HAL SCHARN BLOG: August 2019

THE DOLLAR AND ITS FUTURE.

There are very few men I really admire for their wisdom.

Most of what I write on this blog is from my own pen. Today, I am quoting someone else. The reason is that I could not have said it better, and because I think the material is worth disseminating.

David Schectman is a Precious Metals Dealer. I do not have nor have I ever had any business dealings with him. Not because there is any problem with dealing with him. He is an honest businessman and is very well respected in his profession. I therefore recommend him. But I use other connections I prefer NOT to divulge. Instead I read his newsletter, because it is one of the best in the business. I want to make it clear I do not get any compensation for publishing this! Just saying!

You may find it interesting reading, assuming you are of an inquiring mind and are an intelligent human. If you are not, then don't bother to read this, it will only "upset" you!

From The Desk Of David Schectman

David's Commentary (In Blue):

I love my profession. It has provided me with a comfortable living for the last 36 years. It has profoundly changed my views on finance, government and the economy. My views of government, money, the press, politics and investing are so different from my peers that when I discuss any of those topics with them we seem to be speaking a different language. Although they may not say it, they think I am out there in left field.

As I get older, it becomes more obvious that you can’t change people’s views, no matter how compelling and logical your argument is. That’s true whether the topic is religion, politics or economics. People, especially people our age, are set in their ways. No wonder there are so few people who share our views and so few who actually own gold or silver.

Offer a stranger on the street the choice between a $10 bill and a gold coin and most will take the $10 bill. Most Americans have never seen a gold coin or a silver dollar. Not one in a hundred knows that gold and silver coins were our money for over 150 years. Typically if you ask people why they don’t own gold or silver the more educated of the bunch will reply, because they don’t pay interest, so what good are they? You can’t cash them in at a bank.

So if it is nearly impossible to convince non-gold owners that they should consider owning some, and there are so few people who actually own gold, whom do we sell it to? That is a troubling question. It ain’t the Millenials.

I often write that we “preach to the choir.” The majority of the (intellectually) unwashed masses out there have no idea that they are losing their freedom, or the damage that the Federal Reserve and our government is doing to their currency and way of life. The press isn’t about to tell them the truth. Neither is our educational system. You don’t learn about gold in high school or college.

So when will these clueless people finally figure it out? If at all, it will be after a massive price rise when everyone is talking about it and it is making headlines in the newspapers and magazines. I’ll sell them some of my gold coins for $5,000 or $10,000 an ounce.

Today was but another example of how things have changed. I had to look for my TSA number in order to avoid long check in lines at the MSP International airport before I leave on a flight. I had to set up an appointment with my primary care physician in order to book an appointment with a physical therapist to treat a pinched nerve in my neck. I wasted half a day dealing with the bureaucracy. These days, you have to go through a doctor to see a doctor. It’s crazy.

When I was in college I sold women’s shoes part time (Monday and Thursday evenings and on Saturdays and full time in the summer) and made enough to pay for my tuition, gas for my old car and the money I used to buy a few beers and a pizza on the weekend. On a good Saturday I could make $10 and that would last me a week.

Now it costs me nearly $10 for a large latte and a McDonalds Sausage and Egg McMuffin. Filling up the gas tank costs between $50 and $75. How do people get by on $15 an hour minimum wage? They don’t. How do they get along on three or four times that amount? Very poorly. One option is – both husband and wife work. That’s fine, unless there are young children at home and who is left to watch them? Childcare costs more than the second income.

Maybe Trump is right when he says, “Make America Great Again.” The emphasis on “Again.”

When I was in my 30s I easily supported my family on just my income. These days that is impossible for most Americans. I look at my pay stub and I am impressed. By my humble standards, I make a lot of money – but after they deduct FICA and Federal and State taxes, plus what I have to pay in local real estate taxes and Minnesota’s 6.875% sales tax and all the other hidden taxes I am lucky to keep one-third of what I gross. A big number becomes a lot smaller number in a hurry.

Most Americans are aware that something isn’t right and they can’t understand why their dollar doesn’t go nearly as far as it used to, even though they seem to be making a decent living. Well, if they are fortunate enough to be reading our newsletter they will find out what has happened to their purchasing power.

Inflation: In the words of Alfred E. Neuman, “What, Me Worry?”

Most Americans do not worry about inflation. Why would they? The government’s bureau that reports on inflation, the BLS, says inflation is only running at a rate of 2% a year. That doesn’t sound so bad. At that rate, it would take 36 years for prices to double. Haa, ha, haa. What a joke.

How many of your friends have ever heard of John Williams and his excellent Shadowstats newsletter? How many of them understand that the “real” inflation number is running at – not 2% but 6% or 10% depending on the way it is calculated?

That is a BIG difference. 2% inflation, compounded, cuts your buying power in half every 36 years . 6% inflation cuts your buying power in half in 12 years and at 10% inflation, it takes only 7.2 years. Is your after-tax income rising that fast? Probably not, so every year you fall further and further behind. If you are not making a lot of money in the stock market you are in trouble.

And it is even worse for the Millennials. Only 38% of this group owns any stocks. How will they retire? They won’t.

How Much Do You Have To Set Aside To Retire (In Comfort)?

How can the average American ever retire with interest rates at 2% or 3% and falling. If a family were somehow able to scrimp and save a million dollars, they would only receive $20,000 to $30,000 a year - before taxes on a safe interest-bearing investment like a bond or CD. Can you retire on that amount? And how many Americans do you think have saved a million dollars? Sure, you can add another $20,000 from Social Security payments and that ups the number to around $50,000 or so but that is a life style without vacations, without new cars, and one that hopefully does not have to deal with expenses from a major illness. How many Americans can afford long-term care insurance? Not many.

