Beyond Jenga, by Robert Gore

Built as they are on flawed philosophical and intellectual foundations, current political and economic arrangements may prove remarkably tenuous, upended by random, seemingly trivial perturbations, which SLL has analogized to a crashing Jenga tower. (“Orwell or Jenga?” 10/13/15). While those who are currently in power clearly desire increasing centralization, supranationality, and state control, those desires are running smack into the centrifugal forces engendered by modern technologies and markets, and the obvious incompetence and corruption endemic in present state structures.

There is no shortage of material on preparing for outcomes running the gamut from Orwellian police states to anarchy. If for no other reasons than that the world is embarking on the biggest debt contraction (after the biggest debt expansion) in history, most governments are essentially bankrupt, and police states are an expensive proposition, a probability distribution of possibilities skews toward disorder and the more anarchic outcomes.

“Orwell or Jenga” suggested that current financial arrangements based on fiat currencies and debt could well be a source of Jenga instability. SLL maintains that such currencies and debt are not money (“Real Money,” 9/9/15), because they are liabilities of either governments or central banks and have no intrinsic value. Precious metals, on the other hand, are not liabilities and have intrinsic value. They have been money in the past and it’s possible they will be so again, both during an anarchic phase that it is to be hoped will be transitory, and later as new political and economic arrangements emerge.

When prices were close to their recent lows, SLL suggested that it was a good time to buy gold and silver. (“Buy Gold and Silver,” 7/20/15). Prices have rallied somewhat, but your perspective should be your ability to exchange precious metals for goods and services, not “value” as measured in fiat debt units. You buy gold and silver for the same reasons you stockpile essentials and keep your firearms and shooting skills in good working order: as reasonable preparations for a future that may be far different than today.

However, obtaining precious metals raises a number of issues. SLL has discussed buying them, but has said nothing about the mechanics of doing so. Although the SLL website carries various online advertisements, it does not endorse specific businesses. (It has yet to come up, but SLL would not hesitate to criticize an advertiser, or carry a guest post that did so, even if it meant the loss of that advertiser’s business) While no dealer will be recommended, here are some guidelines for buying precious metals.

Precious metals can be purchased online or at physical stores. There is something to be said for developing a relationship with a local dealer. Go with recommendations from people you trust, but whether you have a referral or you’re trying to evaluate a dealer cold, there are a few reliable benchmarks. The longer the dealer has been in business, the higher the probability it is reputable. Check online reviews. Compare dealer prices against both the premium to spot metal prices and “live” prices for the same items posted by Internet dealers. If you have a smart phone you can do it in real time. One trick to keep dealers honest is to ask for both bid and ask quotes, without indicating whether you are buying or selling. Compare bid-asked spreads to those on the internet. If they’re wide or the dealer won’t give you a two-way quote, find another dealer.

It is difficult to buy precious metals from a reputable dealer without generating a paper or computer-stored record. Assume any Internet transaction will generate a record, but cash transactions at a store probably will as well. Dealers are subject to the Patriot Act’s anti-money laundering rules. They also have to report cash receipts in excess of $10,000, which is not a large transaction for precious metals (http://www.fincen.gov/statutes_regs/guidance/html/faq060305.html). If you make a series of sub-$10,000 transactions, the dealer may have to file a Suspicious Activity Report. Assume most dealers will want at least your name and address for even small cash transactions, if only to protect themselves if they’re audited by the government. For those worried about government access to your purchase records and a repeat of President Roosevelt’s 1933 confiscation of gold, there is reason to worry. However, there doesn’t seem to be legal ways around the problem if you are buying gold or silver from a dealer. SLL welcomes knowledgable information on this issue in the comments section.

There are a number of reputable online precious metals dealers. Check and compare online reviews and Better Business Bureau complaints, the time dealers have been in business, posted prices and premiums, bid-ask spreads, selection of products, shipping rates, volume discounts, and online and phone customer service policies. Many dealers offer to store your metals (some offer storage in foreign depositories) and guarantee that they will be segregated, identified as yours, and delivered on demand. This solves the security issue of keeping metals safe at home or a business, or the risk of keeping them in a bank safety deposit box, where they may be subject to government seizure.

