else would you expect with a room design like that?

If anyone really wants to watch something they go to their own rooms where there’s no interruptions. I’d rather have the family room/kitchen combination because its where everyone hangs out.

Expenses

Household expenses are about 10% higher in the form of electricity, cable, water and gas. We split food, so, food remains the same. You could look at the cost increase in three different ways:

It’s 10% more expensive.
That the incremental cost per person added is low.
That with a 10% increase overall expenses will still be much lower because more people are splitting all costs.

#1 and #2 are self-explanatory.

If you computed #3 by dividing all costs by five it would be a lot of money saved. But, we don’t do that for the same reason most people probably won’t: Money is only one way to keep track of contribution to a household

In our case Fabio and Martha make it more feasible to take on the full-time care of my mom. If mom is living here we save on paying a nursing home. Saving that expense frees up money to pay other expenses and improves the quality of all our lives, my mom’s most of all.

Fabio and Martha rent their house in Florida which pays for their house expenses. They have no house expenses here so can more easily cover bills like health insurance, gas, cell phone., etc.

Our costs have risen by 10% but we had to pay 90% of those costs, anyway. The more economies of scale and division of labor benefits (See below) that occur the more the additional 10% returns.

I think of it like the difference between buying one meal at a restaurant and eating at a buffet. You pay a little more for the buffet, but, the variety and quality of your meal is improved.

Economies of Scale

We can prepare a meal for five people as easily as two. And by scaling the same ingredients to a recipe the leftovers can last for several meals.

The Same goes for grocery shopping. One trip to the grocery store is taken to shop for five people instead of two. The gas, time and effort is the same while the people it serves is more than double. And we can buy the large cans at Costco making the food cheaper by the once. When the cans are opened they’re less likely to spoil and that means less waste.

Isabel and I each have an SUV. Fabio and Martha have a sedan. Since Isabel is the only person who commutes to work she switched to the sedan and her commuting costs were cut in half. Fabio and Martha can use the SUV around town which requires less mileage and gas on the larger car.

Some things are better, but not cheaper. A bachelor has little incentive to cook for himself, but a family almost always does. That leads to more cooked meals which are more nutritional than foraging out of the pantry.

Division of Labor

There are four people instead of two to manage chores or maintenance around the house. We also get the advantages of four people’s strengths instead of two. A task we have equal ability to perform can be rotated. The result is that the house runs smoother with less effort from any one person.

There’s also less stress. We have natural backup for the everyday overhead of living. Anything from a 2-hour trip to the grocery store to answering the door for the UPS guy.

This may seem trivial but it adds up. For me, its led to more work time and less distractions to write articles such as the one you’re reading.

To get an idea how the time and effort saved adds up look at the following list and add up the time you would save if you only had to perform the task every third time it was needed:

Grocery Shopping
Running Errands
Mailing Packages
Answering the Door
Washing Dishes
Screening Telemarketing Calls
Washing Clothes
Walking the Dog
Moving furniture
Taking Out the Trash
Preparing meals

Time with Family

We’re knocking it out of the park when it comes to time spent with family. Here’s what I observed around the house in the last month:

Singing Nat King Cole songs in Spanish on the patio while barbecuing lunch on the grill.
My mom on the patio with Lucy on her lap and laughing at the lyrics to a Jimmy Buffet song.
Isabel coming home to her favorite Colombian dish instead of having to make dinner when she’s tired.
Isabel and Martha on the couch looking at Facebook photos of a long lost friend.
Talking with Fabio and Martha on the Silla de Navidad about the Fannie Mae/Freddie Mac beginning of the next Great Depression.
Ricky following around grandpop whining and begging for a walk.
Martha telling stories of what Isabel was like as a child.
Visiting vineyards on Sundays after church to pick out a place to have the baby baptized.
Isabel and Martha and Maju (Fabio’s sister) decorating the baby’s room, together.

I’ve noticed the house is now the Family nerve center for extended family not living here, as well. Keeping up social contact with them is easier.

None of these things would’ve occurred if we weren’t under the same roof for longer than Christmas visits. And the whole situation will be what our children think of as normal. They will assume its just the way family’s live.

Your Optimal Family Living?

So far, yes.

However, I cannot make a whole-hearted recommendation of MG family living to everyone reading this. There are too many prerequisites, many of which are not in your control. I do recommend being open to considering it in light of the prerequisites, listed below.

