Liberty Coin Service

Broadcast 11/09/2011 on WILS-1320 AM

Click here to get to the broadcast in mp3 format.

Announcer:

Welcome to another edition of Things You “Know” That Just Aren’t So, And Important News You Need To Know presented by Patrick A. Heller, owner of Liberty Coin Service and Premier Coins & Collectibles in Lansing and Delta Township.  Take it away Pat.

Heller:

Good morning.  My consistent position has been that government actions are the underlying problem causing global financial crises.  I pick on President Barack H. Obama because he happens to be the current occupant of the White House, not because of his political affiliation.  If John McCain were the president, I would be going after his policies as well.

The truth is that both the Democrats and Republicans adhere to the theory that people do not know how to best take care of themselves so that government has to tell them how to run their lives.  This is almost directly opposite of the culture of the late 1700s.  Back when the Declaration of Independence and Constitution were adopted, the attitude was that people were responsible for their own well-being.  After all, who would have a stronger incentive to look out for their own self-interest—the person who knows their own facts, circumstances, and opportunities, or a government legislator or bureaucrat who does not know the particular circumstances of each individual?

Rather than talk theoretically though, here is some concrete data showing that both Democrats and Republicans are dangerous to your wealth:

During the presidency of George W. Bush from 2001 to 2009, the value of the US dollar fell more than 69% against gold!  The US dollar also fell more than 58% versus silver.  The Dow Jones Industrial Average fell almost 24% even as the value of the US dollar was sliding.  For someone who had their investments tied up in US dollars, dollar-denominated bonds, or US stocks, those results were horrible.

It hasn’t gotten any better since Obama became president.  In less than 34 months since January 20, 2009, the value of the US dollar fell even further against gold, just over 52%!  It’s even worse for silver where the US dollar has plummeted more than 67%!  

While it is true that the Dow Jones Industrial Average has risen almost 50% as measured in US dollars, the Dow has fallen against gold and silver.  On January 20, 2009, it took about nine and one half ounces of gold or 711 ounces of silver to equal the Dow.  As of the close two days ago, the Dow had sagged to be worth only 6.74 ounces of gold or less than 347 ounces of silver.

Throughout history, the average life of a paper currency is 40 years before it fails.  Just because the US dollar has been around for more than 220 years doesn’t mean that it will last indefinitely.  At the rate paper assets are tumbling in value, I would not bet that the US dollar will be around two years from now.

Part of the strength of the US dollar has been its use an international reserve currency, where other governments hold dollars for settling transactions with other nations.  Also, gold has been quoted around the world in US dollar prices.  

Two recent news developments both point out how precarious the US dollar’s international importance has become.  First, on October 17, Hong Kong’s Gold and Silver Exchange began trading kilogram gold contracts priced in the China renminbi yuan.  With the yuan likely to continue to appreciate versus the US dollar, I could easily see international demand soaring for these contracts denominated in the Chinese currency.

Second, last Friday and Saturday, CME Group issued advisories that it was changing margin requirements for leveraged commodity accounts.  The impetus for the change was the bankruptcy of securities firm MF Global Holdings.  Because of the size of the company’s operations, thousands of customers are trying to recover their assets and transfer them to another firm.  

In simple language, the advisories stated that the margin requirements for leveraged accounts for all brokerages were being reduced to “maintenance” levels.  This was explicitly being done to facilitate the migration of MF Global Holdings accounts to other brokerages.  What that means is that all accounts at every brokerage that had higher margin requirements have now been lowered.

I have explained repeatedly that it would make sense for the CME Group to raise margin requirements as prices are rising, but often the CME Group has inflicted higher margin requirements on gold and silver as prices were declining.  Right now, commodities (including gold and silver) are generally rising in price.  Therefore, the proper change in margin requirements, if any, would be to raise the thresholds.

By lowering margin requirements across the board for all commodity accounts at all brokerages, the CME Group is creating the opportunity for more reckless speculation—the very activity that almost certainly contributed to the bankruptcy of MF Global Holdings.  Instead of trying to introduce further safeguards, the CME Group’s actions could hasten the downfall of the US economy—and the dollar.

Your wealth is yours to protect.  Physical gold and silver in your direct custody or stored in segregated accounts under your own name can help you protect it.

That’s it for now.  Tune in again next week for more “Things you ‘know’ that just aren’t so, and important news you need to know.”  I’m Patrick A. Heller, owner of Liberty Coin Service in Lansing and Premier Coins & Collectibles in Delta Township.  Thank you for listening.