No Debt, No Problem?

Last year (May 2012) when I published my 2nd Edition eBook Practical Guide For Investing Silver In Malaysia, I discussed that US is going to hit the debt ceiling of 16.4 trillion Dollar latest by early 2013. This does not require us to be a professionally-trained economist to recognize, anyone who spend a little time to learn the fundamental of economy could would predicted it.

Debt ceiling for a nation is like a credit card limit for an individual.

maybank credit cardTake example I am an employee who has a credit card with limit of RM20k. When I spend on my credit card and hit my credit limit, I have to pay it off. If I don’t, the bank is going to punish me by giving me a bad record and I will have problem getting a new loan in the future. What I do now is I ask for a bigger credit limit of RM30k, RM50k, RM100k, RM200k and RM500k. Since I have not hit my credit limit, I could continue spending.

This time, when I hit my credit limit I’m NOT going to ask for a bigger credit limit. I found a new trick, I say “temporarily ignore” the credit card limit. By “ignoring” my credit card limit, the bank cannot come after me and I’m now free from financial trouble.

Does it make any sense to you? No!

The exact same non-sense is happening to US economy. On 28 January 2013, US has “temporarily suspend” the debt ceiling. In other words, US has hit the debt ceiling of 16.4 trillion Dollar and they make it official that they are going to ignore the debt ceiling for now. What a convenient excuse! I wonder if you could tell your bank to “temporary ignore” your car loan installment and your house loan installment? :)

history

A wise man once told me, if you want to predict the future, look at the history. Very similar event has happened in US history. In 1971, President Richard Nixon has “temporary” taken the dollar off the gold standard. Before 1971, each US Dollar is backed by certain amount of gold. Today, every Dollar (or Ringgit) that we are holding is not backed by any gold, they are just paper. The “temporary” has lasted for 42 years until today.

Right now, US could continue spending and getting deeper into debt without any ceiling. Thanks to Quantitative Easing (QE3 and QE4) that happened in the last 6 months, US is printing 85 billion Dollar every month – without a definite date to stop printing. The market is flooded with worthless paper currencies. When US prints, the whole world follows to print. Bank of Japan has also announced their version of QE, they are printing indefinitely starting from 2014. This is the formula for guaranteed hyperinflation.

You might or might not have heard about hyperinflation. If you think 5% inflation is bad, this is what happened to the value of German “money” during 1920s. This is the kind of hyperinflation we are expecting in the near future.

German Mark

With such disastrous monetary policy on our way, a financial logical reaction is to allocate your wealth into precious metal. Precious metal (gold and silver) has been a form of money for many thousands of years. Human use precious metal as money long before the invention of paper money. If you think the society has modernly evolved and no longer need precious metal, consider this:

In late January 2013, HSBC Bought $876 Million Worth of Silver. Silver coins was sold out in US Mint – not once, but twice recently. A new historical sales record of 7.5 million oz American Silver Eagle coin sold in a single month just happened in January 2013, created the highest monthly sales in history.

Many smart investors have started allocating their money into precious metal, particularly silver. Today, silver remain as an affordable option in precious metal. When 1 oz gold (31.1gram) costs about RM5300, 1 oz of silver costs only slightly above RM110. Gold is the money of king, silver is the money of people and debt is the money of slaves. If you have tonnes of cash piling your garden, please go ahead buy some gold. But if you are like most people, I highly recommend you allocate some of your wealth into silver. Silver is not only a form of precious metal (that protects your wealth during financial crisis), but also a highly demanded industrial metal. Keeping a couple of silver coins is never a bad idea.

I’ve written the eBook Practical Guide For Investing Silver In Malaysia. This eBook will show you how you can invest silver in a smarter way in Malaysia. In fact, I also shared my short term, medium term and long term exit strategy. Click here to find out more.

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