I sent my local Social Security Administration office a letter. In this letter, I asked how I might go through the process of opting out of Social Security.

And I meant it. I just want out. I don’t want Social Security checks when (if) I retire. I don’t want their brand of disability “insurance.”

I don’t want any of it. I even gave them what I consider to be a pretty fair deal. I told them in the letter that I would lay no claim to the wages they have already taken from me. The 12.5% of my income they’ve already taken is gone, and there’s no sense in asking for it back. After all, I hadn’t yet asked to opt out of their program, so it wouldn’t be fair of me to ask for it back.

I’m a reasonable person.

I figure I’ve paid the Social Security Administration somewhere between $20,000 and $30,000 of my earnings so far – but I lay no claim to this princely sum. Consider it a gift, Uncle Sam.

I just asked to be let out of this social contract – I don’t pay anymore of my money into their program, and they scrub my name from their beneficiary list.

Now, I readily admit that I wrote this letter for entirely selfish reasons. But they started me down this road when they sent me a letter this past February. In this letter they sent me, I believe they already admitted that our contract is forfeit.

In it, they wrote:

In 2016 we will begin paying more in benefits than we collect in taxes. Without changes, by 2037 the Social Security Trust Fund will be exhausted and there will be enough money to pay only about 76 cents for each dollar of scheduled benefits.

So, you can see how I might be concerned. It sounds to me like the Administration is planning on BREAKING its side of this contract. Never mind the legality of forcing me into this contract in the first place, or the morality of letting this “Trust Fund” bleed into the coffers of other facets of Government.

They outright just told me that they will not have the means to honor the contract they forced me into.

In any other real world situation, I could opt out of this contract on the basis that the other party freely admits they have no ability to honor it. I might even be compensated for the time and money I’ve put into the fund, or not. But in any event, there isn’t a court of law in this land that would hold me to this very same contract that I now seek to break free of today.

By the way, I’m 30 years old. I’ll be extremely lucky if I can retire at the age of 57, when the Administration says they’ll begin cutting back benefit payments. When I retire, it’s likely that the benefits will be even further cut. But to be honest, I have zero faith that Social Security will last even until 2037. That’s besides the point.

So, I wrote my foolish and admittedly selfish letter.

And I received a response:

This is in response to your letter asking if you can opt out of Social Security. The answer is no.

I received this response in an extremely timely fashion from someone named Tara Scopa at the Social Security Administration Office in Montpelier, VT.

And it gives me great pleasure to say it, Ms. Scopa, but you are 100% wrong.

I can opt out of Social Security tomorrow. I can stop paying the 12.5 cents of each dollar to you and your government. I can end this unfair, illegal, immoral seizure of my property. I can stop paying you. I should stop paying you.

And to do so would be difficult, but make no mistake: it’s within the realm of possibilities.

For anyone who is reading this who wants to opt out of Social Security, here’s what you have to do.

You have to renounce your citizenship. Here’s how:

A person wishing to renounce his or her U.S. citizenship must voluntarily and with intent to relinquish U.S. citizenship:

1. appear in person before a U.S. consular or diplomatic officer,
2. in a foreign country (normally at a U.S. Embassy or Consulate); and
3. sign an oath of renunciation

When you renounce your citizenship, it would be a good idea to have a plan in place to become a naturalized citizen of the country where you perform the renunciation. You should also not expect to return to the United States without going through a rigorous visa process.

There’s another way to opt out of Social Security – and that’s to become a tax cheat. In order to do so, you would need to be self-employed and operate a cash-only business, or become a contractor and simply falsify your taxes to avoid paying into the Social Security fund.

To be honest, neither of these options are very attractive. I realize the difficulty of most Americans to pursue either one of them. But I wonder how much longer these options will remain unattractive when the alternative is to pay more than 1/8th of your wages into a failing system, with absolutely ZERO recourse for opting out in a legal way.

How much longer will people like me put up with this wholesale theft? How much longer will people like Tara Scopa tell us what we can or can’t do? Wouldn’t it be beneficial to let ANYONE opt out of this program today – if it will soon become untenable?

