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Then there’s Japan

Whatever may be said about Donald Trump, he is absolutely right to lament the one-sided trade deal with Japan.

For some reason, a load of your elected representatives (if you’re in the USA, but whatever country you are in, they are probably undertaking similar schemes and hoping you don’t notice), decided back in the late 1940s to gift Japan unfettered access to American markets, while simultaneously granting Japan the right to impose massive protective tariffs on the same types of goods travelling in the opposite direction. No wonder Japan was able to rise from defeated island nation to a huge superpower, where the imperial palace grounds in Tokyo were worth more than the whole of New York by the 1980s.

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The British Pound Sterling

To give you an example of how that paper you have
in your wallet, or digital bits on your banking homepage
screen have become distended from the real money it once
represented, just think of this – A British Pound Sterling was
once worth exactly what the words say – A pound in weight of
Sterling silver. As of the end of August 2020, the same pound
of sterling silver is valued at £282, or $376. That is 0.0035%
of its original value.

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How it Began

In 2006-07, originally as a hobby project, I wrote my first book, imaginatively entitled “How to Invest in Gold and Silver.” It was meant just to be a self-published work, distributed to a few friends and relatives, no further than that. However, in late 2007 and early 2008, strange things began to occur in world financial markets again, culminating with the BBC showing footage of people queueing outside Northern Rock, a UK-based bank, patiently waiting their turn to withdraw their savings from the bank in cash. These scenes looked exactly like something being replayed from history, familiar, common even. They were well-documented from a 1907 financial crisis in the USA when the imaginatively-named Knickerbocker Trust got into trouble, and history books tell us decisive action by the financier James Pierpont (J.P.) Morgan saved the day and more commonly-known, the 1930s in the aftermath of the 1929 Wall Street Crash. Only, whereas the BBC was subtly mocking them as fools and playing lots of footage of experts saying they were silly to worry, history showed something written in the book.

“Contrary to Popular opinion, banks do go bust.”

― Alan Dunwiddie, 2007

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Bank Holidays

Fractional Reserve Banking is responsible for something we all nowadays take as a positive thing because it means we get a day off work. Bank Holidays. The origin of bank holidays is historically based on banks taking a holiday from paying out to customers. They could tally the books during this holiday and ensure that they weren’t technically insolvent from having lent out too much money against deposits. The idea is that, if the bank was insolvent, they could call in a few favours during the day off and be in a position to continue the business, as usual, the next day of opening. If it sounds like something ancient, think again. The whole USA even had an eight-day bank holiday in 1933, after an emergency law was passed to stop more banks from going bust.

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Mary Poppins Bank Run

The 1964 Disney film “Mary Poppins”, starring Julie Andrews and Dick van Dyke, also demonstrates how a run on a fractional reserve bank works. In one scene, the bank manager sings about funding imperial projects like ‘railways in Africa’ and ‘dams in Egypt.’ The bank then snatches tuppence from a young boy who then shouts, “Give me my money back!” This prompts other bank customers to be concerned about why the bank manager won’t give his money back, and they begin demanding theirs, too, leading to the bank closing the withdrawal counters.

With the withdrawal counters closed, the bank accidentally spills a huge pile of gold coins on the floor, a subtle suggestion, perhaps, to help you realise they do have your money really. As long as all depositors don’t want their money back simultaneously, banks are fine. Trust is key.

The timing of this film is in itself interesting, if one digs a bit deeper. 1964 was a time when the public was beginning to have doubts about American superiority and dominance and with just reason. In 1963, the USA has 93 million silver dollars as security against silver certificates, but by 1964, it had dropped to 22 million. Also, the death of a president in 1963, one who had opposed the selling off of the nation’s silver reserves at $1.29 an ounce (it would be $50 an ounce 16 years later), was another factor in monetary change. In 1965, Lyndon Johnson signed the coinage act, reducing silver content in coins to 40% for half dollars and making the smaller coins, nickels and dimes, an inferior cupro-nickel alloy. Coin collectors and hoarders may be blamed, but we can guess the truth.

In reality, this story is little different to how the Roman Empire and countless others effected their thefts from the populace. Whereas once the bread and circus charade probably involved Gladiators wearing banners proclaiming the newly-debased copper solidus was “as good as gold”, we now have direct imagery hitting the brain. Disney certainly has a chequered history with possible abuse of it’s power that is worthy of special investigation. Then do you remember how 3 is the Magic Number? It seems it is for Disney too.

