China Syndrome

In 1979, during a previous cycle when silver was coincidentally undergoing similar dramatic pricing changes, The China Syndrome - starring Jack Lemmon, Michael Douglas, and Jane Fonda - hit the cinemas portraying a chain reaction of events that occur when a nuclear facility approaches meltdown. The movie was an absorbing dramatic suspense thriller made more so when, with chilling prescience, Three Mile Island underwent a similar episode only twelve days following the film's release.

What would happen today if, unrecognized by most, we were again a mere fortnight away from a similar holocaust? Not an imagined event, as this movie envisioned in such timely fashion. Nor a real nuclear catastrophe like the aftermath of the Japanese tsunami-induced Fukushima or Russia's Chernobyl. But, instead, an epic economic disaster of such immense proportion that it could permanently mar the financial landscapes on which it's effects were unleashed? How might the world of global fiat currencies appear if the dollar lost it's role as reserve currency?

Ahhh, you think. Another lecture on the dreaded consequences of the dollar no longer being the preeminent global fiat currency. What repercussions might be felt if people lost confidence in the power of the almighty buck? In hindsight, almost overnight it would seem, the purchasing power of individuals living in nations whose economies were based on the dollar would dwindle with ever-increasing rapidity. Such consequences have been debated ad nauseum, yet one might wonder, are there further ramifications that we might foresee, so as to avert the outcome?

What happens when populations lose faith in their currencies? For this topic extends far beyond the fate of the dollar to encompass the destiny of all global fiat currencies, none of which are currently backed by anything beyond an ironic pledge of "the full faith and credit" of their respective governments as to their worth. Maybe a more apt adjective would be a moronic pledge, if in our cumulative ignorance, amidst a global "race to the bottom" to depreciate, we continue to worship such fallen ideals.

Let's get to the point, for it is encumbent upon the individual who desires to preserve their purchasing power in this tableau of dollar attenuation to act with urgency. Again, I repeat the question. What happens when people lose faith in their currency? They spend it as fast as they can, securing items of real value, that they come suddenly to recognize will only continue to rise exponentially in cost, when denominated in the increasingly worthless paper notes carried in their wallets. At least those bills will be handy for ready use, as our money is flushed down the toilet.

So, aside from empty shelves in stores, endless lines at gas stations, and any other number of unforeseen scenarios, what might we expect? Well, Iggy, we've already seen what happens in other countries that undergo hyperinflation. What makes anyone think the sequence of events would be any different here? Upon discernment, the silent advance of the price of precious metals, the ultimate safe haven investment, over the past decade, heralds the truth. The smart money is buying silver and gold.

Since 2002 silver and gold have both shown a steady, if at times volatile and erratic, increase in value. As they ascend in price, what is really occuring is a concomitant decline in the worth of the currencies in which they are denominated. It is not a mirrored-image correlation, as other factors are involved, but for the most part when the dollar declines, metals advance, and vice versa. This reason alone incentivizes governments to manage the rise of precious metals, for doing so understates inflation and subliminally buttresses the status quo.

This last decade buyers have been stealthfully amassing silver and gold. History demonstrates that such measures often assist in preserving the holder's purchasing power, safeguarding their wealth. In a mileau where bank failures can deprive you of your savings, overnight devaluation of a currency can decimate its value, and even rehypothecation of funds, here citing MF Global, can criminally steal funds from their investors, what other avenue to protection does one have? The only asset class without counterparty risk is precious metals. And as they say, "if you don't hold it, you don't own it."

What began as a trickle of people prudently buying precious metals became hundreds, then thousands, then hundreds of thousands, and now millions on a worldwide basis flooding into this allocation. You might even pat yourself on the back as you watch your portfolio increase, and think smugly, "I'm set!" But what happens when, after the best of intentions of steadfastly converting your fiat currency, either with dollar-cost-averaging or just "buying the dips," you awaken one day, in a Rip Van Winklesque moment of self-revelation, to the fear that you might have been duped?

Thus, in convoluted fashion, we return to our start, the China Syndrome. Thanks for taking the short journey with me as it is salient to my message. This is going to sound farfetched, another conspiracy theory by a tinfoil hat wearer, as Jon Nadler likes to portray precious metals devotees. But what if there were a plan fomented by an economic nemesis, to unilaterally sabotage and subvert the wealth-preserving intent of a significant portion of these new converts by supplying them with counterfeit products?

China is the source of countless knock-off products, utilizing cheap labor and inferior materials to create a pirate industry of faux goods afflicting several industries. Is it too much of a leap to contend their own government must covertly support such actions, as otherwise, would it really be that hard to police and quash such enterprise? So how does this China-based criminal enterprise affect precious metals? There is a considerable and growing fraction of auctions on ebay that now vend these actual fakes. You may own some already.

One can do their own due diligence and perform a search that will provide irrefutable evidence; counterfeiting, of Morgan and Peace silver dollars, of American Silver Eagles, of gold and silver bullion bars is a real problem, one that continues to grow in magnitude. It used to be that such knock-offs, in the precious metals arena, were mandated to be marked as "copies," but that stricture has long since been circumvented. Sellers blatantly proclaim in listings some iteration of "imagine how much you could make selling this item as authentic."

Counterfeiting of scarce and highly-prized numismatic rarities has always been a problem, but the situation is escalating to the point that now even everyman "Joe Sixpack" is affected. You need to visit youtube.com or google counterfeit coins, and become educated regarding this situation. Learn to recognize fakes and their sellers, and report them. The quality of these items is now so deceptive that even reputable sellers are being hoodwinked into placing them into inventory.

So it might be wisest to purchase only factory direct from the largest online dealers or private mints. Stay away from ebay sellers who are based overseas. They might be legitimate, but you have little recourse if they aren't. Certainly, only consider entering bids on ebay listings from sellers with impeccable feedback ratings that offer a money back guarantee if your coins or bars prove fraudulent and need to be returned. Otherwise, a criminal twist on Gresham's Law could prove a portent that good money will flow East, bad money West.

The market is being flooded with counterfeits as the criminal sharks circle, sensing the savory scent of quick profits to be made in the blood of the recent influx of precious metals bathers dipping their toes in the water. Be wary, display caution when considering large purchases, and get a quick education, fast, lest you get eaten alive. Be very careful, friend... because you don't want to become chum, Chum.


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