But let’s get down to business.

If you’re nerdy enough to get my reference to Dr. Jean-Luc Picard and his frequently spoken tag-line, well, then my work is done.

But in the case you don’t “get” jokes, just stop reading now. It’s not frequently that you’ll get such bold advice from a blogumnist.  My ad-revenues highly depend on the sustained peeper-lockage onto this very world wide web page.  So take this permit to wander elsewhere as a welcome reprieve from my usual demands for constant page clickery.

But if you got the lame joke, and you’d like to read more, please click all over this screen and perhaps I can afford to keep running this site, bringing you, my reader continued joy from the type-d word.

Back to the news: F-Brian finally conjured up enough California nuts to axe out my cousin Lauren for a permanent date with living together in boredom and mortgages and arguments about where the “nice” steak knives should go.  It’s the world’s most longest running exercise-in-minutiae-debate.  The old “hey why do you insist on being so much like yourself?” game.  The people version of BOGO.

I’m talking about marriage-hood.

Well, I’ve been there for almost a whole year now, and I have to say that I retroactively agree with my decision, and by extension, F-Brian’s seemingly well-conceived plans.

I did not Freudianally just include the word conceived, it was as they say a planned pun that I thought of ahead of time and decided to use for that explicit purpose.  That’s not the right phrasing for that particular word-play explanation, but it’s late and the wine flows and Lost just ended and I’m more confused about anything than ever.

So as we herald in the death of print journalism, and broadcast television, and the American growth economy, and probably the dollar and the euro and then maybe the very notion of western hegemony, it’s good to see that some things are staying the same.

I remember the first time I met Brian F. Ramish (Ramisch?) just like it was a few years ago or so.  He was drunk.  My uncle Michael McElroy allegedly made him to be so drunk.  In any event, and no matter whom made whom guzzle wine through a trick glass with more wine in it than initially appears to be in it; in the end, we all know him by his middle initial better than we know ourselves, possibly: F.

F is in our minds when we think of Brian F. R.  Just as the circus enters the brain as we think of P.T. Barnum, or Good Times flashes to the noodle while we watch late night TV and we remember the easy credit ripoffs.

We can all kind of agree and say it now while it would have been awkward at any time previous, but Brian F likes to say the word fuck.  I’m sorry, what an embarrassing typo.  Brian LIVES to say the word fuck.  He says it not so much as an exclamation, as a period.  It ends literally every sentence out of his mouth.  It’s harder to type, but for Brian, it’s less hard to say it than it would be to stop breathing air or to stop having awesome facial hair.

It’s a good word, I guess, and you could certainly pick a worse favorite word to spend every other calorie of your existence saying, but it’s a little bit ironic that he would pick a word to favor that least best describes what he’ll be doing as a modern married man.

I’m going to round out this blogumn with another Star Trek joke for all of you folks who hung in there despite nothing but rambling self-congratulatory references and terrible puns: I think it’s great that Lauren decided to let Brian become her number 1.  She could have got all Ferengi about it but hey, she’s a real vulcan lady and it was about time she settled down and didn’t worry so much about the prime directive.  Etc.

Today, I’m going to write on a topic my reader(s?) have been begging for: nevi.

You might know the phenomena from its more colloquial terms: permanent poo marks, aka potential skin cancer, aka gross epidermal spots, aka moles.

My sister Beth has axed me to write about this topic many, many times, although the number of times she’s asked me still falls short of the number of moles on her body.

A long time ago, Beth counted the moles on the least moley of her arms, and the number was an astounding 56!  I have to wonder what exactly kind of marijuana my parents were smoking when Beth was conceived, but it must have been some hairy stuff.

So moles.

According to this gross website I was looking at that’s all about moles, they grow faster when you pick at them… or it might have been the other way around.

Anyway, just look at this gross picture.

oh no no no... you just, just no

That lady(?) has some seriously poopy looking moles on her neck.  I just wanna take a kleenex and wipe ‘em off.

