There’s always something to howl about

Virginia Legislature Wants The Commonwealth To Be The Golden State. California Accedes.

Worried about a dollar collapse?   Virginians may worry less because their legislature  is proactively investigating solutions:

WHEREAS, various systems of alternative currency employing gold or silver, or both, in the form of coin or its equivalent in bullion have already proved themselves in the free market, and could either be employed by the Commonwealth directly or be used as models for a new system created by the Commonwealth to meet Virginia’s unique needs; and

WHEREAS, the adoption of an alternative currency consisting of gold or silver, or both, would not destabilize the present monetary and banking systems, the Commonwealth’s governmental finances, or Virginia’s private economy, because it would not compel or commit the Commonwealth or her citizens to employ such alternative currency to the exclusion of the Federal Reserve System’s currency immediately, but would merely make the alternative currency available, and enable it to be used in competition with and preference to the Federal Reserve System’s currency, to the degree that the need for such use became apparent; and

Governor McDonnell (R-VA) claims the resolution would be unconstitutional, that the powers to coin money rest with the federal branch of government.  I don’t think that matters.  The Virginia Resolution simply recognizes that a competing currency might be needed should the US currency collapses.  That resolution could very well be the “shot heard ’round the world”.

Americans of all walks of life, from the CEO in the corner office to the cop walking the corner beat are following the price of gold and silver daily.  Some are actually buying the precious metals, too.    Wall Street, in its typical fashion, developed a derivative product to sell to its customers.  The bankers and brokers claim GLD and SLV are a more simple approach to hedging portfolios with an exposure to precious metals.  Guess what?  It may be harder to find the actual metals, held by the Wall Street mutual funds, than the mortgages packaged in the collateralized debt obligations.  GLD and SLV may be empty vaults; perhaps a scam.

I started moving money into silver about a year ago.  It just seemed safer to buy the metal from dealers, and take delivery, rather than to rely on a statement or stock certificate.

What does the economy look like if the dollar collapses?  How will it affect real estate?  How will it affect the way you live your life?

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    8 Comments so far

    1. Thomas A B Johnson February 2nd, 2011 11:33 pm

      There is tremendous counter party risk in the financial system that is not priced into the market. There is rampant speculation that Central Banks have leased their sovereign gold many times over and if they ever have to deliver it might get ugly.

      What does Kollapse look like? Dmitry Orlov has the view that it looks not much different than the collapse of the Soviet Union.

    2. Michael Cook February 4th, 2011 10:33 am

      Hard assets like real estate would do well in an inflationary period. Much like consumables, bread, water, etc., real estate prices would increase as people had more dollars to buy them.

      Its all relative of course, but we shall see. Unless the US gets very serious about debt reduction, real estate is probably a solid buy.

    3. Jim Klein February 4th, 2011 7:06 pm

      Great link, Thomas. Very insightful; thanks.

      You’re right, Michael, but it’s got to be productive real estate, which generally means either agricultural or income producing rentals. I’m sure you know multi-family REITS are doing wonderfully these days, and probably will do even better.

      Scarcity yields value, and production has been super-scarce for several years now. That’s what Jeff writes on and on about, with regard to failing RE agents, even though he doesn’t word it that way. It’s the same across the board, for the most part. Many serious producers either aren’t allowed to produce, or don’t want to produce for one reason or another. Naturally there are lots of exceptions, from the altruist who thinks he’s saving society to the egoist who feels dead if he doesn’t produce, but largely American production and all it brought is a thing of the past. It’s easier to sit home, or over at city hall, and just get the check. That’s what the “tipping point” defined.

      But it’s only a matter of time—those who want to live, will be working their asses off. The only question is, for whom?

    4. Sean Purcell February 5th, 2011 1:12 am

      What if you could do this without “minting money”? Suppose gold dealers populate all the malls and street corners (like a Starbucks but with actual value…). And suppose they began to sell gold in 1% increments. You’d stop in the local dealer, buy 1 Goldcent and then go down to the local gun shop to purchase some ammunition. It doesn’t matter how badly the Fed has defaced the dollar, because the gun shop owner will sell ammo by the dollar AND the Goldcent. (Last week 5 bullets cost $10 but this week it’s $15 because the dollar is worth less. Last week 5 bullets cost 1 Goldcent but this week… it still costs 1 Goldcent.) No money has been minted. Taxes are still collected. The pricing reminds me of when I used to go down to Tijuana and haggle over items in the local markets. You could pay in American money or pesos.

      The shopkeeper and the buyer would both have to pay attention to what’s happening with gold, but that’s a good thing, right? And for those too lazy to pay attention, they can keep paying in useless green paper.

      I think I like it. I could give Jeff Brown 1 Goldcent and he could buy 2 whole cups of coffee at the local Starbucks! You know, the one next door to the gold dealer.

    5. Jeff Brown February 5th, 2011 10:25 am

      Works for me!

    6. Brian Brady February 7th, 2011 9:10 pm

      “You’re right, Michael, but it’s got to be productive real estate, which generally means either agricultural or income producing rentals.”

      You got me thinking a bunch about this today, Jim. I still think there’s room for single-family rentals, a la Jeff Brown’s strategy. The really positive benefit of SFD’s is that they can also be bought for long-term shelter whereas ag land or multi-family properties can’t.

      Jeff would (perhaps rightfully) argue that market selection is important and I’d counter that a buyer could discount properties in disadvantaged markets to compensate for that.

      If what we fear manifests, I think just about any property, which stands to raise rents, will increase in value. The really cool thing is that we’ll be paying 2011 mortgages in 2014 dollars

    7. Greg Swann February 7th, 2011 9:51 pm

      > I still think there’s room for single-family rentals, a la Jeff Brown’s strategy.

      With 25% down, I’m selling rentals at 15% – 20% cash-on-cash every week. This will get better, month by month, possibly for years, and if interest rates spike, the payday for cash buyers and wrapable mortgages will get very interesting.

    8. Louis Cammarosano February 10th, 2011 8:19 pm