However, since the focus here is on Jenga-style upheaval where gold and silver become a medium of exchange, what good will yours do you if it is in a depository, especially if it is in a foreign country? Don’t think a depository outside the country will protect your metals from confiscation; the long arm of the US government reaches around the world. With access to purchase records, it may force you to bring your stash back to this country and cough it up.

If gold and silver are mediums of exchange, you want your immediately available reserve in small units. Who’s going to make change for a 100 ounce silver bar or a one ounce gold ingot or coin? There is no reason to pay the premium for gold and silver coins over ingots if ingots are available in the same weights as coins. You may want to keep the bulk of your precious metals in a depository as a store of wealth, but have a sufficient number of smaller units at home in a secure place in case of sudden apocalypse. Smaller units are also less likely to be confiscated.

However, do not convert all your financial assets to precious metals. There is the confiscation danger, and if things get really bad, their exchange value against scarce day-to-day necessities like food, water, medicine, fuel, and the like may be low. Make sure you have an adequate stockpile of essentials before you spend much on precious metals. A hunk of metal will not sustain life, and items you can barter from your stockpile may have far more exchange value than precious metals. A carton of toilet paper may command more than a ounce of silver. Your precious metals should not be ends in themselves, just components of a well-devised and diversified plan for a risky, uncertain future.

LITERARY GOLD

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16 responses to “Beyond Jenga, by Robert Gore

  1. Pingback: SLL: Beyond Jenga | Western Rifle Shooters Association

  2. “There is no reason to pay the premium for gold and silver coins over ingots if ingots are available in the same weights as coins.”

    No reason? Really? If one day you want to use your silver, it should be obvious that a silver eagle coin will be far more likely to be accepted than a plain one ounce bar. In the latter case, you will likely have to prove it’s silver and prove that it contains 1 ounce of silver — which could be rather difficult.

    Liked by 1 person

  3. Query: Let’s say over time, I have acquired a certain “stash” of gold/silver via Internet dealers complete with inconvenient paper trail referenced above. Confiscation comes. How could “the authorities” prove I did not just gradually liquidate said stash a la “buy low, sell high” when it just may have been “relocated” under a stump back in the woods (or similar)…?

    Liked by 1 person

    • Assume you’d be guilty until proven innocent. The government could require you to show proof, via receipts, that you actually sold your gold and silver. If you were unable to do so, it would conclude you still own them.

      Like

  4. Or, you could be a moderately smart guy like me and, use only cash, buy your gold and silver at GUN SHOWS with that cash, and keep it physically WITH YOU, either safely at home, or safely buried only you know where. Oh, and gots the guns, ammo, food and water to go with them. If you don’t have your PMs physically in your hand, you don’t own them. I think of that stuff the same way I do about guns. You want them, Mr. Fed, state, local gov. puke? Come and take them. You get the lead, first.

    Liked by 1 person

  5. I have no quarrel with your approach, assuming you know who you’re dealing with at the gun shows.

    Like

  6. Ah yes: “Guilty until proven innocent”, the new American “Rule of Law” paradigm. Guess we’ll have to jump off that bridge when we burn it.

    Cash purchases: great idea, unfortunately not possible retroactively.

    Liked by 1 person

  7. Centurion_Cornelius

    Sir: Fine article (as always!) BUT–keep in mind, unless it is “physically” (aka: ‘phyzz’) in your immediate possession, it may not even be yours!

    Already two rather large precious metals outfits have filed bankruptcy. There are two issues here: A) has the PM been delivered to you promptly and safely? and B) is your purchase of same been designated to a discrete, segregated, and non-communal transaction?

    Why is this latter issue so critical? SIMPLE: if your order is one for “a silver coin” or “an ounce of gold,” chances are 99.9% that your purchase is “non-segregated,” or a pooled purchase. Fungible. The legal term (watch out for this) is “co-mingled” purchase.