She won’t ever get married.  Maybe to a blind man with no hands or feet or money.  If you get closer to the picture, you can see the top mole, the alpha mole, kind of crossing its arms in defiance.  The omega mole underneath is just there, showing off its inevitable presence.  Both of those moles, I bet, have cancery tap roots running so deep that if you pulled on it would just unravel this lady like a poorly knit sweater.  Those things are bleeding her dry and putting all of her calories and bloodflow to work making melanin and lumpy flesh folds.  I bet she’s really thin.  Her moles throb and she gets hungry and eats a bunch of dark protein-rich food.  She goes through a pound of beef jerky a day.

Okay, so moles are p. gross, but the worst part about moles is that they can totally go “rogue” like Sarah Palin and kill you.

this lady didn't pick enough

But they don’t have to kill you.  My message today, is that you don’t have to let the moles win.

By now, most of you are hopefully at least scratching your moles, or maybe frying them in the sun like fat, hapless ants under a magnifying glass.  If just one of you takes a pair of pliers and pulls one of your potentially melanomic moles off and puts it into a baby food jar for “later”, then I feel like my whole existence has been worthwhile.

If just one of you buries a hot match-head into one of your moles and squelches its life, then I’m fully prepared for the bounty of my great reward in the next life.

A life free of the tyranny of moles.

http://voices.washingtonpost.com/ezra-klein/2010/05/galbraith_the_danger_posed_by.html#comments

Interviewed by Ezra Klein, James Galbraith demonstrates either a depth of satirical wit that has never been seen before or a level of incompetence and ignorance that has been seen many many times.  I’m going with Occum’s Razor and also going to choose option B, but decide for yourself.  We will start with the response to the second question

What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn’t be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis

I’m going to start you off with a concept so advanced that teaches often have trouble explaining this to 4th graders without the aid of candy bars, opportunity cost.  Ok, you already know what opportunity cost is so just apply it to markets.  Buying a Treasury bond in not a statement that you think interest rates won’t rise beyond the current rate in the future, its a statement that Treasury bonds are a better choice than you other options with the marginal dollars you spent on them.  A person could believe that interest rates were going to rise and still thing a government security was the best investment so the only inference you can make from government interest rates is the relative performance of government bonds in the near future and not the absolute future price of government bonds.

Secondly this concept only applies under a free market.  Market expectations can be distorted by government manipulation.  A short while ago there were many large banks on the brink of insolvency who were given a reprive by the suspension of mark to market accounting.  These banks were essentially given an indefinate period to repair their balance sheets.  Morover there were many central banks in the world lending money at roughly zero percent interest.  Lastly we have the fact that capital requirements for banks usually are based upon the ratings of the securities they hold, and since getting back to adequete resevers is the banks goal holding securities with the lowest requirements makes (coincidentally are government bonds) a modicum of sense.  In addition to this several central banks have participated in quantitative easing whereby they printed up new bills and used them to buy government bonds.  This also distorts the rate.
Thirdly Greece CDS rates, which reflect the probability of default, were at 50 basis points in September 2008.  They reached 250 pts in November.  A 5x increase in three months as shit happens (which it tends to).  The danger of rising interest rates isn’t limited to the most likely outcomes, the danger lies in the actual outcome.  If the markets are pricing in a 5% chance of much higher interest rates in 5 years and 95% chance of similar or lower rates then the current interest rate would not appear to be pricing in much risk of rising rates- but that doesn’t mean the market is pricing it at zero!  Galbraith seems to think so though with his response to the first question.

No, I think the danger is zero. It’s not overstated. It’s completely misstated.

Now within his response to question 3.

At this point, the whole thing is completely incoherent. You cannot write checks to 20 percent to anybody without that money entering the economy and increasing employment and inflation

That is one talented and long lived dog.  I can only imagine the reason Galbraith is unfamiliar with the 1970s in the US is that his dog learned the trick of chewing every page of every book he has ever owned that contained the word stagflation.  You know the term coined to describe the “surprising” phenomenon of rising inflation which was correlated with decreasing employment.  If ignorance is bliss this is one happy mother fucker being interviewed.