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It’s a Wonderful Life

Fractional Reserve Banking got a large mention in the 1947 film, “It’s a Wonderful Life.” In the film, worried depositors are seen turning up at the local private bank in a panic to withdraw their money. They also turn up to the small Savings and Loan institution run by James Stewart and try to withdraw their money.  He makes an impassioned speech explaining that their savings are loaned out to other members of his institution, reminding them that the private bank is not so generous or fair. Customers are unaware of behind the scenes machinations, where the large private bank is trying to put him out of business. He eventually backs up trust in the business with his own money and manages to survive.

There are clear messages in this film, also regarding Usury, large corporations, and community. The USA had suffered many bank runs in the 1930s, as worried depositors took out their dollars to pay for emergencies, or just to retain them as physical savings in their house. It’s estimated that by 1933, 9,000 banks had collapsed, so there’s no doubt this film would’ve meant a lot more to that generation watching it than us today. When it was released, the film was regarded suspiciously by the authorities, even as communist and subversive. It’s still as relevant, though, and well worth watching at least this clip.

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BullionVault

Founded by Paul Tustain, BullionVault sits somewhere between Goldmoney, for safety and Gold storage, and more traditional trading services.  Bullionvault is UK-based, although an additionally interesting feature is the ability to store your gold in their New York, London or Zurich gold vaults.  Dependent on which country you are a citizen of, you will probably feel most comfortable placing your gold outside of that country so that is not subject to your local government jurisdiction, so top marks for considering that feature.

An interesting aspect of the three separate vaults is that these could be considered as separate currencies in their own right.  For example, if at some point in the future there was a repeat of the 1930s US Gold confiscation, gold stored in a New York Vault might become priced significantly lower than gold stored in a Zurich vault, as US holders try to sell and place their gold outside their own jurisdiction.

BullionVault allows you to buy and sell Gold on their impressive looking trading platform, where buyers and sellers of gold from each vault can meet and state their required selling/buying prices, so if you are more inclined to hold gold, occasionally sell on a dip, then buy in again later, then this could well be the best service for you.

Their fees for transactions and monthly storage are really low too, so they are very worthy of investigation.  The storage fee is currently $4 per month fixed, regardless of holding size, and only payable for the months in which you held Gold.

Again, Bullionvault has proved popular with Gold Bugs accumulating gold for the future financial crisis they believe is in the offing.

Payment into BullionVault is by bank transfer.  Payment out is by bank wire transfer to your chosen bank account.

In recent years, they introduced a silver option.  That they took so long may have been something to do with BullionVault being UK-based and the UK charging VAT on silver sales, which could, to many observers, seem to be another example of government getting in the way of free trade.

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GoldMoney

This was the brainchild of highly-respected gold watcher James Turk.  Goldmoney was structured with a cast iron guarantee that there will always be 100% gold backing of every unit of currency (called “goldgrams” in this case) in circulation, and they claim that some others do not have the same cast-iron guarantees in their small print.  Whether this is true or not is hard to say, as for an ordinary investor the small-print is difficult to understand, but the discussions and articles available make interesting reading when deciding on the safety of providers you are considering.

Goldmoney, like e-Gold did, also tries to offer the use of Goldmoney as a medium of payment.  This however is not very heavily used right now, and the majority of investors are gold bugs simply buying gold and silver and holding it.

What could appeal to British or EU citizens about Goldmoney is that it is Jersey-based.  You may trust and understand the rules of Jersey more than those of the Caribbean or Panama.  This is not to say that other organisations are unsafe.  A US-citizen may just as easily understand Panama and believe it to be much safer than Jersey.

As time went by, Goldmoney has opened a variety of vaults to cater for the requirements of international buyers, including London, New York, Zurich, Singapore and Hong Kong.

GoldMoney also has a Silver option, and this represents an excellent opportunity for European Union buyers to buy Silver bullion without legally paying any VAT.  More latterly they also introduced the ability to hold the national currencies of Dollars, Pounds or Euros in your Goldmoney account and receive interest on it.  You can then switch your holding between any of the five denominations (including the two metals), as you see fit.

Knowing that it’s the fees that make investors poor and brokers rich, you are probably best off not utilising this feature.  The fees will quickly eat into your returns, and a buy-and-hold strategy is probably best.

Payment into GoldMoney is by bank transfer.  Payment out can be made by direct bank transfer.

One other aspect of GoldMoney worthy of mention is that at one point the terms and conditions said that if your account is not logged into for 12 years the ownership of your gold reverted to Goldmoney.  Okay,  it sounds unlikely, but consider what would happen if you died and never told anybody about your holding or even if you were unable to use the internet for 12 years due to some kind of accident or national crisis.

Overall, a highly respected organisation with the reputation of a known “gold-watcher” behind it.  Even if you don’t buy Goldmoney then there are articles available for free on the website that make interesting reading.