Money and Family

It is possible to save money living like this. But, a more realistic goal is to improve your quality of life. Most of the benefits are intangible. Like the best things in life they can be counted on your fingers but maybe not in your bank account.

If you’re on the verge of financial disaster this isn’t going to save you. You probably won’t have the temperament or patience to make it work. One of the ways you could ruin it is to walk around with a calculator and tally up every nickel and dime insisting that everyone pay their fair share. Unless your calculator has has a “Quality of Life” button the numbers won’t prove the case, either way.

House Layout is Critical

Layout is more important than size. I’ve seen 2000 sq. ft. houses that would work and 5000 sq. ft. houses that wouldn’t. Here’s a shopping list of features that would make MG family living easier:

One bedroom per person or couple
One full bathroom per four people
Bathrooms accessible without intruding on privacy
Bedrooms separate from dining room for noise
Bedrooms separate from family room for noise
Kitchen and pantry large enough to handle everyone
House should have places for alone time, besides bedrooms

Including the baby we’ll average 508/sq. ft per person. I don’t know if that’s a magic number because layout is more important that space. Just adding it here for reference.

Good for Everyone

This whole multi-generational family living is voluntary, for everyone. You’d be fooling yourselves to think it was sustainable if there wasn’t something in it for everyone. The more, the better.

Even if your situation does benefit everyone, personalities may not mix. Ours do, so it works. But, any personality friction will only be worse if there isn’t something in it for everyone.

An Extension of Existing Compatibility

My wife and I have similar families, values and goals. And, we were raised in the same part of the country by parents with similar values. During these four months it feels as if our existing compatibility was extended to include our family. Is it really such a stretch that the family she came from is compatible with the family I came from?

Neil Clark Warren, Ph.D. says, “…when two people come from similar backgrounds, they operate from a position of strength. Their relationship is made significantly easier by all the customs and practices they have in common.”

And here’s what he says about the opposite:

“Forging a relationship with an opposite is so hard because every difference you have requires negotiation and adaptation. Accommodation and compromise will necessitate plenty of change. This change creates a kind of stress. If there are too many differences, you may not be able to survive all the strain involved in adapting to each other.”

Starting with you and your wife, a house full of opposites is more likely to zap everyone’s strengths just to cope with all the differences. Families with similar backgrounds, however, can focus on contributing individual strengths for the benefit of all.

The Future

We have many upcoming challenges:

How do things change when the baby comes?
A second child?
What Happens When My Mom Passes Away?
Estate Planning?
Building the Addition to the house?

And what challenges will time reveal that we don’t know about yet?

I plan to update this article, every year, for other families thinking of moving in together. I could have used an article like this five-months ago.

I don’t have an all-time final verdict. But, I do have the verdict on the last four months. I will whisper the three magic words my wife most longs to hear: “You were right”.

Banking

SLV is Not Silver

By Terence Gillespie August 27, 2008

When something is rare, valuable and getting rarer, the price should go up. If the price goes down then something’s wrong. Since there doesn’t appear to be anything close to a free market for silver nonsensical behavior like this is frequent.

In situations like this you may be tempted buy shares of SLV. I don’t like all the layers between shares of SLV and the underlying metal. Owning Shares is not the same as owning the metal. It’s only the closest you can get to silver when trading on the AMEX. If you insist on pressing a button on the computer screen to “invest” in silver then you’re taking on a lot more risk than you would if you took the trouble of driving to a coin shop.

SLV is charged with buying and selling whatever amount of silver is needed so that the value of the shares match the spot price as closely as possible, after expenses and liabilities. The trades are purposely robotic: The spot price, not skill or market timing, drives the trade.

As ETF’s age, they have to sell more and more of the underlying commodity to pay for expenses and profits. The older the ETF the less correlation they have with the underlying commodity. GLD is two years older than SLV so has less correlation with physical Gold than SLV has with Silver which is still about 99% (And falling).

Another negative for SLV is the size of the stockpile the ETF has accumulated, now 206 million ounces. Such is a ripe target for state seizure or other theft. And, who knows if SLV is just leasing silver, for a day, to pass monthly inspections to satisfy investors of their “reserves”.

It wouldn’t make sense in a normal market to call Gold an investment. Gold is just Money, no more, no less. I do see Silver as an investment, however, even though it’s also money. As a commodity the scarcity of silver is bullish with respect to its industrial demand. This would be smoothly worked out in a free market, if there was one. But, like gold, the spot price of silver (Based on the futures market on the COMEX exchange) is manipulated to make the dollar appear strong. You’d have to be directly privy to manipulation decisions to understand “market” timing.