From question 4

And if health care does get that expensive, and we’re paying 30 percent of GDP while everyone else is paying 12 percent, we could buy Paris and all the doctors and just move our elderly there.

Yes!  Finally a realistic solution!  We can send all of our patients overseas, and if Canadians pay a lot less for perscription drugs than US residents then US residents can just take Canadian pills!!!

But there can never be a problem for the federal government selling bonds. It goes the other way. The government’s spending creates the bank’s demand for bonds, because they want a higher return on the money that the government is putting into the economy

Unless of course prices rise faster than the increase in money supply.  There is a term for it, is that a Minsky moment?  Oh no, sorry that is in the opposite direction, the term I was looking for is a Mugabe moment.

My father said this process is so simple that the mind recoils from it.

I guess IQ is genetic.

On the other hand, look at Japan. They’ve had enormous deficits ever since the crash in 1988. What’s been the interest rate on government bonds ever since? It’s zero! They’ve had no problem funding themselves. The best asset to own in Japan is cash, because the price level is falling. It gets you 4 percent return.

Ahh yes Japan.  The country that subsidizes its interest rate with cash payments that aren’t included in the rate.

Ahh yes Japan.  The country that entered a 20 year slump with a 15% savings rate (which has dropped to 3%) which is a great comparison to the US with its 3% savings rate.

Ahh yes Japan.  The country that has never had deflation get significantly below 1%, and is currently reporting inflation, somehow is returning 4% on cash.

Ahh yes Japan.  The country that has been in a 20 year slump, faces a recession every time the central banks tries to raise rates, has been cutting services for years but has NOT YET imploded- which means we can infer that it never will.

1.  I was actually busy for a significant portion of that time

2.  I didn’t really want to do it.  I like Kevin but I don’t like investment newsletters, replying honestly meant disagreeing with Kevin strenuously and replying dishonestly meant not getting to disagree with Kevin.  You can see my dilemma.

So I will start with this- If I ran a newsletter it would be EXTREMELY boring.  My first argument against newsletters is that they are hawking all kinds of advice.  Diversification you might call it.  Ok, I’ll call it diversification.  Now everybody knows that divirsification is good in investing- right?  How many sit down and think about why its good though?  Generally its good because you probably aren’t as smart as you think you are/you might have missed some important information/been lead astray by a crooked (j/k) newsletter.  You don’t want all your eggs in one basket in a manner of speaking.  This is half of it.  The other half is that the market generally generates generous returns.  Somewhere between 5-8% per annum over long stretches of time.  Diversification brings your returns more inline with market returns- so while your one brilliant idea may have returned 20% per annum and your diversification brings it down to 10% at least you are still making money- ie doing better than the alternative of doing nothing and holding cash.  On the other side your one brilliant idea returned -5% per annum your broader portfolio could bring this up to 3-4%  pretty easily and again it was better than doing nothing (though worse than most government bonds most of the time).

Here is the thing though Kevin believes (or wants us to believe that he believes) we are either in a recession or on the verge of a double dip recession.  Now there are many ways to define a recession and differences between recessions but one important aspect of a recession is that the expected return on your average investment is negative.  Its simple logic- if recessions involve the decline in real ingcome/gdp/net worth then what you are expecting when you expect a recession is a general decline in some combination of the quality/quantity of production relative to cost (this is essentially the definition of real GDP).  If this is true then profit margins must decline meaning lowered expectations of future income (in some cases the profit margin of companies can increase but only because their competitors go out of business and since you have diversified you also need to expect to own some portion of the collapsed companies) which means lower stock prices and or dividends.

Ok- once you buy that load I’ve got a second truck here to sell you.  If you predict that we are on the verge of a recession then your advice should simply be “don’t invest”, and this advice fits in with other platitudes such as “in a recession cash is king”.  Doesn’t Kevin hate cash though?  Doesn’t he believe that the dollar will perpetually lose value?  We have an out for Kevin though becasue he advises holding gold instead of Uncle Benny’s Magical Inflatobux so we just say gold is better at being cash than dollars are adn advise you to hold cash in the form of shiny metal.

