No Financial Education ? Watch Out for the Sucker Punch.

No Financial Education ? Watch Out for the Sucker Punch.

Last week was certainly a bloody one in the markets as nearly every market signaled a return to panic regarding the condition of the global economy.

  • The Dow was down 6.4%. It’s worst week since October of 2008.
  • Gold futures dropped 5.8% on Friday.
  • And silver really took it in the shorts, dropping 18% in one day of trading.

So there you have it… history right before your eyes. It seems like we’ve seen a lot of records lately. Unfortunately, the records are all negative ones.

Drops in Gold and Silver

It’s not everyday that you see drops like this in gold and silver. In fact, it’s been 5 years and 24 years respectively.

The problem with history is that most of us weren’t around when it happened, or at least we weren’t paying much attention. So, in order to know and understand the implications of history, we have to study. We have to increase our financial education.

For starters, as we’ve hit on many times in this blog, every currency in the history of the world has gone to zero.

This happened in Rome when the Emperors began clipping the sides of coins and saying those coins were still worth the same amount. It happened in the 1600’s when the Dutch thought tulip bulbs of all things were of estimable value. It happened in France under the Revolutionary regime. It happened in Germany in the early 1900’s. It happened recently in Zimbabwe, where a trillion dollar note can’t buy you a cup of coffee.

And it can happen in the US and Europe.

In 1971, Nixon took the dollar off the gold standard and ushered in the age of currency. Now, every currency in the world is pegged to the dollar — and the dollar is pegged to nothing.

Its value is based on confidence in the U.S., which for now, still enjoys its role as the leading economic powerhouse. So, when the markets lose confidence in a crisis, they rush into dollars. That’s what happened on Friday, and nearly every index and commodity dropped because of it.

It’s not that people have more confidence in the dollar — they don’t. It’s that they want to cash in on gains and see where to put their money next. Sometimes this happens on a grand level, like last week.

The problem is that those without a financial education follow the investors and are always late.

They sell after the damage is done, go into dollars, and buy when the pros have already moved on and pushed up prices. They get sucker punched.

The question is… what will happen when investors lose total confidence in the dollar?

Where will they run to hide in times of crisis then?

If history is any indicator — and I think it is — they’ll run to gold and silver. And when that happens, you don’t want to be stuck holding dollars.

The fundamentals of our economy haven’t gotten any stronger. In fact, they seem to be getting worse.

We’ve printed more money, taken on more debt, and are seeing increasingly more partisan politics that makes matters even worse. Our unfunded liabilities are still catastrophic and there’s no solution on the table. Europe teeters ever closer to the abyss. Once hot, third-world economies are slowing.

Recession it seems is ready to come again — or worse.

So, when the time of financial reckoning comes, where will you place your faith? In the dollar or in gold and silver?

I’ll stick with gold and silver. Thankfully, they’re a bit cheaper now then they were last week. So, I think I might I’ll buy some more.

For more information on increasing your financial education about gold and silver and more, check out:

What is Financial Education?

The Truth About Money

Original publish date: September 27, 2011