You may be one of the fortunate few who are situated well above these numbers. Many of our readers probably are, but even we are getting squeezed and our dollars are not going nearly as far as they used to. I’m on my third Porsche Carrera in the last 10 years and the cost has risen by nearly $20,000 for the same car. What would the BLS have to say about that? They would say I can drive a Chevy. Both are cars, so the cost has not gone up at all. That’s what they do when they “adjust” inflation “hedonically.” The computing power of your Apple computer doubled so the fact that the price may have also doubled is deemed to be of no consequence. And if the price of steaks rises, then you will eat chicken. See, no inflation. What you get is deflation – deflation in your standard of living.

The What and the Why

That is the WHAT. But I like to talk about the WHY. Being in my industry has answered the “WHY” question. “WHY” our standard of living is shrinking before our eyes. And when you understand the “WHY” you understand why people buy gold and silver.

Forget about what gold did today, or last week, or last month. Gold is not about “price and it is not about profit.” Gold is about being able to maintain buying power - over time. Please don’t accuse me of deliberately picking a time frame that is favorable to gold. Almost any time frame of a couple of decades or more would suffice. But I will use 1970 as a fair starting point for this discussion. Gold was the official backing of the dollar until 1971.

In 1970 I went to work for Target Corp. as an assistant buyer at a starting salary of $8,000 a year. A senior buyer at Target might make twice as much. Lou Kennedy, the toy buyer, told me, “My goal is to make $1,000 a year times my age.” In other words, when he was 25 he wanted to make $25,000 a year and when he was 40 he wanted to make $40,000 a year. That was a far-reaching goal in those days. It hardly seemed possible.

In the late 60s I built a lovely four bedroom colonial house in a new suburb for $32,000 and bought a new canary yellow Corvette convertible for $3,500. Then I moved up to a red Mercedes 280SL roadster for $9,000. (This was all pre-Target when I was making a lot more money.) An ounce of gold officially sold for $42.22, but you couldn’t legally buy it. It was illegal to own gold until 1975. In a few short years, gold exploded to $850 an ounce as inflation raged on – the result of the Viet Nam war and Lyndon Johnson’s social programs. In the 70s, rampant government did cause price inflation. These days, with trillion dollar plus annual deficits, they tell us debt doesn’t matter.

The “official” BLS rate of inflation since 1970 states it now takes about $6.50 to equal one 1970 dollar. So let’s revisit the prices I listed above and see if they are lying. Of course they are, but let’s check just for kicks.

My 1970 wage of $8,000 would be adjusted to $52,000. My house in the suburbs would be adjusted to $208,000. A new Corvette would now cost $22,750 and the Mercedes roadster would cost $58,500. I would estimate that my taxes have more than doubled, so you could calculate that in too, which would significantly reduce the net amount I had to pay for these things but whose counting?

The price of a house like the one I built in 1968 for $32,000 now runs around half a million (not $208,000). A new Corvette starts at $56,000 (not $22,750) and a Mercedes roadster comparable model to my 280SL world run $114,500 ( not $58,500). As my friend Backwoods Jack loves to say, “Confucius say Sum-ding-wong.” What’s wong is the CPI, which simply stated is a fraud.

Who Cares If Inflation Is Under Stated?

So who cares? It’s just a number right? Wrong. Our Social Security checks are indexed to the way-understated number. If inflation were officially acknowledged to be 6-10% guess what would happened to wages and guess how much interest the banks would have to pay you for your deposits? We are being lied to and screwed. And since gold is the Canary In The Mine Shaft, when its price rises too fast it signals inflation. Interest rates rise. Is it any wonder that the powers-that-be do everything they can to suppress the price?

Let’s Price Things In Gold Ounces

O.K. how about another example, one that is more recent. In 2005 Susan and I took out a $1,100,000 mortgage on a house we built in a lovely part of Minneapolis. I had a choice to make. Should I pay cash for the house and not have a mortgage, or should I keep the money and let the bank do the financing? At the time, gold was $500 an ounce and between my physical gold holdings and mining shares I could have cashed them out and paid for the house. It would have taken 2,200 ounces of gold to cover the cost of the house. I chose not to sell my holdings and instead took out the mortgage. Was that a good decision? Today the 2,200 ounces of gold is worth $3.3 million. It turned out to be a very wise financial decision.

The simple fact is – the government can’t print gold and the way things are headed with trillion dollar plus annual deficits,a $21 trillion dollar national debt, the debt ceiling recently eliminated; the amount of new money that needs to be created will accelerate inflation as far as the eye can see. I can see the 1970s all over again, especially if this administration gets us involved in another war in the Middle East. As inflation causes the dollar to lose purchasing power, the price of gold appears to rise, when in fact it does not – it just takes more dollars to buy the ounce of gold. Yes, gold does what it is supposed to, it preserves buying power over time. Most of my friends do not understand that and most of them do not own any gold. They think I am nuts. I think they are misguided. Only one of us is right.

It doesn’t matter whether you are Republican, Democrat or Independent; this should concern you. Take 5 minutes to watch. You'll be glad you did. https://www.c-span.org/video/?c4808035/googles-election

Bill Murphy says it’s only a matter of time until the Cartel can no longer source enough physical gold to keep the price under wraps. What is unusual is that gold has rallied without much help from the dollar. There is a new buyer out there with deep pockets.

Posted

The Blogger

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HAL SCHARN BLOG

Thursday, August 22, 2019

THE DOLLAR AND ITS FUTURE.

Sunday, August 18, 2019

DOJAH FOR PRESIDENT!