What if Kevin is wrong about recession?  Shouldn’t we diversify in case Kevin’s macroeconomic predictions turn out to be wrong?  The answer to this is yes but you have to consider how you are diversified.  If you are 30 years old and have a job then the lack of double dip recession means that you are highly likely to still have that job when it becomes apparant that Kevin is just another Chicken Little, in this case you can pretty safely put near 100% of your investments in gold and still consider yourself diversified as long as you think of your portfolio as the average of your expected future earnings and not “money I put in my 401k becasue I got a tax break/match from my employer”.  If you are retired and living off your pension then you do want to diversify but in the same way retired people always want to diversify and that is with as little risk as possible.  Blue Chips, divident bearing instruments, safe bonds and a good chunk of gold to balance those things out.

My investment newsletter would be very boring, the first issue would say “if you are under 50buy lots and lots of gold (and a little bit of silver) and if you are over 50 take 2% of you nest egg for every year over 50 that you are out of gold and put it in your taditional blue chip/government bond/divident bearing instrument” and the second issue wouldn’t come out until I thought the recession was over.

So now you might ask “Well, Brian what investing tips do you have?”  To which I would reply with one word “Tin!”  As in canned goods.   Anyone who is worried about economic collapses, interested in sound investments and delicious beets will clearly see what a good opportunity canned goods are.  When you look at the trends of food costs over the past hundred years in the table below, the facts are irrefutable.  Food prices are at an all time low. One could say according to the law of S&D that as world population explodes, the price of food is bound to skyrocket as well,  especially if people start paying their doctors in chickens.

I got this chart out of Highlights

Now you might ask “Why put all your eggs in one basket Brian?  Weren’t we told to diversify our assets?”  Simply put, “This is diversity, my friend.”  Consider the great variety of foods available in cans: corn, beans, carrots, soups, ham products, dairy products, and even Beer just to name a few.  Unlike any other commodity, this treasure holds greater value in economic collapse as you can eat the contents.  However the contents of the can are but one aspect of this investment.  After consuming the contents, you still have a valuable resource: scrap metal, which has been traded in the open market for decades.

If you are finally ready to invest in real change, go to your local grocer and buy some canned foods.  One scenario is that you can donate the cans to the needy through the annual Boy Scouts food drive and claim a charitable tax deduction.  Start your own food bank now!

My sister Adele wants to donate boner marrow.  We should all be very proud of her for even thinking about doing something so painful.

And for such unselfish reasons!  My mom tells me that Adele wants to donate marrow, from her bones, because she likes the idea of having power over someone.  Like in the vampire books where you feed a mortal your blood, and then you have control over them to do with them as what pleases you.

Power over someone!  That’s a cause I can get behind.  I’m a big believer in the idea that democracy is the government of many small tyrants.  And these days, if you’re not working for the government, you just don’t get many opportunities to lord over anyone on a day-to-day basis.  But if you save some poor sap’s life with your bones’ marrows, you get immediate lordship over that person.  Maybe even their wife and kids too.

It’s like, “Oh hey, I left my checkbook in the septa bathroom – maybe you guys could cover dinner at Le Bec Fin tonight?  Unless maybe you think you’ve already paid back all that bone marrow I gave you for your cancery bones…??”

Or, “Rob I know I probably shouldn’t have borrowed and then totaled your car but I didn’t want to drunk drive my own car on my 21st birthday but if it bugs you that much maybe I can buy you a new car and YOU CAN JUST GIVE ME BACK MY FUCKING MARROW!”

That is true power.  And I can’t say I don’t blame Adele for coveting such awesome life-ruling influence.  The benefits really don’t end.  Imagine you’re at some cocktail party and there’s like an astronaut or some big-shot ultra-marathoner bragging about their self-indulgent exploits.  BAM – whip out your “I saved a sick stranger’s miserable life” trump card, and you’re the new most-best person in the room.  Go wait in the car Buzz/Helene.

Does the gift of a life saved give Adele the power to kill?  I don’t know – but it’s a sweet gig anyway.