Eventually, as the physical market cannot meet industrial demand the price will go up irrespective of manipulation. A monetary premium would be a bonus.

Mike Maloney describes Gold and Silver ETFs:

Business

Your Optimal Bailout Plan

By Terence Gillespie July 31, 2008

Last April, I sent an urgent e-mail to my friends and family urging them to consider taking protective measures against the collapsing US dollar. Now that I have YourOptimal.com up and running I’d like to put forth a more formalized plan and make it available to a wider audience.

(For an update of this bailout plan, see Depression Proof Your Money)

You don’t have to agree with my future predictions to be inspired to protect yourself from our current 10% inflation rate. Do nothing and your $100 today will be worth $86 next year if its in the bank. I will be adding more articles, links and resources that will explore optimizing various aspects of life in light of the dismal state of our US and world economies. The purpose of the plan, below, is to provide an Optimal plan of action in case you are already convinced that action is required to protect yourself from the coming Hyperinflationary Depression. Here’s the plan:

Pay off all debts, within reason.
Move out of all investments dependent on US dollars.
Move all but 3-months of expenses out of banks into tangible & liquid assets.
Decrease your monthly overhead as much as possible.
Get rid of all physical objects you don’t need.

That’s it. Although the economic problems we are experiencing may appear to be very complex Your Optimal Bailout Plan for protection need not be.

Ninety percent of the protections you can achieve from the collapsing US Dollar will come from your complete and thorough implementation of the above 5-Steps. In fact, if you live in the US it may not be possible to save the remaining 10% of your assets since you need to keep some US Dollars in the ‘pipeline’ just to conduct your everyday affairs.

There are many non-financial aspects of the crisis that we are entering. I look forward to addressing those in future articles. For now, there is no point in complicating the plan until you have a handle on the above 5-Steps. Let’s go into detail about each of these steps.

Pay Off All Debts, Within Reason

Since we are entering the most inflationary period in all of US History we have to look at debt a little differently. During hyperinflation some debts become assets for the debtor. You may stand to gain more by making the payments than paying them off. That’s because your debts are denominated in a currency that is losing its value on a daily basis. The contract you have with the bank to pay off your house requires you to pay US Dollars. The actual value (Purchasing power) of future dollars is much less than the value of the dollars now in your wallet. If you can find a way to preserve the value of your dollars, today, then you can exchange that value for many more dollars, tomorrow, and make your future monthly payments much easier.

To give an idea of just how much you can benefit from this technique let’s look at the history of the US Dollar from 1950-1990. The US Dollar lost 82% of its purchasing power from 1950-1990. And it has lost 47% of its 1990 value as of 2007. So there is nothing extraordinary about predicting it will lose its
remaining value. Seventeen other countries lost 99% of their currency value during the same period and Fifty-two fiat currencies lost even more value than the US Dollar! This is business as usual for any paper fiat currency. The worst performing currency on the list was the Argentinean peso. Here’s an interesting comparison between Argentina and the US.

Hyperinflation Can Pay Off Your House Loan

If the US Dollar is worth 50% of what it is today (7/15/2008) in 5 years then a mortgage of $100,000 today will be worth $50,000 in July of 2013. If you make your payments for the next 5 years you will have paid down your mortgage by whatever principle your payments could manage and the inflationary decline of the US Dollar will make an additional $50,000 payment for you!

The reason you rarely hear this advice is that its very tricky to manage. You will have to make sure you can manage all of the following variables:

Store your current dollars in something that maintains its current value.
Keep enough dollars on hand to make the debt payments.
Keep enough dollars on hand to pay for all of your other expenses.
Monitor the value of dollars and the value of your tangible asset.
Be willing and able to translate your tangible asset back to dollars.
Manage your bank account(s) so that you have just enough to meet expenses.
Have the mental and emotional fortitude to stay the course.

Using silver as an example, 1000 ounces of silver could have purchased a median value home in 1980. Some say it will again as as we enter this second round of the most hyper inflationary period in US History. You can purchase 1000 ounces of silver today for $14,000. As the dollar value falls you cash in the silver to make your house payments. If the economy goes like it did in 1980 that’s all the silver you need to purchase the note. But, make sure you buy the actual silver and keep it in your possession. The same technique can be applied with gold, of course.

