Gold – Escape from Slavery
By: Axel G. Merk
Wednesday, 22 August 2012
Vice President Joe Biden was accused of racism when suggesting a Romney administration would “unchain banks” that in turn might put the black audience he was talking to back into “shackles.” The political uproar overshadows a reality that knows no racial boundaries: a person in debt is not a free person; a nation in debt is not a free nation. Does it mean those with large bank accounts are free? Not so fast…
We don’t want to downplay the horrific crime of slavery, but want to provide food for thought: debt is often taken on voluntarily; once taken on, however, one is forced to work to pay off one’s debt. To be unshackled from banks and creditors, investors may want to consider living debt free and owning gold. Let us explain.
Access to credit may fundamentally change one’s lifestyle. On the plus side, it opens the path to home ownership and access to capital goods, be that a car, or these days even a mattress or exercise machine. But it also makes the creditor, rather than oneself the boss. One symptom of the building credit bubble that caught my attention a decade ago was the rise of Spanish language billboards promoting mortgages. Proud immigrants in search of the American dream were lured into mortgages they could ill afford. Rather than focusing on feeding themselves and their family, the focus shifted to serving the bank. That shift only became apparent once the loan became too expensive to service, either because interest rates were resetting to higher levels or because someone lost their job and thus their income, but the debt remained.
Berkshire Hathaway CEO Warren Buffett famously discusses in his annual shareholder letters that the insurance business is a great business to be in, as policyholders pay him to hold money:
“Insurers receive premiums upfront and pay claims later. … This collect-now, pay-later model leaves us holding large sums — money we call ‘float’ — that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit. …”