What if the future of anti-crisis investments involved virtually managing real gold?

The economic crisis that came to the surface in 2008, whilst not being comfortable, had at least brought to our attention many shortcomings, whilst today there is not the panic, the underlying causes still have not gone away and the risk of systemic failure is still real. States and governments for decades had great faith in the financial establishments, banks, credit agencies, specialised savings companies (some even public); but short comings and failure occurred again and again.  Billions of pounds of our money went into bailing out many of our best known financial institutions and even paying out to ordinary British investors who put their money into what was thought to be the safe haven of Icelandic banks, that fell in a systemic collapse that left the county bankrupt. Not only were the small personal investors caught out but to a greater or lesser degree so were many of our local government administrators, who lost millions, causing a shortfall in local services. Should Iceland pay this money back to Britain, morally yes, but they have voted overwhelmingly no and I can understand this as “charity begins at home”.

Today the fear of investors, and ordinary people, is still not so much knowing whether their economies are reasonably successful but knowing that they are simply not volatile.  We know that the UK government guarantees bank deposits up to £50,000 per person per banking licence, but to what extent?  What if a massive failure, that the Madoff case should have put an end to, occurred?. What if the largest UK banks went into liquidation?   How much would these guarantees be worth for the public economy when compensating for tens of thousands of people?  Wouldn’t Great Britain itself then become bankrupt as happened in Iceland?

Even those that don’t have £50,000 in the bank and they are the majority; but even more so amongst those who do or have even more than £50,000, there are a growing number of individuals who no longer have confidence in banks and who when all things are considered prefer to empty their bank accounts and retrieve their gold to protect their “nest egg” at home “under the mattress” . It is less secure even without taking into consideration the risk of fire, flood, theft or any other disaster, but ultimately, are these risks, even combined, really higher than seeing the bank collapse and then seeing the State being unable to meet the guarantees it has given?

Another sign of the times is the growing Internet trend of institutions that can be described as “semi-banks” such as Paypal, Moneybookers or Google Checkout.  Each day, millions of transactions are carried out between individuals and professionals that are beyond the control of banks (no cheque, transfer, or bank card transaction) but also delivery services (no cash either!)

100% virtual, what a good idea.  After all, thanks to debt-money, which is what banks have been doing for decades, you borrow money that has never been struck (in the technical sense of the term) and only as a last resort (withdrawal from a cash machine or bank) do you convert it into tangible money.  Besides, even your salary is virtual.  It is nothing more than a set of records between two banks, via the intermediary central bank (which we call the clearing house, which never compensates pound for pound, for reasons inherent to the monetary system).

The best formula and the most reassuring, is without doubt the most balanced.  It would be to combine virtual, with secure and tangible assets (gold, silver etc), which are more secure than the bank system.

“Gold is not an investment, it doesn’t earn anything.  It’s a security blanket when monetary markers disappear.  Which is the biggest risk: having gold or not having gold? Not having it of course.”  – Simone Wapier Chief editor MoneyWeek

Maurice Hall

Tags: crisis, Economy, Gold, Investment, Money

This entry was posted on Thursday, March 11th, 2010 at 10:59 am and is filed under Economy, Gold, Great Britain, Investment, Money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.