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Old 11-28-2011, 01:58 AM   #1
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Imagine this scenario, what would you do?

Offshoot of a Jim Rickard's scenario in his book Currency Wars. Let's say you are well prepared living in a suburb of a major city. You have food/water/protection and have transitioned your assets into gold and silver. The dollar is collapsing. The US seizes all gold held in banks (repayment later to owners). Gold is at $10,000 and going up every day. Silver is at $200. Physical supply of PMs are scarce/non existence. The US will announce a new Super USD which is worth $10 of the old one and is backed by gold at $10000/oz. A windfall profits tax of 90% will be imposed on your capital gains from PMs.

At this point, what is the best way to protect your assets from going back to the government? Assume the crash was swift (gold $2000>10,000 in two weeks), riots rage across cities but there is still law and order across most of the US. It's very dangerous to be outside but it looks like we will make the transition.
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Old 11-28-2011, 06:04 AM   #2
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First, this scenario is one reason why I believe very strongly that people need to start contacting their Congresscritters and voicing their support for HR 1098. We need to put the government on notice that this won't fly. I've tried to contact Rickards (via twitter) and ask him his thoughts on HR 1098, but he never acknowledged my questions.

I would not sell any gold or silver under that scenario if I could avoid it. I'd let my children have that opportunity at some point in the future when sanity prevails and the laws are changed. I might consider moving some metals overseas in that scenario.
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Old 11-28-2011, 08:11 AM   #3
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It makes perfect sense for the government to enact a windfall tax. If the US government decides to seize gold from other countries by executive order, no one is going to stop them from taxing our gold. Look at Gerald Celente, a commodities trader with some power. When MFGlobal "lost" his money when he was making his physical gold purchase for Dec. delivery, he was powerless. Bottom line, we have no protection from the government even if we decide to purchase physical. If we can't profit from PMs, why go through the risks and perils of owning physical PMs?

When the dollar collapses, the billionaires/people with power aren't going to have thousands of pounds of gold in their homes. Even if its profitable, it won't be practical. They will have converted it into SDRs, Renminbi, or whatever else is considered safe at that point. Point being, no one (besides the gold bugs) are going to care that PMs are going to carry a 90% tax on it.

So again, I ask, if PMs will carry a 90% tax, what can we do to prepare for this situation?
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Old 11-28-2011, 11:22 AM   #4
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You said it right - in such a case it is not 'practical' - not from an above board 'investment' sense. For me it is a matter of survival, not investment or profit. I have always said that I am not "investing" in PMs, but rather "saving in them". Since I am not looking to "profit" from them, it's irrelevant to me. They are only valuable to me as a practical medium of exchange (i.e., "cash" purchases) that everyone trusts, regardless of scale government machinations.

Despite such a tax (and indeed, despite capital gains and other taxes already in place), the PM will still hold its value. A tax is just a way of attempting to siphon a value 'increase' that did not occur in the first place. It is literally a tax on a loss in value of the dollar, not a 'gain' in value of any PM. All that will do is prevent large, above board movements of PM, given that very few are stupid enough to simply hand over 90% of their wealth. Even when we had a 90% tax bracket, very few were paying 90%. But it won't affect day to day trading for goods and services, and not the long term value.

Such scenarios serve as proof of the axiom that if you don't own the physical, you don't own it (e.g., the location of all PMs in banks are known, and simply confiscated).

A 90% tax is an attempt to siphon value, but it is not an actual confiscation of PM. If silver is suddenly selling at $2000 per ounce in the increasingly worthless adjusted dollars, a "windfall" tax assumes that you bought your PM's in pre-adjusted dollars. What is to say that I didn't barter or make small purchases of my existing silver in adjusted dollars to get it? No windfall there. My holdings aren't known, and they aren't tracked by anyone but me.

PMs really are the longest term hedge for survival of your store of wealth. The idea that a "super-dollar" is somehow going to be stable is one that I seriously question, because I believe that a hyperinflationary spiral is already well in motion, and that we are witnessing the final death throes of the currency anyway. It would mean that a 90% tax was already levied on everybody, not just gold and silver bugs.

All that means to me is that the long term store of value will have to wait. You don't waive it under the nose of a starving and dangerous parasite. And I wouldn't want to be near ANY major metropolitan area under such a scenario, because if that's true, how to protect profits is not going to be the first order of business anyway.

...which brings me to your original question of how to prepare. And that's land...preferably farm land, and even a small amount, ALL of which will be at an absolute premium...away from metropolitan areas.
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Old 11-28-2011, 12:16 PM   #5
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You'll want your PMs outside of the country before the dollar collapses IMO.
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Old 11-28-2011, 12:29 PM   #6
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Originally Posted by dereksatkinson View Post:
You'll want your PMs outside of the country before the dollar collapses IMO.