But at what cost?

My mom, a professionally licensed registered nurse with the state (commonwealth) of Pennsylvania, tells me that giving bone marrows is “fucking painful.” (her words)

She tells me that giving bone marrow would make giving birth to conjoined quadruplets feel like a stiff breeze in comparison.

Before Dick Cheney invented water-boarding, he toyed around with the idea of putting terrorists through bone marrow donation, but decided it was “too barbaric.”

Listen, I think there are at least two things that we can agree on about bone marrow:

1)  It’s the tastiest part of man or beast.

2)  It’s really painful to get it out of your bones without dying or wanting to die.

Figure out what your living expenses are for one month.  Buy that amount of gold and/or silver.  Keep it in your house, in a safe, hidden in the wall.  Don’t tell anyone about it.  That’s a security blanket on your bottom dollar.  The government can (and has) seized holdings in bank accounts, safety deposit boxes, brokerage accounts, and retirement accounts.  But it’s much more difficult for them to go house to house seizing gold.  They have seized gold in the past as well.  Owning gold was ILLEGAL for 41 years.  The Secret Service made it part of its job to round up gold coins.  Ask yourself why the Government might do that if gold is some worthless relic.  This ban lasted until the early 1970s.  That’s not so long ago.

If I’m completely wrong on gold, and the dollar is healthy, and paper really is a good store of value, and the basic rules of supply and demand are false, then at the very worst your gold holdings will fall back to an inflation adjusted low of maybe $250 an ounce.  That would be an 80% loss, and it’s not out of the question, but I know that all of us pay through the nose for different types of insurance:  homeowner’s insurance, car insurance, life insurance, health insurance, etc. just because we’d rather have it and not need it than need it and not have it.

Think of gold that way.  It’s an insurance policy protecting you from the increasingly likely collapse of paper money.  My plan gives you a month’s worth of living expenses while you figure out what to do next in the event of total crazy hyper-inflation.  BUT – I could be wrong about the hyper-inflation scenario.  We could simply have super-high inflation like we had in the late 1970s and early 1980s.  We had inflation in the double digits back then.  That’s per year.  Do any of you, my dear readers, plan on getting a double digit percentage  raise every year for several years?  Well, you’ll have to if you hope to have your standard of living stay where it is.

I know that most, if not all of my readers are at least a little smarter than I am.  Does anyone see how the government will be able to pay for the $100 trillion in debt that awaits the next two generations of Americans?  Better yet, does anyone see how the government will be able to find buyers for the $4 trillion it has to roll over in the next 18 months alone?  Who is all this money going to come from?   The Chinese are already getting out of dollars.  The Japanese are about full too.  Who else will pay for all the fancy rainbow widgets and sniper drones and battleships that our wonderful government seems to think the world needs?

C’mon – one of you set me straight.  I’ve been blabbing quite enough, don’t you think?

I have a feeling that she’s not the only reader of this blog or member of my family to think I’m just plain old wrong on gold. Well, I hope to counter some of her objections and hopefully convince her or some of the rest of you that gold isn’t a ridiculous place to put your money.

Here’s her comments:

I guess if you are really rich, then maybe you should diversify your portfolio a little with gold.

Here is why I would not want to invest in gold right now.
-Hard to store
-No real logical value
-It’s at a high (buy high? sell low?)
-People are using scare tactics to get me to invest
-Extremely high transaction costs compared to other investments

Right now, I would rather invest time and money into my career and house and so far that has paid off pretty well.

One thing I’ve learned from my job is that I know what I know. One of my industries rules is that we can only give advice in a way that represents our expertise. That’s why I don’t try to give people investment advice.

People are buying gold now because they are afraid. This is driving the price up (supply and demand). Transaction costs are so high that the gold companies are making a killing. If I owned gold, I would probably sell now but probably through craiglist. What are you going to do with gold if the economy collapses? Trade it for goods and services? It’s kind of heavy. Do you have the tools to melt it down into smaller pieces?

She brings up some interesting misconceptions about gold.