Most financial people don’t want to get into these complexities. They want to keep things simple. They also know from experience that most people are overwhelmed with the details of everyday life and have limited time left over to tend to the financial aspects of their lives other than their job. You may also not be able to make your debt payments if you lose your job.

If you think you can manage all of the above variables then my advice would be to not payoff or accelerate the payoff of your fixed rate mortgage. If you have an ARM then this advice does not apply. In the case of an ARM you might want to consider a short sale while the climate is socially acceptable and you get the special tax break of not having to pay taxes on the amount that the bank let’s you off the hook.

If you have other long-term debts with an interest rate less than 7% (Student loans?) then you should probably not pay them off either. This is assuming you take the same approach as outlined above by purchasing other tangible assets that can be used to make future payments.

If you have long-term debts greater than 11% then you should pay them off despite the upcoming hyperinflation. Just getting free of the burden of these debts is enough incentive to pay them off. You’ll also be left with that much more resources to put towards the other 4-Steps of this plan.

Between 7 and 11% is the gray area and you’ll have to decide how well you can manage the complexities, above, in holding onto debt during periods of hyperinflation.

Move Out of All Investments Dependent on US Dollars

In 1944 we made an agreement with Saudi Arabia to provide military protection for them as long as they agreed to accept only US Dollars in exchange for oil. Since every country needs oil for energy, and many other things, every country had to start stockpiling large amounts of US Dollars to pay for their oil. This little known backdoor negotiation, along with the Bretton Woods Agreement in the same year, is how the US Dollar came to be the world’s predominant reserve currency.

Its important to understand the ramifications of the US Dollar being the world’s reserve currency in order to evaluate whether any given investment is dependant on the US Dollar. It gets even more complicated when other entire countries peg the value of their currency to the US Dollar. The effects of the good, bad and the ugly management of the US Dollar ends up getting exported to entire world in one way or another.

Because the US Dollar has a world effect unlike any other currency in the history of the world the US had the potential to effect the world in a very positive way. Unfortunately, the US defaulted on its international promise to exchange dollars for Gold in 1971.
This made every currency in the world into a fiat currency overnight. No longer tied to any objective value they have been freed to float at the whims of politicians, Central Banks, the World Bank and the IMF, ever since.

The history of fiat currencies, however, has proven that once a paper currency is not backed by any objective value the issuing government cannot resist the temptation to print more and more of them. Unfortunately, the US has been no exception to this historical rule. We did, however, manage to take the creation of US Dollars to a whole new level by skipping the difficulties of the printing press and going right to computer! And since other countries have to use Dollars to buy oil, and some even use US dollars as a backup or primary currency themselves, we’ve been able to get away with printing far and above the amount of paper dollars any country ever has before causing the currency to collapse.

As of 7/19/2008 the charts showing the value of the US Dollar against gold is remarkably similar to the charts of other countries just before they entered the final stages of hyperinflation. Here’s how it played out in Germany between 1919-1923:

What this means for moving out of any investment dependant on US Dollars is that almost nothing is safe. Conducting business during hyperinflation is very difficult and most US companies do not have the experience to manage the difficulties. To make matters worse, the individual equities of even the best run companies are psychologically tied to the broad market of all equities. When the broad market takes a hit so do all the rest, whether they deserve it or not. Therefore, even the stock of well run US companies is not a safe haven for your money.

Even moving US Dollars into another currency is dangerous because all the currencies of the world are fiat currencies. Although its the US and Zimbabwe in the news, lately, our mismanagement is already causing inflation around the globe as other countries continue to purchase our debt instead of investing the money into their own economies.

Bankruptcies and hyperinflation seem to be the plan for dealing with this crisis. Bankruptcies are the quickest way to deflate the amount of currency in circulation, either real or on the computer screen. And hyperinflation makes all of our debts much cheaper to pay off. What better way for the US to avoid defaulting on their unpayable debts then by paying them off with dollars made worthless through hyperinflation?

But, we don’t even get much of the benefit of the deflationary bankruptcies to balance out the inflation because the Fed conjures up however many billions of dollars necessary to ‘provide liquidity’ for failed large banks and mortgage lenders.

For all theses reasons I believe the only safe thing to do is to park your money in tangible commodities that preserve value. My personal favorite is silver, but, there is also oil, cotton, tobacco, sugar, wheat, copper, steel, gold, brass and anything else China and India need to keep their countries on the rise. If silver is your choice here’s how you can invest in silver.

