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Samizdata quote of the day

· Economics, Business & Globalization

Like two drowning sailors hanging onto one another in order to postpone the inevitable, overstretched banks thus accumulate the debt of insolvent governments to keep the façade of solvency up.

– Detlev Schlichter

May 4th, 2011 |

10 comments to Samizdata quote of the day

  • JadedLibertarian
    May 4, 2011 at 11:04 am

    I do hope they don’t go belly up in the next couple of months – I’m saving for a new car!

    I’m actually seriously considering emptying my savings account and purchasing gold sovereigns instead. By my reckoning, even with BullionByPost’s markup I would have made a 16% profit if I had done this a year ago. A heck of a lot better than the 0.1% APR my instant access savings account offers!

    The question is how safe and investment would it be? I’d hate to blow my savings on my amateurish speculations. Of course the chances of gold going down also have to be weighed against my bank going bankrupt (again).

    Where would you put your money?

  • Rob
    May 4, 2011 at 11:22 am

    If things really start going belly up for paper currency then expect governments to start taxing capital gains on precious metals at 100%, banning ownership, taxing exchange etc.

    You would be better off saving in another stable currency, whose Govt has not been printing and borrowing but still have the risk of exchange taxes.

    Otherwise buy hard “assets”. Goods like vintage tractors, paintings, vases, porcelain figures and antique furniture, large coils of copper wire to sit in your shed – like the rich and gypsyies of old.

    It has been said that the rich don’t buy their own furniture….

  • JadedLibertarian
    May 4, 2011 at 11:27 am

    Gold Sovereigns, being legal tender are exempt from capital gains tax.

    I think antique tractors are out of the question 😉 We’re not talking about those sorts of sums.

    I currently have about £1200 saved and hope to have about £5000 saved by Christmas which is when I want to buy a new (to me) car. I don’t believe in accruing debt (I’m still regretting the student loans!).

    Circumstances by Christmas will ensure that the current car is not big enough – so I’m keen to be smart with with money (such as it is).

    I could buy 5 gold Sovereigns for about £1200 right now. The question is what could I sell them for in 7 months time……

  • Roue le Jour
    May 4, 2011 at 12:20 pm

    The question is, JadedLibertarian, do you believe used car prices will have risen by Christmas? If not, then you’ve no need to take the risk.

    Basically, pretty much anything Obama does to improve his chances in 2012 will strengthen the dollar and therefore weaken gold. I would expect he has at least a couple more tricks up his sleeve.

    Buying gold now to hold for less than 24 months would not be for widows, orphans or indebted former students 😉

  • Laird
    May 4, 2011 at 2:32 pm

    I wouldn’t worry about the cash in the bank; it’s such a small sum that if the bank failed it would be covered by the deposit insurance. In the US, anyway, depositors likely wouldn’t even notice the change: the FDIC closes down a bank on Friday evening and it reopens under a new name on Monday. They have it down to a science.

    The issue I would have with gold is the transaction costs (in and out commissions) on such a short holding period would likely eat up any gains. That’s really the case with any “hard” asset. And as for long term investing, collectibles and artwork is just silly: if the economy collapses they won’t have any market value at all. Copper wire is a different story, though.

  • JadedLibertarian
    May 4, 2011 at 2:38 pm

    Thank you all, that seems like very sound advice. I had actually been saving so I could clear my student debt and pay for some conference travel during my PhD. Oh well – I think I’d rather have a new baby than to pay off my student debt early….

    Once I finish my postgraduate degree I can see myself opening a goldmoney account though, or keeping some physical gold in a safe at home.

    Keeping any amount of money in the banks these days seems a bit like keeping it in fairyland. If and when I actually have some money to my name, a banker is the last person I would trust with it.

  • llamas
    May 4, 2011 at 4:38 pm

    JL wrote:

    ‘I think antique tractors are out of the question 😉 We’re not talking about those sorts of sums.’

    I sent this over to mrs llamas – oh, how we laughed!

    I’ve bought and sold more antique tractors than you’ve had hot dinners. Two of them in my barn right now. Never paid, or got, more than $4K for any one of them.

    Antique tractors are a value store like llamas are a value store. Ask me how I know this. Although both can be very nice to have about the place.

    If you think paper currencies are going to go Weimar on you, do what the smart people did then – buy tangible assets that people will need and want when the bad times pass. Tools, factories, real estate, maybe some precious metals. That way, you can store and recover value.

    If, OTOH, you think that paper currencies will go Weimar and stay that way then your strategy might want to be different. Buy tangible things that you and other people can’t live without. Beans, bullets, sewing needles, pencils, hand tools, farrier tools, medical items, fabrics, the list is endless. That way, you can stay alive and trade these irreplaceable goods with others who have what you may need. A box of 50 .22 LR = a bushel of hard wheat.

    llater,

    llamas

  • Mike Lorrey
    May 5, 2011 at 7:08 am

    The writers analogy is a bit off. The proper analogy is THREE drowning sailors, where one of them actually knows how to swim, and the other two are sitting on his shoulders, causing him to drown. The sailor failing at treading water is the taxpayer. The other two sailors think they are the ones keeping the third afloat.

  • Paul Marks
    May 10, 2011 at 6:11 pm

    The German situation is particularly worrying.

    No great bubble in Germany – but a lot of German bankjs have invested in bubbles in other nations.

    They were told it was all safe – because these nations were in the Euro Zone and nothing could go wrong because of the Euro.

    Of course they were greedy fools to believe this – but fractional reserve banking tends to turn even the most sensible people into greedy fools.

    It looks like one is creating wealth from nothing (it really does) everything seems to go perfectly – indeed the more one does certain thngs (extend credit) the better everything works. And then all these complext mathematical games get invented to extend it even further – stuff that hardly anyone can understand….. but it all seems so “scientific”.

    So eventually people (and, I repeat, they are often very sensible and intelligent people) tend to lose their heads.

    It is like drinking glass after glass of spirits – eventually even the strongest willed man is drunk.

    The hangover is not nice.

    It may mean the collapse of the German banking system – or a German govenrment bailout (which is what the aid to other countries, the countries with the bubbles, actually is – the German government is trying to save German banks).

    How to prevent all this….

    Well fractional reserve banking is really bubble banking and……

    Well no one wants to hear this.

  • Paul Marks
    May 10, 2011 at 6:13 pm

    Jadedlibertarian.

    You are right – if you have money, get it out of the banks.

    Use the money to buy real things – gold and lead.

    I think you can guess what I mean by “lead”.

    Also (if you can) move to a small town or rural part of the country – where they grow food.

    “It will not get that bad Paul”.

    Hopefully not – but it might.

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