Gold is pretty easy to store. You can put it in a safe, bury it underground, hide it in your house or in a safety deposit box. That’s because it has an extremely high value for its size. One ounce of gold is about the size of a silver dollar. That’s $1100 in a very small package. You can easily hide hundreds of thousands of dollars worth of gold. A hundred ounces of gold is about the size of a tube of toothpaste.

Yeah, it is heavy, but a one ounce gold coin could pay your mortgage or other bills for a whole month. It’s also highly liquid and fungible. You can easily sell an ounce of gold at any coin store, or on ebay or craigslist, or if you buy through a reputable dealer, you can usually get a buy-back guarantee. Transactions costs aren’t really that high when you compare them to other transactions costs for investment products, like mutual funds, 401(k) plans, brokerage fees, etc. Try to take money out of your 401(k) if you want to see a high transaction fee. Mutual funds take about 1% of your net worth every year – whether they make you money or not. That’s absurd. A brokerage will charge you $10 to buy or sell $100 worth of stock. That’s a 10% fee!

The second point, about it having no logical value really tells me that you haven’t been listening.

I have to once again ask : what’s the intrinsic value of paper? Really think about it. Even a ream of super-nice cotton, watermarked resume paper is less than a quarter a page. Imagine buying a week’s worth of groceries with reams of copy paper. You’d need a forklift.

So, what kind of characteristics would we want in a substance that we’d use as money? Well, unlike paper, we’d want a high value per unit, so we don’t need a wheelbarrow to buy lunch. We’d want something that was durable, so it would last and not wear down with use. We’d want something easily recognizable. We’d want it to be divisible so that we can cut it into appropriate size per transaction. We’d want it to be rare, or it wouldn’t be a very good store of value. Gold is all of these things and more.

It’s really good as money…because it has all of the qualifications that match the needs of money.

Paper currency isn’t rare, nor is it durable, divisible, valuable, consistent or valuable in and of itself. That makes it bad as a store of value or a medium of exchange. Kind of like how glass isn’t very good to use as a building material or wood isn’t good for building airplanes. In that regard, gold is valuable because it is extremely good at being money, just like steel is valuable because it’s good to build skyscrapers with, or corn is good for eating. Does corn have “value” outside of its peculiar trait of being good as a food? No! But that doesn’t mean it has no logical value. Gold is the same way. It’s valuable because of its peculiar traits that make it particularly suited as a medium of exchange.

And is gold at a high? What if it goes higher tomorrow, or higher still for the next 10 years? It’s at a high compared to what? Its nominal highs? Gold is only at its highs because the dollar is continually and constantly losing value. Even in my lifetime, the dollar has lost more than half of its purchasing power. That is real money STOLEN by the government. It’s a hidden tax on every single dollar in existence. And it’s a tax that no one votes for, or can escape from if they hold dollars. It happens constantly, and also, hurts poor people more than rich people. Rich people can diversify, move money overseas – but poor people are stuck. Inflation is real policy, as real as healthcare reform, as real as the War on Terror, the War on Poverty and as real as the War on Drugs. In fact, it makes those things possible. Without inflation, the government would have already defaulted on its debt obligations.

And there’s nothing to suggest the trend will reverse. That’s what I’ve been saying. The US Gov’t is raiding the dollar’s worth by printing more and more of them. The dollar has already lost more than 90% of its worth in the past 60 years alone. They’re printing more every day. The more they do so, the more gold will rise in price. That’s basic supply and demand. It takes more dollars to buy EVERYTHING not just gold. Almost all commodities are on the upswing, and they’re headed higher for sure.

And everyone, please repeat after me: a house is not an investment. I want you to repeat this phrase until you get it. A house is a wasting asset, like a car. It doesn’t pay you anything: it’s not a business, it’s not a savings account. It doesn’t yield any interest or dividends. It’s not an investment in any sense of the word. It’s a place to live. People who “made money” by “investing” in rising housing prices were really just speculating that they’d find a bigger fool to flip a house onto. A lot of them are finding out that they’re the biggest fool.