    What this means is that your hard-earned cash which you wire to a PM dealer becomes (ta-da) THEIR funds up until you get your order fulfilled, completed, and delivered. Your purchase price money belongs to the deal. “So what?” you say.

    THIS WHAT: if the dealer has been hedging PM puts, calls, options, and/or derivatives and the dealer crashes and burns and files bankruptcy, the U.S. Bankruptcy Court considers ALL co-mingled funds part of the “estate of the bankrupt.” You loose 100% ownership! It then belongs to the court and/or court-appointed liquidating trustee.

    Same result if the PM dealer is running a simple Ponzi scheme with your purchase money.

    Once controlled by a bankruptcy court, assets (such as you co-mingled PM purchase funds) are paid out in strict compliance with bankruptcy laws. Guess who gets a “preference?” Yes–the court fees/costs, court appointed “experts,” (usually enormous fees), and all Federal state and local taxes due from the bankrupt. You have been effective swindled out of your money because you failed to “segregate” your purchase funds and PM delivery at every step!

    Think I exaggerate? You have many people wiring $300k to a PM dealer, who then goes bankrupt, only to find their funds and PMs GONE. Worse yet, co-mingled purchasers are relegated to the lowest creditor level in bankruptcy court–an “unsecured creditor.”

    All “preference, priority, and secured creditors have to get paid before the lowly “unsecured creditors.” (Don’t ask me how I learned this painful lesson; live and learn.) Even after doing one’s due diligence, it’s a jungle out there boys. Lest you think me a clod from the hinterlands, I boast an LLM and CPA sheepskin each.

    Read and weep: http://about.ag/tulving.htmor the latest:
    http://about.ag/BullionDirect.htm

    Just read summaries from these two cases and see what a crying shame an ordinaty PM purchase can devolve into.

    BUYER BEWARE! As you say, “buy local.” The doctrine of subsidiary insures your PM purchases.

    Liked by 1 person

    • Thank you for posting. From your article it is obvious you’ve done your research and know your stuff. I guessed before I got to it that you had some sort of legal training. From my own legal training, I can vouch for Centurion_Cornelius’s assertions about bankruptcy and unsecured creditorship, also known as the lowest rung of hell.

      Liked by 1 person

      • Centurion_Cornelius

        Thank you, kind Sir! Also–watch out for IRS Section 1031 “like kind” exchanges for those wanting to “defer” cap gains. A $4.2 billion 1031 exchange company filed for Chapter #11 and screwed over 400 very-sophisticated creditors (who wound up in the lowest rung of hell!)

        Methinks these “bust-outs,” Ponzis, and scams were orchestrated AFTER the Corzine/MF Global and Bernie Madoff festivities proved VERY PROFITABLE with no repercussions whatsoever. These latter two are proving to be the models or templates for scoundrels.

        This is what follows when the “rule of law” is absent at all levels.

        see: http://richmondbizsense.com/2015/07/29/landamerica-bankruptcy-coming-to-500m-close/

        Liked by 1 person

  8. I am fortunate in my area to know a reputable PM man, who I and others have dealt with, for more than ten years. He only visits gun shows with good security, and only those with good attendance and legitimate promoters and participants. He’s given me a kind of free education in PMs, and nothing I’ve seen or checked on with him have reproachable points. When I buy from others, I have the veracity of the item checked with him. I’ve also done a background check on him. So, fortunate as I said.

    Liked by 1 person

  9. I’m a poor man, so all I can do is buy a little junk silver on Ebay every once in a while.

    Like

  10. I have two PM shops that I know of in the city where I live. I use one of them on a regular basis, $100-$200 cash purchases per month, no questions or names asked. Little by little, building up my “stack” as I can afford it. Along with keeping up my storage of hard goods.

    Like

  11. Sounds like the way to go.

    Like

  12. Alfred E. Neuman

    Reblogged this on The Lynler Report.

    Like

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