I would spread it arround Switzerland, Hong Kong, Singapore and Uruguay.

Rickards book is great by the way!
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Old 11-28-2011, 12:45 PM   #7
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I guess you could potentially melt it down into jewelry if you are stuck in the USA.
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Old 11-28-2011, 03:02 PM   #8
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Originally Posted by dereksatkinson View Post:
I guess you could potentially melt it down into jewelry if you are stuck in the USA.
I would hold them outside the US until monetary reform is enacted, i.e. a sound currency. Once things get back to normal, you can sell your bullion in the foreign country for the local currency. Then you can convert the local fiat into the new US currency. That is basicly what my great grandfather did in Weimar Germany. He didn´t sell all of his gold (and silver), though. I still own some Swiss gold vrenelis (http://en.wikipedia.org/wiki/Vreneli) which he bought as protection against the German hyperinflation
This only works if we don´t get a global gold confiscation under some kind of supranational (i.e. UN/IMF) government. If this happens we´re stuck with the black market anyway.
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Old 11-28-2011, 03:06 PM   #9
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When this is happening you should not be selling PM's.

At this time the things we all need, will be the things of real value.
Stack some of em as well.
My stored saleable commodity is ag diesel.

The PM punt may fail completely, so be prepared for it.
On the other hand it could work out extremely well.
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Old 11-28-2011, 03:16 PM   #10
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Originally Posted by rblong2us View Post:
When this is happening you should not be selling PM's.

At this time the things we all need, will be the things of real value.
Stack some of em as well.
My stored saleable commodity is ag diesel.

The PM punt may fail completely, so be prepared for it.
On the other hand it could work out extremely well.
Cigarettes and seeds will also be a valuable alternative currency.
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Old 11-28-2011, 07:25 PM   #11
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I would be buying/selling/trading gold on the inevitable black market - and as a good trader, probably making a killing at it. Maybe that's because I have a kind of "different" background - play rock and roll for awhile as a pro and you'd know - there's a thriving black market for everything already, gold would fit right in just fine. After awhile, you learn how to recognize who does what without a word, and the chances of getting caught at most things are nil already - the alternate system is in place and thriving now. You can thank the "war on drugs" for that.

Most of my neighbors already do "grey market" as it were - trading this and that, never written down, certainly never reported to "the authorities", sometimes for "I'll owe ya one later" and it's gotta be 30% of what transacts in the boonies.

I recall there was once a thing called prohibition. How'd that work out for "them"?
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Old 11-28-2011, 10:23 PM   #12
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Great thread and great responses. A lot to think about.

+ $55,000 to the idea of having gold outside the country.

+ $55,000 to those of you who have or a re thinking of having remote farmland.

+ $55,000 to all of us keeping quiet and not selling (just giving it away to our kids / grandkids and/or trading it on the black markets).

I need to get to know my local black market... I should start a thread...
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Old 11-29-2011, 08:11 AM   #13
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Great feedback. Thank you everyone. After thought, I agree that there is going to be a huge black market if they imposed a 90% windfall tax so you would eventually be able to collect a good chunk of your investment.

Regarding, sending it out of the country before things go bad... what is the best way to do this? What is your exact plan?
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Old 11-29-2011, 09:57 AM   #14
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Originally Posted by Shelby-villian View Post:
Regarding, sending it out of the country before things go bad... what is the best way to do this? What is your exact plan?
I have family overseas so it's easy for me to just have them hold onto it for me. That's not an option available to everyone.

Another option is to deal with an offshore trust company. That has it's own risks because, most offshore trust companies wont take on US clients anymore. And if they do, you might not have any legal recourse.

It's also possible that you could simply relocate (again, not an option for everyone). Especially when you consider family obligations and relationships you have with your friends. Those can suffer if you leave the country. Sometimes people relocated for a 6-12 month period and establish banking relationships in a foreign country. Again, you are putting your gold at risk because it's inside a bank.

Ultimately, it's a personal choice on how you want to approach this and whether or not it's worth bothering with.
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Old 11-29-2011, 10:57 AM   #15
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I keep quiet about my PM's and trade them for goods in the black market. The government won't see a dime of that money. If they somehow get purchase records, I simply forge bills of sale dating before teh enactment of said wind-fall tax. (edited my moderator)
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Old 11-29-2011, 11:01 AM   #16
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Barter is probably a reason way around the tax and you'd probably be able to find a willing party.
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Old 11-29-2011, 12:43 PM   #17
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In my mind, sending things out of the country before things get bad doesn't solve any problems, really, just moves them around (systems-guy thinking). Dividing things up into chunks means more risk that at least one chunk will be compromised, and you'd have to make your own trade-off there.

