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Frank Dunkle
With no signs of the economy improving anytime soon, gold prices are soaring"and many are looking to precious metals to save them from ruin. How do we prepare for financial disaster?
The Bible provides the ultimate investment advice.
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You’ve no doubt heard the commercials. Gold may reach a price of $2,000 an ounce. Companies that deal in precious metals are urging anyone who will listen to buy now. Dollars are in danger of rapidly losing their value - and so are pounds, euros, yen and just about any other money you might think of.
Conservative politicians have a similar message: profligate government policies are damaging economies and seriously devaluing currencies. Their solution, ahead of your making financial investments, is that you give them your vote.
What should we do? Does the Bible give us any insight into how to prepare for financial disaster?
Before answering, let’s consider whether or not the situation is as dire as some say. As of August 3, 2011, the public debt of the United States stood at $14.34 trillion, far more than ever before (with $9.78 trillion held by the public and $4.56 trillion in accounts held by the government itself). Public debt in America is hardly new. The U.S. government was in debt from the start, having borrowed millions to finance its War of Independence. Since then, the federal budget often ran deficits, with occasional surpluses. During the presidency of Andrew Jackson the debt was completely eliminated for a time, but wars and disasters have always increased the size of the public debt.
During the Civil War the public debt passed $1 billion and topped $3 billion by the war’s end. World War I pushed that number past $25 billion, though it shrank significantly in the following decade. The Great Depression and World War II grew the debt from $16 billion in 1930 to $260 billion in 1950. Matching the rate of inflation, the public debt grew to more than $900 billion in 1980, and government spending dramatically increased thereafter. It passed $3.5 trillion in 1992, rose to nearly $6 trillion by 2000, jumped to nearly $11 trillion in 2008, and continued its dramatic climb to a current level above $14 trillion.
What do these numbers mean? Billions and trillions are numbers beyond the comprehension of most of us. One way to think of it is that the size of the U.S. debt is nearly that of the country’s Gross Domestic Product (the total value of goods and services produced in the nation in a year) - that is, 96 percent of a GDP of $15.003 trillion at the end of June 2011 (debt held by the public standing at 65 percent of GDP). And this doesn’t take into account government obligations to social programs such as Social Security and Medicare. Adding those commitments would bring U.S. public obligations to approximately $62 trillion.
This is hardly a problem for America alone. Within the eurozone, Greece, Ireland and Portugal have needed bailouts from partner countries to prevent national insolvency. Spain and Italy face similar problems, and efforts to relieve the crisis have had limited effect. But what does this have to do with buying gold?
To put it briefly, several governments owe more money than they can reasonably expect to repay. This has become painfully obvious in Greece, and some say the United States is quickly putting itself in the same situation. Tax increases are unpopular with voters, especially since they simply give government more money to spend. Spending cuts are unpopular with the masses of people who benefit from government programs - consider the protests and riots in Europe over proposed austerity measures.
Another way a national government can relieve its debt burden is to artificially increase the money supply. This inflates the currency, making each unit worth less in purchasing power. Yet while the value of the money falls, preexisting debts remain payable in the same number of currency units, as established by contract. Thus, the U.S. government can repay loans with dollars worth considerably less than when borrowed. This is why people holding home mortgages, student loans and other long term debt don’t mind a little inflation. However, homeowners and students do not have any control over inflation, as a national government does.
When a government deliberately inflates its currency, through programs like “quantitative easing,” it is really enacting a tax of sorts on everyone who holds money in that currency. That is why some investors have purchased large amounts of gold or other durable assets. It makes sense to store wealth in a form that cannot be arbitrarily manipulated. But is gold really as safe as some people say?
That depends on what level of safety we’re talking about - and the viability of the global economic system itself.
There is an old joke that says: If you owe your bank $500 and you can’t pay, you’re in trouble - but if you owe your bank $500 million and you can’t pay, your bank is in trouble! This may be funny as a joke, but how does it work when the one who can’t pay is a national government and when the creditor is not just a bank but a mixture of investors: companies, individuals and other countries? If you as an individual default on a major loan, you may be taken to court, have assets seized and conceivably be jailed. But what’s the outcome for sovereign nations?
When a nation defaults on its obligations, the result is often revolution or war. The entire social structure may disintegrate. Institutions crumble. In the 1920s the economy of the Weimar Republic of Germany failed, hyperinflation set in, and soon the Nazi regime took power. Given the current state of things, the protests and demonstrations occurring in Greece and Spain may end up being among the least harmful results of the sovereign debt crises. Could revolution or war overturn government and society in Europe and the United States? Could such a catastrophe lead to nuclear conflict and mass destruction? If so, will it be better to have gold and silver than dollars or euros?
Longtime readers of this publication know that Bible prophecy foretells cataclysm at the end of this age before God Himself intervenes to establish a new, better government. While many details of coming societal collapse are not explained, Scripture does provide some surprisingly specific ones. One of these can be found in Ezekiel 7:19, which says, “They will throw their silver into the streets, and their gold will be like refuse; their silver and their gold will not be able to deliver them in the day of the wrath of the Lord.” Evidently there will be nothing to buy - or at least no functioning marketplace for the multitudes in this predicament.
This reminds me of a historical account of the conquest of the Incas by Francisco Pizzaro in the 1500s. When the Spaniards continued asking the natives about their gold and silver, the Incas asked why they wanted it so badly. “Do you eat it?” they asked. “Does it make you immortal?” One might ask similar questions of modern investors. If the economy and/or society collapses, can a person eat gold any more than he can eat bills of exchange?
Of course, the answer is no. But gold could be traded for food or other necessities when paper money loses value while society still functions. I do not seek to discourage anyone from investing in gold or similar assets, merely to put investing and money management into perspective.
There is much wisdom in finding investments that will serve as a hedge against inflation - along with other prudent planning for economic crises. “A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences” (Proverbs 22:3; 27:12, New Living Translation). Being prepared will also put you in a position to help others.
But there are times when even the most valuable and durable of commodities become worthless. Those times include the end of the world - whenever that may be - but also the end of your life. Although you hope the latter is still a long way off, it’s impossible to know for sure. The Bible provides the ultimate investment advice that is good for either event.
It is simply this. Jesus Christ said, “Do not lay up for yourselves treasures on earth [including gold] where moth and rust destroy and where thieves break in and steal; but lay up for yourselves treasure in heaven, where neither moth nor rust destroy, and where thieves do not break in and steal” (Matthew 6:19-20). Of course, there is no stock market or exchange where you can buy treasure in heaven. Obviously, Jesus meant that we should build the treasure of righteous character and of a relationship with God. Such things cannot be purchased; they must be developed through a way of living.
The Bible teaches that way of living, and you can read and understand it. Download or request our free booklets How to Understand the Bible and Making Life Work for some guidance on how to lay up that treasure in heaven. And for some basic financial guidance, be sure to read our booklet Managing Your Finances.
In the meantime, what about your investments? Is the end of the world near? Some say it is - but it has seemed that way before, and things improved. It is certainly not a sin to buy gold or invest for the future. What you need to ask yourself is: What are you preparing for? Is it a downturn in the economy or the complete breakdown of society? Gold might be useful for the former but utterly useless for the latter. Treasure in heaven will always be a good investment.
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Keywords: gold investment inflation hedge U.S. economy economics macroeconomics government debt inflation treasure, real
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