"Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights." - Alan Greenspan
Think that $20 bill in your pocket is money? Think again... it isn't! Real money has three very distinct attributes:
* It must be fungible
* It must be divisible
* It must be a store of wealth
Lets look at these attributes one at a time.
To be "fungible" an asset must be exchangeable for another of equal value. The best example of a fungible asset is gold. My 1 oz gold bar is worth exactly the same as your 1 oz gold bar. The same goes for silver bullion bars. Why not use diamonds or some other gem stone? Simple - diamonds are a product of nature, and come in many different qualities. Diamonds have different colors, flaws, clarity, etc.... An ounce of gold, on the other hand, is minted to a specific weight and purity.
Divisibility is another important aspect of money. True money must be divisible so that you can make small purchases. Through out history, silver coins have fulfilled this role. While gems have value, it is not practical to use them for daily business activities. You can't buy a loaf of bread and expect the seller to make change for a diamond.
Last - true money must be a store of wealth. The dollar in your pocket has lost 97% of its purchasing power since 1913, the year the Federal Reserve took over our banking system. Here is a frightening fact: The current rate of real inflation is about 6% a year. If you have 100k in the bank right now, it will only be worth 53k 10 years from now. Clearly, the dollar is not a store of wealth.
How did paper money lose it's ability to be a store of wealth?
Prior to 1971, our currency was backed by gold. In theory, one could go to the bank and exchange paper money for gold or silver. (Private citizens lost that right in 1933. After that time, only foreign creditors could exchange paper for gold). In order to preserve the nations gold hoard, President Nixon closed the gold window. Now, paper money was not backed by anything at all... this paved the way for inflation through reckless money printing. Since it was no longer exchangeable for gold, the government could print as much money as it needed. The flood of new money in the market place drove up prices. Homes, cars, and everything else became more expensive.
The dollar in your pocket no longer money - it is fiat currency. Fiat is a Latin term that means "by decree". That bit of colored paper only has purchasing power because the government decrees it. The longer you hold it, the less buying power it will have.
Now lets consider the purchasing power of gold. Soon after Nixon closed the gold window, the price of gold averaged $42.02 per ounce. To buy a brand new 1976 Cadillac Eldorado (retail price $7,546) would have cost you 179.58 ounces of gold. Years later, in 2006, a similar car would cost $77,295. The price of gold averaged $443.60 at that time. For the same 179.58 ounces of gold, you could buy an XLR and still have $2,367 left over to buy 739 gallons of gas!
Lets look at this another way. Rich Uncle has 2 nephews. In 1976 he spends $420 to buy 10 ounces of gold for one of his nephews. For the other boy, he places $420 in an envelope. He spent the same amount of money on both boys. Now, in September 2010, the price of gold is hovering around $1,250 an ounce. One boy has an inheritance worth about $12,500. The other boy has $420. Which would you rather have?
While it is true that the price of gold and silver has daily price fluctuations, it still the best store of value on the planet. Do not loose your wealth to mounting inflation - choose the hard assets that have stood the test of time.
Silver Bullion Bars PAMP Gold Bullion
Article Source: Thomas Delgato - RampartSilver.com
Article Source: http://www.articlesbase.com/investing-articles/gold-silver-protect-your-wealth-from-the-ravages-of-inflation-3195386.html
About the AuthorRampart Silver is dedicated to helping Americans preserve their wealth from the ravaging effects of inflation.