First, what if it goes just as bad or worse there? It's all kinda connected these days.
There is already much talk about how all new finance regulation has to be across the board, to prevent people just moving elsewhere with deals newly restricted in just one place. Why would this be any different? Presumably things would be worse than now with more people calling for more drastic measures than just trying to get derivative trades through a clearinghouse.

Second, so, how do you get it back again? Or do you just have to go there, and if there is more than one place, hmm, getting pretty complex here. What's the risk to being able to cobble up your divided fortune into one piece again? (If you have so much that any one will do fine, alone, then I'm jealous, but not very sympathetic).

Third, unless it's family or very trusted other party, to me it has most of the same objections as paper gold. We joke about "oops, tragic boating accident" but that kind of course is available to institutions as well.

I agree keeping quiet - particularly as regards local or government threats is a wise place to begin. No one will confiscate or steal what they don't know exists, and they can't really afford to brute force search everywhere and everyone to find it.

A few inconspicuous burial sites around your location allowed to re-vegetate would seem to be a fairly hard nut to crack for an attacker. For security - no maps! Memory! The key of course, is inconspicuous. Your neighbors lawn in suburbia has too many risks there. But a national forest? (just don't bury it under someone's pot farm) Or the woods around my place? Not so much, no one would see you doing it.

In the hills here, there's land I'd bet hadn't been stepped on by a human for hundreds of years...just not worth the effort to go down and climb back out of some of the deeper swampy hollows that rarely see the sun.
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Old 11-29-2011, 02:43 PM   #18
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DC... I agree.. What good is gold if you can't convert it into something you actually need?

Barter is probably the way to go but if gold is trading at $5k an ounce, you are going to have to trade it to a trusted party. At that point though it kind of becomes tricky....
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Old 11-29-2011, 04:11 PM   #19
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And what would 5k (or much more) an ounce really mean in that case, if we use the long term historical assumption that gold is the thing that's really constant-value - it is pretty close from cowboy days till now (the old story of what an ounce would buy - a gun, a bath, a suit, a saloon girl). Though none of those would be quite as good today as what you'd have gotten then, I think. (Genuine Colt Peacemakers are around an oz of gold right now, all by themselves - you'd have to accept a used Glock today, to have any left over for the other stuff)

Thus the important ratio might be "loaves per gram" or something more like that, as if it goes sky high in dollars, what you really mean is that dollars are useless, and loaves are also sky high in dollars, right?

And once dollars have failed, the paper price of gold is kinda irrelevant - it will no longer track that junk in any meaningful way.

This has led me to ponder that while oz size coins are sure purty and very stackable, for small-scale trading, they're just too large a unit - I rarely spend a couple $k at the grocery store at current ratios (more like 1/10th that). Their advantage is that people would trust their authenticity, but they are just too big a trade unit for most things.

Think how little you'd need right now for enough bread for a week for a family -- who and how would handle making "change"? You'd almost need a microscope and micro-balance to consummate a trade for a meal or a few for a sliver of gold.

Junk silver looks more attractive on that basis, to me, for working with small amounts and random strangers. Diversity!

I'd never let any untrusted party know I had gold bars, or a big stack 'o coins, even if I had them at gunpoint (unless it was just after I shot them ;~). But you only need a few trusted parties to work with in the barter game - people you'd make large scale deals with - your equals.

For most commerce, I see little things going back and forth as they do now, unless and until people's supply habits change. So you might buy a trunk-full of say, tobacco, booze, or toilet paper - in a big transaction with gold, then trade those back and forth with the bulk of the less trusted people you'd be trading with...at least till they become trusted trading partners. Ditto, if you had a very large stash of something else valuable - I heard diesel fuel mentioned - you might take a large chunk of gold for it, but only from someone you trusted - after all, they know you have the big chunk of gold now.

I'm pretty sure Hollywood isn't much of a guide here, but imagine the situation of a multi-million dollar drug or weapons exchange - a suitcase full of bucks or diamonds, and whatever else. There is always some risk that one party will attempt to ambush the other and take away both. In real life, those exchanges are mostly not done in the Hollywood fashion - there's a lot of mutual checking out that goes on long before, and the relationships tend to be long-established and mutually profitable, which reduces that risk, but...we'd be on new turf in this situation. In the current large scale/organized crime sorts of things, both sides realize that it's the flow, not the amount of this one deal that matters overall, so there's little incentive to burn bridges.

That might not be as true - hungry people in survival mode can be a lot more vicious and not care as much past the meal that will save their life right now.

