Friday, December 16, 2011

The Family of Debt versus The Family of Gold

With how many members of your family would you sign a financial agreement that says; spend as much of our money you like (a blank checkbook), even borrow more if required, and if you get over your heads we'll pay out the lot.

Not this parent. How about you?

But this is kinda like Europe's problem. The kids were given free reign with cheap euros, now the parents have to step in. But the parents are balking at the consequences. The Eurobond (agreement to bail out the family) is simply not going to happen. Daddy Germany and Mummy France will not cover the kids bad debt behaviour (even if they did provide them with the checkbook).

The only way out for this family is to restructure its debt by ending the European Monetary Union, creating separate currencies again and devaluing them where necessary. Over €2 trillion euros is coming up to be refinanced in Europe next year. Are there any buyers of this debt? Remember they had problems raising a meagre €3 billion for the EFSF last month.

And the US debt situation is continuing to deteriorate. $1 - $2 trillion deficits cannot last forever. Spending $1.60 for every $1 they receive. The Europeans are in the same debt laden boat. The Planners keep coming up with plans, but the plans turn into dust and more plans are required. All a part of what should happen in a system that is broken. Can't be fixed.

Like your children and their bad spending behaviours, it is the behaviour that needs to change. Perhaps they have to sell something on Ebay or get more work to cover the bills. Perhaps countries need to sell something and produce more wealth creating jobs. I'm a parent, and, through experience, the cure for bad behaviour is not acquiessence. It is setting strict boundaries and keeping them. The Europeans had strict boundaries on debt (a limit of 3% deficits for each member country) but let the kids put their feet over the line. There are always consequences for breaking smart rules.

The fiat currency system is breaking down. The family finances are in a complete shambles. The parents and kids have run amock. If you own and have physical gold, be glad of a 5% correction. Buy more if you can. Don't be concerned that a 200 day moving average has been breached. When paper wealth is finally destroyed, what would you and your family rather own?

Gold in New Zealand dollars: $2082.020 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $38.55 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)

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