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:

1. Keep making the payments on your mortgage.
2. Keep making payments on other fixed debts and expenses.
3. Scrape and save whatever you can.
4. Store your savings into silver until you reach your target number of ounces.
5. Keep your head above water during this disintegrating economy.
6. Monitor the price of silver and be willing and able to cash in when the time is right.
7. 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

1. Decide what you think the price of silver will be in three years.
2. Look up how much you’ll owe on your house in three years.
3. Divide principal owed / silver spot in #1.
4. Add in the buy spread on the purchase
5. Add in the taxes on the gain.
6. Add in the sell spread.
7. 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).
8. Find a source to purchase the silver.
9. Purchase the silver
10. Purchase a gun safe, not necessarily shipped to your own property.
11. Take physical delivery of your silver and store it somewhere safe — The gun safe being one of many options.
12. Keep making your mortgage payments and other expenses
13. Monitor the spot price of silver
14. Get as familiar and comfortable with selling your silver as you did in buying it in step 9.
15. Wait until the value of your silver hits your spot price.
16. Sell the silver in increments that enable you to minimize taxes on the gain.
17. 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.

1. Refuting Myths about Gold
2. “Why is Gold Money?”
3. Then and Now
4. The Great Silver Spike of 1980
5. Find Your Local Coin Shop
6. Future Gold & Silver Prices
7. The Silver ETF: What’s the deal?
8. The Money Chart
9. How to Buy Silver, & Avoid Getting Scammed
10. Silver: Questions and Answers
11. Why Silver is better than Oil as an Investment
12. Fekete Questions Me, & Why Banning Usury Won’t Work
13. Fekete Answers Me & the Debate Continues
14. Bar Graphs of Silver vs. Money
15. FAQ
16. The Money Charts – 2008
17. What’s the Price of Silver? 
18. Troubled Silver Dealers

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:

1. Your getting paid more dollars from your employer or customers as you attempt to maintain purchasing power.
2. Each of your fixed payments are worth less to the bank.
3. 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:

1. 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.
2. 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.
3. You use today’s dollar to purchase an asset or commodity that maintains its purchasing power.
   Bingo! Now, that’s I’m talking about.
4. 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.