Gold – Escape From Slavery

GoldSeek.com

Vice President Joe Biden was accused of racism when suggesting a Romney administration would “unchain banks” that in turn might put the black audience he was talking to back into “shackles.” The political uproar overshadows a reality that knows no racial boundaries: a person in debt is not a free person; a nation in debt is not a free nation. Does it mean those with large bank accounts are free? Not so fast…

We don’t want to downplay the horrific crime of slavery, but want to provide food for thought: debt is often taken on voluntarily; once taken on, however, one is forced to work to pay off one’s debt. To be unshackled from banks and creditors, investors may want to consider living debt free and owning gold. Let us explain.

Access to credit may fundamentally change one’s lifestyle. On the plus side, it opens the path to home ownership and access to capital goods, be that a car, or these days even a mattress or exercise machine. But it also makes the creditor, rather than oneself the boss. One symptom of the building credit bubble that caught my attention a decade ago was the rise of Spanish language billboards promoting mortgages. Proud immigrants in search of the American dream were lured into mortgages they could ill afford. Rather than focusing on feeding themselves and their family, the focus shifted to serving the bank. That shift only became apparent once the loan became too expensive to service, either because interest rates were resetting to higher levels or because someone lost their job and thus their income, but the debt remained.

Berkshire Hathaway CEO Warren Buffett famously discusses in his annual shareholder letters that the insurance business is a great business to be in, as policyholders pay him to hold money:

“Insurers receive premiums upfront and pay claims later. … This collect-now, pay-later model leaves us holding large sums — money we call ‘float’ — that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit. …”

Indeed, Buffett has said that he would never allow his firm to be in a situation where he is at the mercy of banks. It doesn’t mean he will never borrow money. But it means that when borrowing money, he always wants to be in a situation where he could pay it back if needed. Consumers have seen all too often that they only qualify for a loan when they don’t really need it. Jamie Dimon, CEO of JPMorgan Chase has said responsible banks act like mothers: they will decline your loan request if it is too risky for you.

One cannot be a truly free person with debt. While bankruptcy may have been downgraded to a mere business transaction in the U.S., some countries continue to put those that can’t pay into prison. The neighborhood surrounding Dubai’s airport has seen thousands of abandoned cars, often Ferraris or other expensive vehicles, as the formerly rich fled the country after their fortunes turned to avoid debtors prison.

Anyone is likely to argue that a nice pile of cash in a bank account will make one feel financially secure – some place that pile at $100,000. Some at a million; as a million bucks isn’t what it used to be, the wealthy often say they are not comfortable if they don’t have $10,000,00 or more. We have met people with very modest means that feel that are wealthy; and others that have lots of money, but don’t feel wealthy. Aside from the fact that some of them might simply have a distorted sense of reality, the wealthy often also carry a great deal of debt. Those able to manage their debt thrive in this low interest rate environment. But let even a wealthy person with debt hit a road bump, say lose a job (or face an obstacle in refinancing a loan) and such a person may quickly join the lower ranks of the 99%. In our assessment, highly accommodative monetary policy is a greater driver of an increasing wealth gap than the policies of either Democrats of Republicans.

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