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The Anti-Printing Press Currency
By Andrew Packer
We didn't always have government-run fiat money.
Indeed, money has evolved over the centuries because free-thinking individuals needed a common medium of exchange for their goods and services.
(Without money, you're stuck with the barter system. That means you must search for individuals who want what you have. If you're a fisherman, you must trade fish for everything…legal services, gas, produce etc. If you're a lawyer you need to find fishermen, farmers, dentists etc who need your legal services to secure what you need.)
As I wrote to you yesterday, money can be anything. Tobacco, shells, rocks, cigarettes, and cattle have all acted as money in some culture at some point.
What do all these things have in common? They're real, tangible things. More importantly for investors, you can't make these things out of thin air.
Unfortunately, you can't say the same thing about today's fiat money.
Governments and central banks constantly create more money. Although most money creation today is merely a few changes in some electronic balances, I still think of paper money as 'printing press currencies.'
And whoever controls the printing press essentially controls the wealth.
They get to be the first ones to spend it. Also, if you own a printing press, you can continue to print as much as you want, so you're not too worried if your actions cause rising prices. (That's something for the little people to worry about.)
But the Federal Reserve has a mandate to keep a 'lid' on inflation. If you just look at their appearances in the news, it always seems like inflation is the first thing on their collective minds.
Of course the reality is not so simple.
The Fed has been in existence since 1913, with the sole job of keeping our money stable. But the truth is price levels were much more stable before they came along. You can see the evolution of price levels below from 1665 onwards…
Just look at the difference in price levels before the Fed came along. Then we had another upswing in prices again, when you could no longer trade dollars for gold in 1933. (That's when the gold standard was abolished domestically.)
Clearly, anyone looking to preserve their wealth over the long-term needs to hold some of their wealth in anti-printing press currencies.
The two that best fit this need are gold and silver. And the best part is they're available not just as bullion, but also in coins that can have high numismatic value to further condense and easily transfer wealth.
The Money of Kings
Gold is the playbook investment to sidestep the excesses of printing press currencies. It's not great for small transactions where silver will do, but for a compact and portable store of wealth, gold fits the bill perfectly.
Yesterday I hinted about the three best reasons to invest in gold, but it bears repeating. Those reasons are China, India, and Russia. And the reason is simple. It's not because gold pays an alluring dividend, or because everyone expects inflation.
It's because of the reckless spending in the United States and Western countries. They all have this ridiculous notion that you can simply pluck economic growth off a shelf if you run the printing presses long enough.
Look, we all know where the dollar is going — and gold is measured in dollars. Even at seemingly high prices, gold is still substantially below its 1980 peak, which, adjusted for inflation, would be near $2,600.
In fact, since 1980, all fiat asset classes — leveraged real estate, equities, bonds, currencies, have seen a gain while gold and silver have seen real inflation-adjusted losses.
That makes silver and gold compelling anti-currency plays to avoid the excesses of fiat governments.
But frankly, I still like silver more. Let me explain…
The Money of Gentlemen
Silver gets a bum rap, but unlike gold it has no history of confiscation.
No country lists it as a reserve — which means the government can't manipulate the price by buying or selling.
And physical silver is estimated to have a market cap of about $2 billion. That makes silver about the size of one mid-cap stock. (By comparison, the market cap of Wal-Mart is about $210 billion.)
Everyone tends to write-off silver as more of an "industrial" metal than a "monetary" metal, even though it's really both. Silver is used in a wide variety of applications from photography to wiring... and everything in between.
And it's this industrial use that causes silver to get used up and destroyed… Whereas its sister metal, gold, seems nearly indestructible.
It's estimated that over 90% of the gold ever mined in human history exists today. The same is definitely not true of silver.
Indeed, above-ground silver is much rarer than above-ground gold, even though gold costs about 55 times more than the price of silver. Seems like a major price disconnect to me.
Especially considering this anti-printing press currency isn't stable like gold and it's actually rarer!
When gold prices rise, silver's price will rise higher on a percentage basis. Best of all, silver's lower price allows new investors to inexpensively and quickly build a large position.
And within that niche, there's also a collectible side to the silver market…
The Money of Collectors
Silver, gold… or even platinum or palladium… minted coins can develop numismatic value.
Generally, the rarer the coin and the better its condition, the higher it will be. My favorite example is the 1913 liberty head nickel. It doesn't even contain gold or silver… just copper and nickel. But only five of these coins were ever created. So the last time one of these coins traded hands, it cost a collector $3 million.
Now that's portable wealth!
Last week, I met with Van Simmons of David Hall Rare Coins, in my home state of California. It's also home to the Professional Coin Grading Service (PCGS), the first coin grading service in the world.
Inside their vault — essentially inside a bigger vault — were millions of dollars in coins being graded for individual investors and coin dealers alike.
I got a rare look into the arduous process, which involves multiple inspections by the top coin graders on Earth. When two graders can't agree on a coin's value, a third is brought in. And even that grade won't be final until it's verified by the master grader.
Rare coins have, like gold and silver bullion itself, still not recovered from their 1980 peak. Does that make them undervalued? In a world of printing press currencies? Absolutely.
More importantly, at the last market peak, the concept of coin grading didn't exist —PCGS started grading in 1987.
This means that there's a lot more knowledge out there accessible to the average investor looking to diversify away from printing press currencies. Coin guides can tell you the approximate value of a graded coin, and you can make your investment decision from there.
But it's not at all like day trading stocks or flipping currencies for a few pips. This type of investment is multi-year, possibly multi-generational.
It's one of the more interesting ways to diversify away from printing press currencies and preserving value for future generations. Any investor at least mildly skeptical about the power of printing press currencies should look into silver, gold, and numismatic coins.
Andrew Packer bought his first silver coins as investments when he was only nine-years-old. He currently serves as a leading researcher, writer and editor for our sister publication The Sovereign Society. To learn more about rare coins, visit www.davidhall.com/
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