The worst place to have money is in US Dollars, Checking or Savings accounts, CD’s, US Equities or indexes, T-bills or bonds.

Move All but 3-Months of Expenses Out of Banks Into Tangible & Liquid Assets

When you get a dollar in your hands that you don’t need for the next three months of expenses spend it on something of real value as fast as possible. Pay a bill, pay off a high interest debt, see if you can pay monthly bills in advance for the whole year, upgrade your slow computer and maybe even purchase food items with a long shelf life. When you’ve done all that and you still have money left over then its time to purchase more well known tangible assets.

I can only recommend Silver and Gold to fill this role because I have direct experience with them. The process is difficult enough without complicating it further by trading in and out of commodity stocks and keeping track of the tax ramifications. With silver or gold you can trade in and trade out as much as you need, almost anywhere, with no tax problems to worry about. The VAT makes it difficult to do this in the UK although I’ve read that you get it back upon selling.

If you have a 401K you can’t withdrawal without penalties then consider investing in a commodities ETF, Agricultural index, Natural resources and anything else that mankind requires and cannot do without like cotton, sugar, wheat, steel, iron, brass, silver, gold, corn, etc. If your 401K is limited in its options to invest then you have limited options to protect it.

Decrease Your Monthly Overhead As Much As Possible

Any extra money you have right now should go into purchasing tangible commodities that can preserve current value for when the US Dollar collapses. Therefore, any unnecessary monthly expenses should be cut back or stopped completely. Here’s a beginning list of things to get rid of:

Cable channel subscriptions you don’t watch
Internet subscriptions you don’t benefit from
Expensive Coffee
Excess minute plans for your cellular phone
Consider dropping phone land lines, altogether
Magazine subscriptions you don’t read
Eating out too often
Drinking out too often
Going to the movies when you can rent a DVD
Over insuring your house, car, health, life
Driving too far from home or work for errands or services
Overusing the A/C or Heater when fans, windows or firewood would do
Work at home a few days a week to cut down commuting time & money

Any money you save could go towards paying down debt. If you’re out of debt then consider taking the money saved and purchase silver coins at your local coin shop.

Get Rid of All Physical Objects You Don’t Need

Anything you own that you don’t need or use is a drain on your limited resources of time, effort, money, space, insurance, storage fees., etc. Your life will improve whenever you get rid of things you don’t need, now more than ever

Clean out the garage
Sell, donate or throw out the items in the garage you don’t need
Sell any cars you don’t use or need.
Hire a student or family member to put items on ebay and manage the sale
Donate items to others that are too bulky to sell

Banking

The Awful Truth of How US Dollars are Created

By Terence Gillespie July 21, 2008

There’s no need for a long article, here. Here’s how US dollars are created out of thin air:

Congress debates legislation.
The legislation is expensive and raising taxes to pay for it is a problem.
The legislation is passed anyway without raising taxes to pay for it.
Congress is a hero for “getting the job done”.
The legislation is sent to the Treasury Department.
The Treasury Department types up a Government Bond.
The Bond is taken to a small group of private commercial banks.
The commercial banks are told the bond(s) are for sale and they can bid on them.
The banks review their Capital requirement and Reserve ratio.
If the banks have $1 on deposit they can bid up to $10 on the bond.
The banks, by law, can bid $10 for every $1 they actually have.
Calling it “fractional reserve lending” the banks type up the money on computer.
They use the typed up money to “pay” for the Government Bonds.
The banks are now due interest from the Government for the money they “paid” for the bonds. But they didn’t pay anything. They typed up the money on their computer screens and created it out of nothing!

If you or I tried to pay our taxes with money we typed up on a word processor we’d be arrested for counterfeiting. Think how great life would be if we could walk around spending $10 for every $1 we had! That would be like working at McDonalds serving hamburgers and getting paid like an attorney.

The commercial bank created $10 out of thin air for every $1 they had, but, it gets worse. The $1 they had on deposit could easily have come from another bank that “paid” for other bonds with typed-up money. So, even the $1 the first bank had was likely conjured out of thin air.

Now for the clincher: 40% or more of Federal income taxes go to pay for the interest paid to the commercial banks to pay them for the money they merely typed up on their computer screen.

Yes, Fractional Reserve Banking really is a dream come true!

Here’s an excellent video on Money, Banking and The Federal Reserve from the wonderful folks at The Mises Institute: