Banking is a risky business because banks are highly leveraged enterprises. (Sorry to break that news to you.) In a fractional-reserve banking system ‘deposits’ are not deposits (i.e. contracts for safe-keeping) but loans to banks and thus loans to highly leveraged businesses.
I don't pretend to know what is fair.. I only know that the fuse has been lit.
Jim,I agree that banking is a risky business. But, that's not what the interest rate that I'm receiving from my "deposits" tell me. Everything is all mixed up. Nothing gives the right signals. It hasn't always been this way, but it certainly is now. The corrupt get richer and the honest pick up the tab. I can almost hear them say that we deserve the fleecing since we were gullible enough to believe their lies.
I couldn't agree more with your last line:
I don't pretend to know what is fair.. I only know that the fuse has been lit.
I keep a couple months of expenses lent to the bank and a few weeks worth of small denomination bills on hand. The rest has all been lost to "gambling debts."
I too get overwhelmed with the details and conflicting data, and don't have the time to master it for myself anyway.
But this much I know too: "Something evil this way comes."
And since I like to use humor to cope with the tension, I'll quote from "The Hunger Games":
"MAY THE ODDS BE EVER IN YOUR FAVOR!"
(The Hunger Games book and movie were aimed at a teenage female audience, but whether the author intended to do so or not she drew out some interesting parallels to the predicament in which we find ourselves. Everything in the book can be looked at on at least two different levels. Revolutionary material on one of those levels. If you haven't read it, you might try it.)
Grover-In a word, yes - because that's how capitalism and banking works.
You don't realize it, but you and every other depositor are lending money to your bank. Banks don't generally advertise this (I guess it might scare the horses) but that's what is going on.
In our blessed system, the only thing that restrains banks from making infinite loans to anyone is the rules under which they operate. The rules state, if liabilities exceed the assets, the bank must be wound down, and the creditors to the bank paid off with a sale of the assets. This restrains the banks so they (theoretically anyway) are careful with the things they buy, and to whom they loan money.
Bank assets: loans to other people, bonds it owns, initial investment cash, retained earnings
Bank liabilities: deposits, money borrowed from other banks, bonds it has issued
Being on that "liability" line means, if the bank can't pay back your loan because it is bankrupt, some amount of your loan-to-the-bank goes to money-heaven during the bankruptcy. FDIC will write checks to protect small depositors here in the US - backed allegedly by the full faith & credit of the US Treasury, but in that case, its FDIC that ends up taking the loss instead of you. Regardless, a loss is taken during the "resolution" process.
When a bank takes losses on its loans or owned bonds, and at Bank Popular apparently they bought a whole bunch of Greek bonds that took a 70% haircut a year or so ago, the regulator goes in and looks at the books and notices that with all those losses, the bank liabilities exceed assets. By the rules of banking, that bank must be wound down, and these losses must be imposed on the creditors to the bank - the guys on the "bank liabilities" line, which includes you, the depositor.
[Note: if the bank can find some kind soul who will buy shares in the bank - enough to cover the losses - it can avoid wind-down and keep operating. Executives keep their jobs! TARP 2008! Thanks Taxpayers for your 600 billion dollar investment!]
Didn't know you were a creditor to the bank? Welcome to the club. Most people don't. They imagine "their account" means the money inside the bank is theirs. It isn't. It is just a loan to the bank that you can demand payment on at any time. Thats why checking accounts are actually called Demand Deposit Accounts.
I'm simplifying things a bit. I'm not a bank regulator so I don't know the full ins and outs of when resolution happens, etc. But the main bits are true:
assets must exceed liabilities
depositors are creditors to the bank, not "owners" of their deposit accounts
A friend of mine and I had a discussion on what we'd like to see - a real savings bank. One that didn't lend money, only stored your cash for you. Effectively, 100% of all deposits are placed on reserve at the Fed, and only fees are taken out of your account. But it could pay no interest. The advantage is, you would not be creditor to the bank, you would actually own your own account. Problem is, most people don't realize they don't own their accounts, they don't understand they've lent money to their bank, and most of the time, the magic of fractional reserve lending actually works out.
Right up until it doesn't.
Rector, you are too kind.I realize my summary of your summary was a tad reductive. ;-) I confess, I did it for comic effect. Its clear to me that you are a sharp cookie.
If I had a full time job, there's no way I could put this level of effort in. People with real lives have a tough time figuring out what is going on. It is a very complicated place, and it almost seems like they don't really want you to know what's happening. Imagine that.
As to why I do this? It fascinates me. I think its fun. I started out long ago by watching the crash course, and ever since my interest in the subject/puzzle grew and grew and…well there you go. It helps that I know how to write code, to retrieve, manage, and update my different data sets. And tools these days are pretty powerful, so I can usually find a good chunk of what I need somewhere online. If I couldn't write code, the whole thing would have been much harder.
As for analysis - my current thought is, the eurozone is going down into deflation. The bail-in policy, if that's what they're really going with, will accentuate this. Bail-ins sure beat debt-funded taxpayer capital injections and overpaying for bad loans, and so they likely "the right thing", but it will end up destroying a great deal of money. Or really, merely recording the money that has already been destroyed by malinvestment. Just - I'd prefer that it not be MY money that ends up being destroyed, thanks anyway.
One thing about deflation is, it won't treat PM very kindly. My observation of the marketplace: PM tends to do poorly during bouts of deflation. I don't have charts to demonstrate this, but that's what I've noticed. Those who say "gold did well during the 1930s deflation" miss the fact that the US Treasury put a floor on gold prices through the gold standard - a standing offer to buy an unlimited number of ounces of gold for $35/ounce. Look at silver's behavior during the 1930s if you want a model for how things are today. Silver got hammered, because we were not on a silver standard, and so there was no price support.
Oof, that last paragraph will get the goldbugs upset. Why do I write such things?
The value of U.S money is completely and utterly reliant on its reserve currency status.
The US has been so heavily looted by the money powers that thats all thats left. The last light bulb if you will.
I would expect a new unified gold based currency from the BRICS countries (which will expands into all of Asia, all of Africa, and all of South America), many of of whom have been buying gold like crazy, in addition to their own currencies, and that will be the death knell for the US and europe, who are already dead and zombie like and are awaiting that last nail in the coffin…so to speak. Hard to give a timeline, but it must be pretty soon, so they can take advantage of europes "no faith" banking barber shop runners club, and the U.S's " propaganda and money printing based stock market". Both ready to implode and you have to go somewhere dont you.
Say goodbye Us dominance, world bank and the IMF. You wont be missed.
The BRICS cant possibly do a worse job, and lets hope the new management (if there is such a thing) has some new ideas for the world.
[quote=davefairtex]Rector, you are too kind.
I realize my summary of your summary was a tad reductive. ;-) I confess, I did it for comic effect. Its clear to me that you are a sharp cookie.
If I had a full time job, there's no way I could put this level of effort in. People with real lives have a tough time figuring out what is going on. It is a very complicated place, and it almost seems like they don't really want you to know what's happening. Imagine that.
As to why I do this? It fascinates me. I think its fun. I started out long ago by watching the crash course, and ever since my interest in the subject/puzzle grew and grew and…well there you go. It helps that I know how to write code, to retrieve, manage, and update my different data sets. And tools these days are pretty powerful, so I can usually find a good chunk of what I need somewhere online. If I couldn't write code, the whole thing would have been much harder.
As for analysis - my current thought is, the eurozone is going down into deflation. The bail-in policy, if that's what they're really going with, will accentuate this. Bail-ins sure beat debt-funded taxpayer capital injections and overpaying for bad loans, and so they likely "the right thing", but it will end up destroying a great deal of money. Or really, merely recording the money that has already been destroyed by malinvestment. Just - I'd prefer that it not be MY money that ends up being destroyed, thanks anyway.
One thing about deflation is, it won't treat PM very kindly. My observation of the marketplace: PM tends to do poorly during bouts of deflation. I don't have charts to demonstrate this, but that's what I've noticed. Those who say "gold did well during the 1930s deflation" miss the fact that the US Treasury put a floor on gold prices through the gold standard - a standing offer to buy an unlimited number of ounces of gold for $35/ounce. Look at silver's behavior during the 1930s if you want a model for how things are today. Silver got hammered, because we were not on a silver standard, and so there was no price support.
Oof, that last paragraph will get the goldbugs upset. Why do I write such things?
[/quote]
davefairtex,
How do you feel about "bail-ins" from the personal assets of banking executives and officials who irresponsibly or perhaps corruptly allowed these situations to develop or even shareholders who knew they were taking on investment risk as opposed to "bail-ins" from unwitting depositors who simply wanted a safe place to keep their money and had no idea that they may be parties to risk?
How do you feel about "bail-ins" from the personal assets of banking executives and officials who irresponsibly or perhaps corruptly allowed these situations to develop or even shareholders who knew they were taking on investment risk as opposed to "bail-ins" from unwitting depositors who simply wanted a safe place to keep their money and had no idea that they may be parties to risk?
Fraud needs to be punished, the way we did during the S&L crisis. Bill Black style. 1000 banking executives were prosecuted back then. I'm all for it.
It used to be that the officers & directors of a bank were personally liable for losses when a bank went down. I'd be happy to go back to those days.
Shareholders always get zeroed out in these bail-ins.
Usually, "unwitting depositors" pick the bank with the largest interest rate without regard to bank safety, until its too late. "Let me see - there's a CD with a huge yield, let me go pick that one." Did you ever hear anyone say that? I have.
All of this needs to be fixed. Depositors need to be more concerned with safety and they should understand, yield comes with risk. Fraud needs punishing. And the taxpayers do NOT need to foot the bill, as they did in Ireland. There, senior bondholders were untouched, as were depositors, and bankers kept their jobs, while the Irish taxpayers went deeply into debt to the EU and forked over 70% of GDP over two years to plug the hole.
If I were a bondholder, I'd sure like that plan. I collect my coupons, get my principle back, and the taxpayers are stuck with the bill.
If banks are going to pay interest, they have to lend the money out, and take risk. If you don't mind foregoing interest (not that there is much these days) and you just want that "safe place to keep your money", get cash. Seriously. Don't put it in the banking system.
It appears that each new generation gets to learn this lesson anew. The hard way.
Let us have the candor to acknowledge that what we call "the economy" or "the free market" is less and less distinguishable from warfare.”
― Wendell Berry
The freemarket is hard to find these days… I maintain that there is one out there. There is one signalling mechanism that can be viewed as an unadulterated signal of the free world's true disgust with the nature of fiat currencies everywhere, and the treatment of the common man by bankers everywhere. I said it a few years ago when interest rates dropped to near zero; your fiat money is now worthless to the very bankers that want you to believe it is the most desireable thing there is. They defend the value of their paper vs. Gold and Silver by brutally manipulating them down with every trick in the book… and yet they will pay you nothing… in fact they will guarantee that you will lose money over time (negative real rate of return) if you loan (deposit) the money back with them… They don't want it (it's a liability on their books) and they don't need it to make loans anymore. Not only that, but they will short their own currencies, right in your face, by buying Gold (not the US mind you, but most other central banks in the world)… and then suggest that you don't need or want any. The joke is on you sheeple!http://etfdailynews.com/2013/03/25/central-banks-buying-gold-for-no-reason/
The canary in the coal mine… the marker for the worlds desire for an alternative currency that is NOT of the central banker matrix… is Bitcoin. I know there are many naysayers here… and I am not arguing that anyone should invest in Bitcoin. What I am saying is that the ever escalating Bitcoin price is a signal that is pure and coherent. It is not a bunch of greater fools… though I am sure there are some momentum-based speculators playing along (and one hedge fund). A Bitcoin will cost you $87 today. It was $12 at the beginning of the year. It will be worth a lot more than $87 a year from today barring a Bitcoin black swan.
Dave,
Actually, I was aware that "deposits" at the bank are loans to the bank. (It was a shock when I first learned this fact.) These loans have special provisions - I can demand payment at any time and "my" funds are insured to an (overly) generous limit. Those are the rules. I didn't make them, but I'm forced to abide by them. I expect the bank to follow the same set of rules. (Call me naïve.)
I don't know the particulars of the Cypriot version of FDIC, but I assume that it is similar to our system. Doesn't the insurance protect depositors in case of bank insolvency? So … if my deposits are actually the bank's funds and the bank is insolvent, shouldn't the insurance kick in and make me whole (up to whatever limit was set)?
I read Detlev Schlicter's article (thanks for the link, Jim) where he was in close alignment with your view. In the comment section, he was responding to a question and essentially said that the shareholders should be first in line to pay out, followed by the bondholders, and finally the depositors. Did that occur in Cyprus? In your opinion, how should the liabilities be unwound?
Finally, how do you see this progressing from here? Which country is the next likely contestant? Assuming it will spread, what can we do to avoid these problems?
Grover
PS - I'm not a fan of insurance or regulation - simply because they both fail when needed the most. I am a fan of transparent contracts and parties adhering to the provisions. I see the Cyprus situation as a breach of contract. At this point, it doesn't matter that the contract shouldn't have been made.
The countervailing force of enthalpy is complexity and conciousness, as less resources are available more complex systems evolve to more efficiently utilize and recirculate the energy and nutrients that are available in the system. Intelligence and conciousness has increased over time as energy has decreased (very big picture). The ecological systems that currently exist on the planet that are under threat are the most complex and diverse systems yet to evolve.
The recent industrial and informaiton age revolutions are the launching pad for a dynamic shift in human conciousness. The real perils that we face are catalysts that will initiate this change. The level of communication and awareness around the planet today exists at an unprecidented level. The brief injection fossil fuel energy has taught us both the limitations of material growth and has at the same time created information systems and networks that allow instantaneous communication around the globe we to often taken for granted, but are truely amazing. The pain has come with a gift.
Appernt complexity that we see today is a combination increased awareness of an emergant new planetary paradigm and the necessary destruction of the limiting industrial one. Cyprus is a perfect example, we have information almost instantaneously of events happening in financial systems nearly half way around the world, but at the same time the information is less than transparent because of the criminal, destructive and violent forces at play. These are related but tangetital forces that are moving in opposite directions.
The complexity and unpredictability of financial markets are not the intricate complexites of dynamic, diverse conciously evolving emergent ecosystem, but the violent disolution of a dying human system and it is important not to conflate the two together that does not make sense. Energy intensive industrial systems have their dark side that is now perishing and with it the Cartisian mind set. Much of what is negative in the world is the result of lots of energy driving unprocutive activities based on an outmoded understanding of the world. The warfare mode of industrial agriculture is failing because of the kill or be killed primitive dynamic of consciouness behind it, even if it is using complex methods to manipulate the plant genome.
Fragments of the new emerging localized economies based on intimate relationships with natural and human communites are just becoming visible. Young farmers are moving back to the land with a new and deeper understanding with what it means to be in relationship with the planet that sustains us. We now understand that there is no place that is "away" to throw things any more. We now understand the destructive nature of competitive relationships that nonsensically create "winners" and "losers" are a projection of our on dark side and are not intrinsic to natural systems. If you are competing with another person for anything then you become lost because your own path is unique as are your gifts.
The destructiveness of the current paradigm is it simplicity, it is voraciously destroying diversity culturally and ecologically creating the sameness of death. Things will fracture and diversfy in a way that creates the resiliency of a diverse and dynamically evolving community. Change is stressful, particularly at this scale, but it carries with it a grounding and centering dynamic that connects us again with what is important and meaningful in life. I think the sentiment expressed of waiting expectantly and consciously captures the depth of what is happening.
We are the dreamers that are collectively dreaming this reality, and we as the dreamers are about to wake up.
Grover -Very good, sorry for explaining something you already know!
The original plan was a "tax on savings" so theoretically the deposit insurance scheme wasn't at issue. Under that plan the tax money was used to recap the banks - they never failed, so no "deposit insurance" was called into question. Everyone just paid 7% or 10% or whatever the tax was - from every account in Cyprus, regardless of the condition of the bank they were in. Seemed unfortunate if you'd picked a good bank but had to pay this "tax" regardless. Unfortunately for this plan, the Cypriot Parliament had to pass a law to make it happen - and they balked. So - plan B was a normal resolution of the banks, and that's where we are today.
According to what I read, shareholders were wiped out, the CEO and board were fired, checks were written to the insured accounts (although capital controls are in place to prevent them from sucking all the money out tomorrow - probably because that money isn't really there yet), and the rest of the creditors will have to wait until the assets get run off. I'm not sure where the uninsured depositors end up being placed.
Insofar as who takes losses in the bankruptcy, it depends on the laws of the country. Some places say depositors rank above senior debt (the US does that - called Depositor Preference, passed in the early 90s), while most other places plop them in as general creditors so they're mixed in with the junior debt and everyone else with a claim against the bank. The assets are slowly sold off, and then the creditors get paid - eventually. Lehman Brothers is an example. They're STILL selling stuff. Being paid well to do it, too, I understand. Here a recent Lehman article: senior unsecured creditors will eventually get 21 cents on the dollar. And apparently they're getting a payment soon. http://www.reuters.com/article/2013/03/27/us-lehman-bankruptcy-idUSBRE92Q0HV20130327
And yes, the government deposit insurance (basically a promise, like social security, since there are not actual funds in place to back it up) means the government writes you a check for the limit (100k euros). But without funds in place, it has to go borrow the money from the bond market to write you that check. So when the banking system is monstrous compared to the GDP of the nation involved, self-insuring that 100k euro per account for such a massive banking system stretches the realm of what's possible for the country.
As for who is the next on the hit parade - in terms of bubble poppings and banks-in-trouble, Spain is the next on the list. If I could upload images, I'd show you a raft of charts. Basically there are hundreds of billions in bad debt there, and very little has been written down. Massive property bubble, they're lying about property values, and about how much bad debt the banks have. And they haven't written down much at all, their sovereign debt is 83% of GDP, unemployment 26%, government deficit -7% GDP, and their GDP is contracting -2% per year. Basically, all that means is, they can't sell bonds and rescue their own banks themselves without eurozone aid. So unless someone writes them a 500 billion euro check to recap their banking system, they'll have to figure out where to find that money somehow. They are a perfect candidate for a bail-in.
There are two types of problems in the eurozone. Countries with sovereign debt problems + GDP contraction, and countries with popping property bubbles whose banks now have a bunch of bad assets. Greece, Italy, Portugal: sovereign debt + contraction. Spain, Ireland: popping/popped property bubble. And Greece now has bad banks too, since their banks bought a bunch of Greek sovereign debt that was defaulted on! And Cyprus bank problems were also fallout from Greece's sovereign debt default. Whenever a sovereign defaults, it causes banking system problems because the banks buy a crapload of sovereign debt - with a zero risk weighting!
You might also scan news articles to get a list of finance ministers who have said "<my country> is NOT the same as Cyprus." So far I've seen Portugal, Spain, Slovenia, Malta … and one other, I forget where. It's only time to worry once you've seen an official denial!
What can we do? Have no deposits whatsoever in Spain. I wouldn't be in the euro either. And don't go short the buck, not yet anyway.
One last point: I heard from a broadcast Marc Faber did that Cypriot banks were paying 6% on their deposits. This in a climate when MY bank pays me 0.1%. I'm not feeling super sorry for the foreigners who came in looking for "the sure thing good deal" and ended up taking a haircut. High reward probably means high risk. Perhaps - don't go for the highest yielding CD you can find?
Davefairtex
One thing about deflation is, it won't treat PM very kindly. My observation of the marketplace: PM tends to do poorly during bouts of deflation. I don't have charts to demonstrate this, but that's what I've noticed. Those who say "gold did well during the 1930s deflation" miss the fact that the US Treasury put a floor on gold prices through the gold standard - a standing offer to buy an unlimited number of ounces of gold for $35/ounce. Look at silver's behavior during the 1930s if you want a model for how things are today. Silver got hammered, because we were not on a silver standard, and so there was no price support.
Oof, that last paragraph will get the goldbugs upset. Why do I write such things?
I'm no expert, far from it but I've observed the same trend that deflation isn't kind to gold. That didn't keep me from buying it cause the risk is too high either way.
The global financial problem is so complex that I have diffcultly wraping my head around the whole thing. It's constantly shifting. The hours spent trying to have a heads up on what's going on is sometimes exhausting. I've decided to spread my risk and wait for signals if a change of action is needed.
As for Europe's deflation. Well it's forcing it's spendthrift members to shape up or ship out. Forcing deflation. The Euro currency acts as a gold standard for the european union members in the same way gold did before 1971 for the world. That's how I see it. I might be missing something.
Thanks to all!! PP needs all of you.
Sonya
Dave,Thanks for the answer and insights, but I'm bothered by your glibness concerning Cyprus. I understand that Cyprus had lax banking standards that attracted foreign money, but would you still have the same response if it were your money on the line? Were it to happen here, would you throw up your hands and say that it is legal because our lawmakers say it is? I don't know about you, but I'd be angry and feel that I'd been betrayed. Given the opportunity, I'd act accordingly.
Even 3 weeks ago, would you have thought that the events that have transpired were more than a remote possibility? Something is seriously wrong when these desperate acts are contrived … let alone, executed. And, yet they were. The State acted like burglars in the calm of night when nobody expected it.
I felt the same feeling in October, 2008 with all the bailouts here. The general populace was dumbfounded, not understanding the ramifications, but the feeling was that the alternative was worse and we had to bail out the big banks. The bailouts resolved nothing. Now, our condition is much worse as a result.
I see trust being destroyed. Very few can truly forgive (and forget the actions of) a cheating spouse. The people in Cyprus will rightly act as if the State will do something else heinous. That alone will change communal behaviors sufficiently to escalate the game. Where will that go? Wait until push turns to shove.
