On Sunday, I wrote an email to Jim Sinclair. He published it along with his reply on Monday. For those of you who didn’t catch it, here is my email and Jim’s response below. I will follow it up with my further thoughts on the subject – and Andy Hoffman and Bill Holter’s too.
Posted October 27th, 2013 at 6:12 PM (CST)
I have worked in the gold and silver industry since 1983. I own a well-respected and successful precious metals firm. I am very well versed in most areas related to my industry. I have followed you for the last 11 years.
I have an important question I would like you to address. So far, I have never seen anyone discuss this topic. It will affect many of your readers.
Assuming a major devaluation of the US dollar and a massive rise in the price of gold and silver, what will happen to dollar-denominated debt, such as a home mortgage, denominated in dollars. Will we be able to pay off the mortgage with the gold profits? Assuming a million dollar mortgage, in today’s dollars, and the price of gold increases by 300%, will I be able to take those “profits” and pay up the mortgage? How will the banks survive if people pay off their mortgage debt with watered-down “Weimar Republic” dollars?
When I took out my mortgage in 2005, it took 2000 ounces of gold to pay it off. When your target of $3500 (minimum) is reached, I can pay it off with 300 ounces. The big loser will be the issuer of the mortgages. Since the holder of the mortgages are the big banks and they usually come out on top, and lobby for legislation that favors them over the public, what do you expect will happen?
You urge your readers to pay off all debt now, including mortgages. But why sell gold for $1350 now to pay off a mortgage when with a little patience, it could be paid up with gold at $3500 and require a liquidation of only one third of the ounces?
This is an important consideration. What is the downside of holding onto gold and silver and paying up the dollar denominated debt with an asset that you and I expect to increase dramatically, against a constant dollar amount? I own the gold and could easily sell enough to pay up the mortgage now.
So far, waiting has served me well and the big gains (in dollars, not percentage) lies ahead. Many of your readers are no doubt in the same position. What is the downside of continuing to wait for a much higher gold price so I can pay off the mortgage in watered down dollars?
Thank you for your consideration.
History indicates that loans will be reset to equal the depreciation in the dollar thereby leaving the debt at a similar value to what is was before the hyperinflation during the “Great Leveling,” leading to the “Great Reset.” The idea is that you will pay off your $50,000 mortgage with one maple leaf is historically fallacious.
This economic trick has the same chance of working as does your deposits of $250,000 in ten banks, and your expectation of being repaid by the FDIC $2,500,000 in a banking systemic failure. You will not be.
–jsmineset.com, October 27, 2013
I agree that there will be a reset and the price of gold will be adjusted at some reasonable value to the replacement currency, but I do not believe that price is reflected at the current manipulated price of $1,350. In many instances, that is too low to profitably support mining operations. I have read that if gold were not manipulated, it would probably sell somewhere around $2,300. So, if there is a re-set vs. debt/mortgages, etc., I would expect the price of gold to be substantially higher than it is now. Of course I don’t expect to repay a $50,000 mortgage with one ounce of gold, but I would be surprised if it took more than 20 ounces, as valued in the “Reset” currency. Today it would take 37 ounces.
In a worst-case scenario, gold will at least hold its value while those whose assets are dollar-denominated will lose a substantial portion of their wealth. Own things – high quality real estate, precious metals, and quality collectables. They will hold their value, in Sinclair’s “Great Reset.” My personal preference for gold and silver is based on their liquidity. You can convert them into the currency of the realm immediately at a given or fixed value. Not so with most other non-paper assets. That is not to be taken lightly.
Here is what Andy Hoffman wrote about this topic over a year ago…
Published: September 4th, 2012
A question I frequently receive relates to what happens to debt in the event of HYPERINFLATION – and more specifically, mortgage debt. This is obviously a very important question – which should definitely factor into your overall financial outlook; however, it can be a very dangerous road to tread, particularly if viewed in terms of “profit potential.”
The inevitable COLLAPSE of the U.S. dollar is a mathematical certainty, but the timing of its occurrence is impossible to predict. Assuming no “black swan” events – like nuclear war or catastrophic market crashes – I believe the dollar will have lost the last vestiges of its “reserve currency status” within two to three years; and likely, within five years be replaced by a new, gold-backed currency. However, such numbers are pure speculation, as no one truly knows what will happen or – more importantly – when, and why.
That is why I repeatedly recommend ownership of PHYSICAL gold and silver; as regardless of this time frame, the likelihood of prematurely selling your bullion is extremely low – barring personal financial emergencies, of course. And the same goes for “betting” on the timing of HYPERINFLATION – as if you hold too much debt before it occurs, you could lose the underlying assets – such as your home – or even your PHYSICAL PMs if you need to sell them to pay off your debts.
Moreover, think long and hard about the wisdom of purposefully holding large amounts of debt into what could be a cataclysmic financial event. Ann Barnhardt says to pay off as much debt as possible beforehand, with the aim of distancing oneself as much as possible from “the system” when “the Big One” hits. And frankly, I agree with her, 100%. Sure, if your bank fails, your mortgage obligation may go with it. But who’s to say the bank won’t be acquired by a more evil entity, such as the U.S. GOVERNMENT? For all we know, a new, totalitarian dictator will declare all mortgaged homes state property – or some other, equally draconian decree.
As for what happens to debt during HYPERINFLATION, it is absolutely devalued – benefitting the borrower, at the expense of the lender. Out of control MONEY PRINTING may cause a loaf of bread to cost $500,000, but your $500,000 mortgage will still be the same; in other words, worth the same as the bread. If you have limited savings, you still won’t be able to pay off your mortgage – especially if you lose your job, a highly likely scenario. However, you could sell ITEMS OF REAL VALUE – like a loaf of bread, or a gold coin – to obtain the funds to pay off your mortgage. Moreover, a handful of companies might even institute inflation-adjusted pay – though I wouldn’t count on it.
HYPERINFLATION could break out at any time – as in the case of the aforementioned “black swan” events. However, more likely a 1930s-like scenario of unemployment, poverty, social unrest, and war will precede it. PHYSICAL Precious Metals will protect you under all scenarios, but DEBT could prove just as much an albatross as a boon. It’s VERY rare for anything positive to ever come of debt, so I strongly advise you do not consider it an “asset.”
I spoke to Bill Holter about this and I believe he will write about it on Tuesday as well.
Germany’s stealth bomber and the Atomic Bomb.
Did you know that Goering made it perfectly clear that Germany would have an Atomic Bomb by 1946? They also were close to development of the Horton 16, a long-range stealth bomber that was so fast and so difficult for radar to detect, it could have delivered its payload on NYC or Washington DC with impunity. Think about that when you consider the consequences of a nuclear Iran.
Here is a must watch video:
Here is an article from Fox News:
FoxNews.com, October 27, 2013
An Israeli defense official says a new report claiming Iran could produce enough weapons-grade uranium to build a nuclear bomb in less than a month is further justification for why Israel will take military action before that happens.
Danny Danon, Israel’s deputy defense minister told USA Today that Iran is speedily moving to develop advanced centrifuges that will enable it to enrich uranium needed for nuclear weapons within weeks.
“We have made it crystal clear – in all possible forums, that Israel will not stand by and watch Iran develop weaponry that will put us, the entire Middle East and eventually the world, under an Iranian umbrella of terror,” Danny Danon, Israel’s deputy defense minister told USA Today.