'The "Ultimate Hedge" Against a
Y2K-Induced Financial Calamity
By Jim Lord
A number of Westergaard readers have
forwarded questions about the intricacies of
owning gold and silver coins as protection
against some sort of serious financial
calamity brought on by the Year 2000
Computer Problem. This article addresses
some of those questions.
As a preliminary comment, the likelihood
that Y2K will cause a total economic meltdown is probably
small. That does not mean, however, that prudent steps
should not be taken to prepare for this eventuality. I don't plan
to die soon but I still buy life insurance. The possibility of my
death may be small but that event would be financially
catastrophic for my family. Consequently, I find it prudent (and
caring) to protect my family against that possibility.
In the same way, gold and silver have long been recognized as
the "ultimate hedge" against the worst possible financial
calamity. Owning them does not mean you believe the worst
will happen - only that you wish to be prepared in case it
does. Because the Year 2000 Computer Crisis has no
precedent in human history, the level of uncertainty is very
high. No one knows what will happen but the range of
possibilities is quite severe. For the ultimate financial
protection, therefore, I recommend holding cash as well as
gold and silver in the form of coins.
Because owning gold and silver as a hedge against calamity
is not a widespread practice in the United States, many
people have questions about how to go about doing so. Here
are some we have received.
"Why should I invest in gold coins and not gold wafers or 1
ounce bars minted by a reputable company?"
I recommend coins because they are a known commodity and
are difficult to counterfeit. A scale isn't needed to weigh the
metal and chemical testing isn't needed to determine its
purity. The government that minted the coin has already taken
care of that chore. If social and economic circumstances are
such that gold and silver become the standard for commerce,
these will be important considerations. Wafers and bars will
be more difficult to use regardless of the manufacturer
because of the greater difficulty of verifying their validity.
"How do I know I'll be able to convert my coins into cash in the
year 2001?"
The only thing that guarantees this convertibility is thousands
of years of human history. In virtually all cultures and at all
times, gold and silver have been recognized as a storehouse
of value. I don't think Y2K or any other event will change that
circumstance. The more meaningful question would be what
assurance would you have that any post-calamity currency
would be convertible into the "real" wealth represented by your
gold or silver coins?
"If paper money goes down the tubes, and you have a $5 gold
piece to exchange for something that cost $3, what are you
going to get for change?"
Small silver coins would be my guess. That's why I
recommend both gold AND silver coins. The gold would be
used for big-ticket items and the silver for everyday smaller
commerce. I would also expect small amounts of other
tangible goods such as tobacco, for example, to serve this
purpose. In fact, for many decades in Colonial America,
tobacco was the primary currency because of a shortage of
British coinage.
"Without a 'computerized' market for gold and silver (assuming
loss of electricity and/or computer crashes), how would you
know the fair market value of your coins? How would someone
know what value to assign the coins for barter, etc.?"
The fair market value of all economic goods is dependent on
two things, communications and the law of supply and
demand. If a means of communications is present by which to
inform the marketplace of prices, supply and demand will
operate to determine the proper (or equilibrium) price of all
commodities. Computerization has made markets more
efficient because they make it easy to keep track of things
and they facilitate rapid communications.
These elements are not necessary, however, for efficient
markets to exist. Remember, we human beings have been
operating markets for dozens of centuries without computers,
telephones or satellites. Strong, effective, non-automated
markets exist even when governments or those in authority
are intensely opposed to their existence. Consider, for
example, illegal drugs, ticket scalpers, and black markets
such as those that operate in prisons or in totalitarian
societies.
As a matter if interest, one of the most interesting aspects of
gold's history is its remarkable consistency of value in
relationship to other goods. Two hundred years ago a fairly
good man's suit could be purchased with one ounce of gold.
The same relationship holds relatively true today even
considering market fluctuations. The same cannot be said of
any currency or of any other economic good.
"How does one find private safe deposit box facilities? All I
could find in the Yellow Pages were storage facilities for
storing furniture, etc. I wouldn't feel secure keeping large
amounts of cash or coins at home due to possible theft
(particularly, armed robbery --- with a gun at my head I would
definitely open any at-home safe)."
Private safe deposit facilities are hard but not impossible to
find. As an alternative you might need to get a little creative.
Other kinds of business concerns use safes or vaults and
might be willing to accommodate your needs for a fee.
Jewelers and hotel operators come to mind.
Another good possibility might be companies that provide
secure storage of computerized data for high tech businesses.
Look for companies that advertise Disaster Recovery or
Technology Escrow Services. I also expect that companies
providing private safe deposit services will begin to proliferate
when widespread public awareness of Y2K becomes
common.
I should point out that keeping valuables in a safe or vault
outside the home will not provide protection from an armed
robber such as you describe above. A determined bad guy
would just keep his gun at one family member's head while
another goes to the bank (or wherever).
A good quality, in-home safe is recommended. Buy a used
one, though, as safes don't wear out and a used one can be
purchased at half the cost of a new one. Some security
experts recommend two safes. Install a cheap decoy in a
location that is relatively easy to find. Put a little bit of cash
and some important looking papers inside. Install your high
quality safe in a secure location that will take even you twenty
minutes to get into. Your "good stuff" goes in this one. Stuff
like cash, gold and silver coins and your copy of my book
(grin).
My thanks to the readers who submitted these interesting
questions.
Good Luck!
Jim Lord
y2ktimebomb.com |