In the end, it still comes down to a lot of other things than simply owning a store of value. You have to be situationally aware, able to handle yourself in adversity, and a whole lot of other tedious "getting and being ready" to make any of these scenarios play out in your favor - even if it's not TEOTWAWKI. I encountered some of the same situations just homesteading in the boonies, talented, and with some valuable stuff, but basically dead broke and needing to interact with "all kinds of people" to make it here. I'd see this as the same, but everyone a lot more hungry and dangerous or desperate. So part of this, to me, is making sure I'm in a bubble of other people of like minds and preparedness -- the best security perimeter you can have, or so I think so far.

I guess this is why economics is often called the dismal science. But being a glass-half-full guy (with enough of a paranoid streak to consider worst cases, it's natural for any engineer) - my strategy is to inform and help my neighbors get on the same track and for us ALL to be really ready for hard times. I know, if you live in the city or even most of suburbia, this is near-impossible. It's one of the bennies of living in the boonies, in an old established situation.
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Old 12-13-2011, 04:48 AM   #20
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Originally Posted by DCFusor View Post:
Thus the important ratio might be "loaves per gram" or something more like that, as if it goes sky high in dollars, what you really mean is that dollars are useless, and loaves are also sky high in dollars, right?
...exactly, it is not that gold gains hyperbolic in value in times of troubles, it is the opposite way around - it is almost the only monetary equivalent that will largely HOLD its REAL value (and thanks to supply/demand laws, it will actually increase it's REAL value).

Just look at the historical monetary collapses, black market always thrives (man, I might even find my life experiences from communist country a life-saver in the future - although not so very happy to go back to "good old days"), and the "official" currency becomes worthless. Usually, some foreign currency took its place for all real-world (eg non-government approved/related) transactions. In Poland, it used to be a Dollar/Deutsche Mark - obviously illegal, but if you wanted to buy something quickly, for example a car - if you had them, you were sorted. If you haven't had them, well, tough luck, you were stuck in the queue with all others Kowalski's, waiting in the official waiting lists, for everyday's items, that you could eventually (when your turn happened - usually years and years of waiting for a car, or more than 10 years for a flat, forget about a house etc) buy for an "official" price (that was ridiculously low, in real life, if you decided to sell it off right away), using "official" currency (that was basically worthless, and exchanged immediately for ANYTHING that had some real-life meaning, if you happened to came across it somewhere - to be bartered later on with your friends/family/neighbors)

But in the current situation, there will be little to none trust in ANY currency after they start collapsing one after another (or all of them together), what's left, as universally, ALWAYS recognizable medium of value?

What is really important, how would the ratio of exchange look like for other items that you would like to trade for: for example, OZ/acre of arable land? Will it go up against land, or not? Against everyday items?

I presume it will - for one reason, there will be probably a HUGE investment demand (and I mean INVESTMENT, not trading here), and gold, unlike farmland, you can easily sell in as small hunks as you wish (I assume you don't own a 400OZ bars), whereas a farm, you have to sell as a more or less whole, and there will be preciously little people who could afford one and/or a credit - thus sending land prices down, IMHO. Regardless that people would starve and fight over food, actually, it might very well happen, that a lot of farmland will lay wasted (dependent on mechanization, not labor, plus no affordable oil to work it, and add foreclosures on heavily indebted big corporational farms etc.)

Back to the OP - correct me, but the "windfall tax" is only applicable when you sell your gold (and officially, brouhaha), am I correct? I wouldn't be too much concerned, I would just keep the gold. If the "new currency" is to survive, it will not leap back too much against gold, if it is to collapse as well, hmm - we are back to square one. Assuming you don't need to eat away your gold, just keep it. If you do need to eat it away - sell as little as you can in the black market, and make your living of it. Just be very, very careful. And try to get by with silver first, it doesn't draw as much attention, is much less risky, I suppose.

If you want to "eat away" a large chunk of your gold at once, and make some killing on it - let's say, buy a farmland etc. (I'll probably try to do something like that, as currently I am not prepared very well, apart from general DIY/handyman skills, some good few years of martial arts under my belt (unfortunately, catching the bullets was still in the higher class than mine), and few chests of hand/electric tools) - I cannot imagine, that any seller would oppose to be paid in gold, in such a case of a general turmoil, actually you might be able to secure much better deal, if you offer to pay in gold - thus you don't need to "sell" your gold for fiat, just bypass that step and go to the seller right away. No windfall taxes to pay other than capital gains/whatever applicable I guess, which you should be able to pay easily with the remains of your gold/silver sold on the black market. Again, you were not supposed to own dollars back then in the communist block (it was just illegal), but it never stopped them from being broadly accepted (and quite often, the ONLY accepted currency) in big transactions between citizens. Same will apply here, with the difference of names - dollar becomes a fallen fiat currency, gold becomes a dollar of yesterday (and one Iron Curtain away).

Regards,

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