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Introduction to Gold and Silver

Gold has at all times been considered the best of testimonies of good faith

Rafael Sabatini

People have always wanted and needed to transact with each other.  In the beginning, it was barter.  The concept of “I’ll swap you these fish for some firewood”, or such like.  While it worked, it was clearly very restrictive and relied on two people needing a direct exchange.  What was really needed was a trusted store of value that could be used as payment for goods and services, over and above direct barter.  It started with sea-shells and stones that were used as currency, things that could be recognised and counted to account for transactions, moved to commodities like salt and then ultimately to Gold and Silver.  The English language even has some surviving remnants of this history with ‘shell out’, as a slang term to pay for something and ‘salary’ as monthly payment for work, originating from salt.

Gold (and silver) ultimately became the real units of currency upon which world trade is based.  Historically they have replaced all other forms of currency in civilisation because they are durable and not easy to replicate, so future value is relatively assured.  Gold is naturally scarce, so perfect as representing value – that ancient alchemy was about trying to turn lead into gold is no coincidence and the entire gold of the world would fit into a tennis court-sized cube.  Gold especially has a reputation for not tarnishing or rusting, and is even resistant to some strong acids, meaning that as far as a medium of exchange goes there is nothing, quite literally, “as good as gold”.  It’s also infinitely divisible in weight as a currency unit and an ounce of pure gold in the African desert is identical and therefore worth exactly the same as an ounce of pure gold in London, making it perfect for international trade.

Gold is, essentially, the perfect item for stored savings and to be used as a medium of exchange with another party as and when required.  You can take a gold coin as payment, bury it in the garden for 2,000 years and it will remain as shiny, perfect and representative of it’s true value as ever.  The 2,000 years may seem extreme, yet hoards of this age of gold coins turn up surprisingly often and are worth an awful lot of money.  Compare this to if the coins were made of a cheaper metal, they’d rust and corrode, often disappearing completely.

It started with exchanging pieces of gold and silver, but that was impractical so people learnt to melt them down into regular sizes, or weights, then into rounded discs called coins, or ‘specie’.  Paper money only came into being in the first place as a substitute for the practice of using physical gold and silver in transactions and the trouble of getting your shovel out to bury it then dig it up, perhaps.  What happened was that people deposited their gold with a bank, and then the bank would issue them with a promissory note, or notes for the value of their gold.  People could then use their notes to buy goods and the person receiving the note knew they now owned the amount of precious metal stated on the note. 

The real problems started occurring when people – normally banks, governments and forgers, began issuing extra currency backed by the same amount of precious metal, and, in 1971, the last historic link between gold and worldwide currency was removed by the USA, when they removed the link that 1 ounce of gold could be exchanged for 35 dollars and vice-versa.  Up to this time, gold had a fixed value in terms of world trade. 

To give you an example of how that paper you have in your wallet, or digital bits on your banking homepage screen have become distended from the real money it once represented, just think of this – A British Pound Sterling was once worth exactly what the words say – A pound in weight of Sterling silver.  As of the end of August, 2020, the same pound of sterling silver is valued at £282, or $376.  That is 0,0035% of its original value. 

It is also worth noting here that Gold is a purer representative of true wealth than silver.  Although both metals have been heavily used throughout history as currency and to represent wealth, Gold has few uses apart from as money, whereas Silver is a heavily used industrial commodity and that can affect its price and desirability outside of any investment considerations.  For example, back in 2007, some commentators were convinced that the rise of digital photography and the resultant downturn in traditional photography would result in a massive decrease in demand for silver, affecting the price negatively as a result.  This may or may not have occurred, as silver did experience some major shifts in price versus fiat currency in the period 2007-2020.  However, silver has many, many other uses, including electrical components and such uses are only increasing as technology increases.

To put the importance of gold in perspective, imagine you time-travelled back to 1910, almost anywhere in the world.  The people were transacting with gold and silver and there was even something called a ‘Gold Standard’, for international trade.  In practice, this meant that gold physically moved between countries according to the balance of trade between those countries.  If you had a deficit, you lost gold, if you had a surplus you gained gold.  In other words, a nation state was just a larger version of how we all run our own household finances.  Now, imagine that as part of your time-travelling visit,  you tried to pay for something.  Having first noted that there was no card terminal for you to tap or even enter your PIN on, no mobile payments, you tried using the modern equivalents of some of the coins in circulation.  People may have looked at your legal tender dubiously, noting they were made of steel, nickel or paper and therefore not worth anything like the coins they were used to – the silver shillings or dollars, the gold sovereigns, all with real intrinsic value.  Who was more financially aware, them or us?