That’s not investing, and while there’s certainly room in any portfolio for speculation, you’re foolish if it comprises more than a percentage or two of your net worth. Because speculation is risky. You speculate with the hope that you’ll get paid many times your initial outlay in the event that it works out. But you shouldn’t speculate with any money that you don’t expect to lose. And you certainly shouldn’t speculate with all of your net worth with the hopes that you’ll double or triple your money. That’s the worst of both worlds. A speculation should have the chance to pay you back ten to one thousand times your principle.

As far as why people are buying gold now? Well, let’s clear up the who first. We know that hedge fund managers like John Paulson are buying gold. Paulson was one of the very few investors who recognized the sub-prime mortgage mess way ahead of everyone else. He made $20 billion shorting mortgage securities. He’s buying gold right now – over 10% of his holdings are in gold. He’s not the only one. Lots of hedge funds have exposure to gold. Hedge fund managers are the smart money. These are the guys that graduated head of their class in finance. Then you have your second tier guys who work for what used to be called investment banks. Then you have mutual fund managers. Then there’s government employees.

Who else? The Chinese government is buying gold. They’re buying it quietly, slowly and they’re essentially trading in dollars for gold. Why buy US Treasuries that pay way less than inflation when you can buy gold that at least holds its value? They’re also stockpiling commodities of every kind. Again, real stuff is a better bet than our worthless paper.

Who else? Some of the biggest piles of gold are owned by exchange traded funds, most notably GLD. Anyone can buy gold in their vault with a brokerage account.

Besides hedge funds, the Chinese and ETFs, there are the regular retail investors that buy gold. But these people make up such a tiny portion of the population, it’s almost laughable that Beth would say gold is higher in price just because people are scared.  That assertion just isn’t backed up by any proof.  When people do become scared the price will go through the roof.  If just 1% of Americans (just Americans!) bought just one ounce of gold, it would take up almost all of the gold supply for one whole year. I discussed this point in a blog post a few weeks ago. You can read it here.

Almost no one in the general public is buying gold right now. That’s a good a sign as any that we’re nowhere near the top.

Here’s when I’ll sell my gold: when Beth wants to buy some. That’s when we’ll be near the top. Beth still thinks a house is an investment. She’ll change her tune and look at how great gold is when it too has become passe. That’s when I’ll sell.

Okay, got that number?

Alright now imagine that you’ll have to come up with that amount divided up by the number of years left in your life.

For me, it amounts to approximately $54,000 a year divided between Elliott and myself.  So, only $27,000 a year for me.  That assumes that I live until I’m 79, which is close to the average life expectancy for a man today.

That’s a lot of money, right?

Okay now imagine adding another 30%-50% to that amount, which for me means about $37,000 to $50,000 per year I have to pay out.

I don’t know where the hell I’m going to get this money, but I have to.

That’s the exact situation the US Government is in today.  They have over $100 trillion in unfunded liabilities for the foreseeable future.  In the best of times, they bring in about $2.4 trillion in revenue a year (from you and me btw).

That $100 trillion doesn’t even take into consideration the annual budget that they frequently overspend by a trillion or so dollars per year.

“Unfunded liabilities” means they don’t know how they will pay for it.  They don’t have any plan whatsoever for getting that money.  Are they in a position to spend more?  I would say no – but then again, I wouldn’t think it would be okay to go over my budget every year – let alone have plans to spend another 42 times my annual income on top of that for the foreseeable future.

But they’re the government, and there are “pressing issues” like providing bread, circuses and now healthcare for every man woman and child.

Listen – if I told you that I could cover all of your medical expenses for the rest of your life, you’d be a little bit skeptical, right?  And you should be.  But fiscally, I’m actually in much better shape.  I have much less debt, more savings and an actual plan for the future.

I can’t afford to pay for your healthcare.  BUT NEITHER CAN THE GOVERNMENT.

They’ll do so at a greater cost to you, your children, your children’s children and so on.  The dollar you have today will evaporate like a politician’s promise.  Everyone will be worse off for the liabilities the government is piling on top of us.  It’s unconscionable.