Do you have faith in the banking system?

I don’t.

Banks are designed to find ways to get you to part with your money. Fees are ever-increasing for monthly maintenance, statements, ATM withdrawals, and other transactions. Furthermore, banks impose all sorts of capital constraints on your funds. Even with a million in the bank, you’d likely be limited to withdrawing less than $1,000 per day via an ATM. And, if you try to withdraw a larger amount of cash (say, $5,000 or more) at the counter, you may have a l.o.n.g. wait, as banks don’t typically keep much cash on hand.

Corporate welfare and banker bailouts

Did you know that the United States-based mega investment banks will receive more money from the government (to the tune of trillions of dollars, to cover their losses from the subprime mortgage crisis that began in 2007) than the entirety of one year’s worth of payouts to the recipients of welfare, Social Security, and all other government entitlements put together? (That is, each year, approximately $3 billion is spent on federal entitlement programs like welfare, Social Security, and Medicare/Medicaid for millions of people; the too-big-to-fail bankers, on the other hand, have already received $4.6 trillion of the $16.8 trillion of bailout money committed to them. In other words, a handful of already filthy rich bankers magically became even richer overnight … and are still getting richer, thanks to corporate welfare.

Speaking of corporate welfare, in his article “10 Taxpayer Handouts to the Super Rich That Will Make Your Blood Boil,” Tom Cahill wrote:

The combined cost of these 10 corporate welfare programs is $1.539 trillion per year. The three main programs needy families depend upon — Temporary Assistance for Needy Families ($17.3 billion), food stamps ($74 billion), and the Earned Income Tax Credit ($67.2 billion) — cost just $158.5 billion in total. This means we spend ten times as much on corporate welfare and handouts to the top 1 percent than we do on welfare for working families struggling to make ends meet.”

Despite the bursting of the US housing bubble and a long history of banking crises throughout the world (including the United States), many Americans still feel immune to what I believe will be an inevitable banking collapse in the relatively near future. However, to be reminded of what can happen when banks shut their doors, one need only look at recent events in Cyprus, Greece, and Puerto Rico—a US territory—to see that banking crises can and do happen, and with more frequency than many realize.

What would you do if your bank were to suddenly close up shop? Scenes from the Greek and Cypriot crises showed people queued, hundreds deep, waiting to withdraw at least some of their money from an ATM. At those times, capital restrictions were so stringent that ATM withdrawals were capped at the equivalent of approximately $60 USD daily.

A former boss, friend, and nursing colleague of mine told me a story of how her bank, in the US Midwest, once had a major power outage and concurrent issues with its computer system. As a result, she was not able to access her funds for several days. That experience woke her up to the perils of modern banking.

Nevertheless, banks have become a necessary evil in today’s modern world, for the convenience of paying bills and transferring funds from person to person, institution to institution, or location to location. However, in many parts of the rural developing world, people still manage to survive without banks. Instead, they pay cash, which is becoming increasingly demonized in the Western world, because cash transactions cannot be tracked like those executed electronically (and the government wants to track everything!). Or, they barter, just like all our ancestors did.

Precious metals and sound money

I believe in sound money. That is, money that can’t be printed out of thin air, as was the case with the “too-big-to-fail” banker bailouts. Sound money is backed by something tangible, historically gold or silver. However, because the supply of gold and silver is limited, it is unlikely that the central banks, and the governments they control, will ever return to a gold standard because such a standard strongly limits their ability to artificially create wealth for themselves on demand.

Strong historical precedent exists for the use of sound money in the United States. Our Founding Fathers declared that only gold and silver shall be used as money in the US Constitution in Article I, Section 10, Clause 1:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”

You can create your own gold standard by buying the precious metal, or others like it (silver, platinum, and palladium), as a form of savings. Surely, charges (known as premiums) are assessed when buying physical precious metals. That is, you’ll pay the precious metals (PMs) dealer a premium or fee over and above the spot (market) price for the metal. Such premiums can be anywhere from 2-10% for gold bullion and 5-20% for silver. PM purchase premiums may seem high, but I think the peace of mind of having some PMs is worth it.

