A friend called Friday asking about investments. I told him I don’t give investment advice. But we chatted about how precious metals are an ultimate form of liquidity, a safe harbor when investments that rely on the promises of men (stocks, corporate debt, T-bills) go into steep discount.
Whenever a crisis of confidence hits the economy, the system seizes up, as it did in the 2008 meltdown. Assets not trapped in the system flee to safety — namely cash. A stampede to the exits heads into cash — generally considered to be short-term U.S. treasury bills, money market funds, checking or savings accounts, cash or precious metals. As I suggested in the “liquidity pyramid,” gold and silver are the ultimate money, leaving cash and T-bills in the dust.
The next day four stories in the Chattanooga Times Free Press suggested the depth of the national crisis. Two of them are about bankrupt federal agencies whose lifeline is you, the taxpayer, and which are involved in guaranteeing private and corporate debt. ‡
➤ “Leaders trying to avoid fiscal cliff.” Massive tax increases take effect Jan. 1 unless Republicans and Democrats that control the U.S. government can compromise over taxes. The lead of the story mentions “fresh optimism” about a deal. Economist Gary North and others are not optimistic.
➤ “Pension insurer runs record $34 billion deficit.” The Pension Benefit Guaranty Corp., a federal agency that backs corporate pensions, had a deficit in 2011 of F$26 million. Now it’s F$8 billion more, with no end in sight. The agency has run in the red for 10 years straight taking over pension plans from outfits such as Olan Mills Inc. in Chattanooga, Friendly Ice Cream Corp. and a law firm, Dewey & LeBoeuf.
➤ “Officials hopeful fed housing agency can avoid bailout” The story says the FHA, the Federal Housing Administration, ended its last fiscal year with F$16.3 billion in losses “which would require an infusion of taxpayer money into the government agency for the first time in its 78-year history.” The outfit’s role ballooned during the meltdown from 2007 to 2009, when it took on its load of rotten mortgage debt.
➤ “Out of business[;] blaming strike, Hostess to layoff 18,500.” A Page A1 story Saturday is about the collapse of the maker of Twinkies and other junk food. This item is separate from the crisis spawned by commercial government at the federal level. But it suggests economic agonies are intensifying.
‡ The scriptures warn against guaranteeing other people’s debt, a divine law the FHA and PBGC ignore. “My son, if you become surety for your friend, if you have shaken hands in pledge for a stranger, you are snared by the words of your mouth; you are taken by the words of your mouth. So do this, son, and deliver yourself *** “ (Prov. 6:1-3). “Do not be one of those who shakes hands in a pledge, one of those who is surety for debts; if you have nothing with which to pay, why should he take away your bed from under you?” (Prov. 22, 26, 27).