As bad as the outcome would have been, they would have been better off to exit the european union under their own terms. Spain, Italy, Portugal, and Greece will suffer the same fate in time. Why any of their citizens has more than a token amount of money in the banking system is beyond me. Perhaps they believe the line that Cyprus was unique. Perhaps they see the insescapable clutches of a State gone wild. After all, if monetary property in the bank can be confiscated, why can't the State simply attach real estate or stocks or whatever else is available?
Grover
Davefairtex and Nelly, First off, we were in a totally different monetary regime in the 1930's since we were still on at least a nominal Gold standard during the depression… and of course, we are not today. If you think you are going to take lessons from the 1930's and extend them, in some linear (chartwise) fashion to today… I really have to question that. If I look at how Gold behaved in 1933… what I see is the Gov't confiscating, and then repricing Gold in dollars from $20.67 —> $35. Exactly where is the poor Gold performance here in dollars? To use a Martensonism; I am having some trouble seeing that even squinting really hard.
link: Executive Order 6102 - Wikipedia
Today Gold trades as a parallel, alternative form of money. Regardless of whether there is deflation happening in pockets here or there (and there certainly is, and will continue to be) there will be more and more demand to trade the relatively small amount of non-infinitely printable forms of money that go by the names Gold and Silver for these infinitely printable money tokens called dollars, euros, pounds, and yen. In case you can't read the tea leaves yourself, I will give you the color-by-numbers on the game that is being played out now so as to try to keep up the appearances of adequate supply in a system that is reaching it's limits;
1) Keep coin store shelves from getting empty so that the sheeple don't wake up. See - you can get as much Gold and Silver as you want! But who would want it anyway, since the price can go down… see all those steep drops in price (precipitated by dropping loads of naked short Comex paper contracts all at once)! Yuck…scary! Note that US pre-1964 90% is in very short supply now and premiums have been on the rise… can't print that, right?. ref: http://www.tfmetalsreport.com/comment/287717#comment-287717
2) Satisy the middle market … the low tonnage sales in the London OTC market with Western leased, rehypothecated Gold, so that exchanges don't break… no commercial signal failures. The big picture view of this operation, which has been described by many commentators as the movement of the West's Gold to the Eastern nations… was outlined recently by Sprott using US trade records as the smoking gun. His conclusion;
Over the span of 22 years, the total amount of gold that the US has exported – above and beyond its supply capability – is almost 4,500 tonnes! A truly stunning figure.
ref: http://www.zerohedge.com/news/2013-03-19/sprott-do-western-central-banks-have-any-gold-left-part-ii
3) When the real whales want to move Gold.. don't let them.. stifle them. Germany wanted to repatriate their Gold from the US.. how did that go?
So go ahead folks.. take Davefairtex' word for it... you don't want any of that stinkin Gold because it's just no good for what is to come. RIIIIIIIIIIIIIIIIIIIIIIIIGGGGGHHHHHHHHHHHHHHHHT.
So go ahead folks… take Davefairtex' word for it… you don't want any of that stinkin Gold because it's just no good for what is to come. RIIIIIIIIIIIIIIIIIIIIIIIIGGGGGHHHHHHHHHHHHHHHHT.
Sorry still don't know how to block quotes.
I'm not taking sides just voicing an opinion that during deflation it can be unkind to gold. I feel I've been thrown in the lion's pit.
I own the stuff and I will ride the ups and downs because in the long run I'm protecting myself and my family.
Nelly, you are right that to use PM as a hedge to protect you and yours in the long run.This is what it is all about for me. Given the complexity of the world economy, no one can predict whether we are going to have inflation or deflation. Knowing that, prudent people, such as those who follow this site, hedge their bets by owning some PM.
The point can be argued forever about the validity of holding PM. There definitely seem to be the believers and non-believers, which is good and right, for the arguments help me to decide what to believe myself. The conclusion I have come to is just don't be so wedded to any position that you fail to remember the rule to diversify. So there is room for holding some PM as part of a resilient portfolio. How much one holds then becomes a matter of how much one is wedded to their particular belief system.
With each news article of yet another financial swindle, which are occuring far too often these days, my level of trust in the "status quo system" is further eroded. If a person holds monetary assets, then that "trust" has to be put somewhere. PM and gold in particular have been viewed as a store of wealth forever. You cannot change such a mentality, although lord knows they have tried with fiat money. But the fiat game is nearing the end as more and more average, everyday people like me are waking up to the fact that there trust has been misplaced, and they need to place it elsewhere. That will be the moment when PM will stand out as the only alternative. It is likely that by the time they realize this, there will be little if any available to them.
Jan