Another reason I like storing PMs is because I get the psychological high of retail therapy. I get to buy something shiny (and sometimes beautiful) while simultaneously accumulating value in a tangible asset that is easily liquidated. PMs can be sold at pawn shops, coin shops, and precious metal dealers. Oftentimes, you can sell your PMs back to the dealer where you purchased them. Look for PM dealers who are transparent in their pricing; that is, those who list both a buy and sell price for the items they sell.

KITCO®

If you are fortunate enough to live in the great city that is Montréal (or visit there frequently), you can go to the KITCO® office downtown to sell PMs for cash right over the counter. Your transaction is executed privately in a wicket or small office. The staff is extremely professional. They’ll show you the buy price right on their Web site, test and weigh your metals, and if everything checks out, give you some cold, hard cash—in your choice of several currencies. I was extremely impressed with their service when I sold a few ounces of silver for extra spending money while on vacation there earlier this year. I thought it was very slick.

(KITCO® has had some problems in the past, including an alleged tax fraud scandal. When I used their services, I was unaware of these allegations and only learned of them while doing research for this blog post. I do not know the outcome of these allegations, but will update this post with more information when I have time to properly research this matter.)

Storing precious metals

While holding physical precious metals can add to your peace of mind, the issue of PM storage safety can be a drawback. It was issues relating to gold storage during the Middle Ages that gave rise to the banking system, as people wanted a more convenient way to pay for their goods and services. Instead of lugging around a heavy bag of gold or silver coins, they stored their coins in a money changer’s secure vault and traded the vault storage receipts in the markets. (Technically, money is a store of value. So, gold and silver are examples of money, whereas the receipts for stored money are called currency.) The recipients of such currency or receipts could go to the vault and redeem the metals at any time.

Other ways to indirectly buy precious metals exist, such as buying mining stocks. Nevertheless, I have not purchased such stocks and likely never will because I don’t believe that everyday people like me have any control whatsoever over the casino that is the stock market. Although the price of precious metals fluctuates as well (and Deutsche Bank has been caught artificially suppressing the price of silver), I believe PMs will eventually go up in price significantly, as more fiat currency (paper money backed by nothing but government decree) chases the relatively fixed supply of PMs. Although mining companies do extract PMs from the Earth’s crust on a regular basis, doing so is extremely labor intensive. Also, PMs like silver and platinum are used greatly in industry, so the quantity left for savings/investment is limited.

I strongly prefer to store my small stash of precious metals in a secure place outside of my home. Some people use private vaults; others use safes or even bury their metals in the ground. There are also bullion storage companies, often connected with precious metals dealers, that’ll store your PMs for a small percentage of their market value each month. If you want to take possession of your PMs, you can have them securely shipped to you via US Registered Mail (this is the only safe, insurable way to ship PMs within the US. Certified Mail does NOT cover PMs). Unfortunately, no perfect storage solution exists.

GoldMoney®

Nevertheless, I’ve found a solution that combines the convenience of the banking system, the possibility of increased value from an uptick in the spot price, and the peace of mind of an unencumbered asset, like gold or silver. GoldMoney® allows you to purchase or sell gold by the gram at 1% over the spot price. The gold is stored in your choice of vault around the world (New York, Toronto, London, Zurich, Dubai, Singapore, or Hong Kong). You can also paying shipping and take possession of your gold at any time.

The convenience factor is that you can also connect a MasterCard debit card to your gold holdings. That is, when you sell gold, you can transfer the proceeds to your debit card, allowing you to make purchases anywhere MasterCard is accepted or withdraw funds at any ATM within the MasterCard network.

GoldMoney® is a Canadian company.

Do you have another solution for storing value or getting around the banking system? If so, please share it in the comments below.

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