Don’t Take Any Wooden, er, Platinum Nickels

Last week, the entire nation avoided the biggest metals scam in history when the Treasury Department announced that it would not mint a trillion-dollar platinum coin to reduce the government’s debt. The platinum price has been rising, and is expected to perform better than gold this year, but there still isn’t enough of the stuff above ground to mint a coin that is actually worth $1 trillion. If the Federal Reserve had accepted such a coin as payment, it would surely have been the greatest swindle in the history of modern economics.

Actually, on second thought, it wouldn’t have been much of a swindle at all. Printing a trillion-dollar coin would have simply been a more honest approach to what the government and the Fed have been doing for years: printing money that doesn’t exist and has no real value underlying it. Instead of minting coins or bills in outrageous denominations, the Fed simply “buys” government debt by typing a big number into a computer and – voila! Suddenly the Treasury has an extra $85 billion dollars to spend every month. Where did the money come from? The magic push of a button by some bureaucrat at the Fed.

The main difference between a trillion-dollar coin minted by the Treasury and the Fed’s  “quantitative easing” is that everyone understands the Treasury’s coin isn’t worth its face value, unlike the government bonds that are exchanged for Fed stimulus. Say what you want about Ben Bernanke, but you’d hope he’s smart enough to prevent the Fed from falling for the same scam he’s been managing for years.

The concept of minting a coin with a bogus value in a time of crisis is reminiscent of the 1930s. When banks were low on funds during the Depression, they would sometimes distribute wooden nickels with expiration dates, which allowed people to do business until the bank got more currency and the wooden coins could be exchanged for legitimate cash. The idea worked in theory unless you forgot – or were unable – to cash in the nickel before the due date. Hence the adage, “Don’t take any wooden nickels.”

We’re lucky we don’t have to worry about commercial banks trying to pawn off wood or platinum coins of trillion-dollar, or even million-dollar, denominations. But still, the whole concept makes you wonder, what is our cash actually worth? The average bank executive hasn’t the chutzpah of Washington criminals, but your bank’s cash is issued from the same place as mine.

Tim Geithner is now on his way out, with Jack Lew replacing him as Secretary of the Treasury. Who knows, maybe Tim will place a special order at the mint and take a little “souvenir” with him. Probably not, but small-time scammers might get some ideas from the master criminals in Washington, so I’m keeping a lookout for anyone trying to hock overvalued coins.

Just remember: never accept any platinum coins as payment for anything more than the value of the platinum itself. Unlike the Fed, your money supply is limited.

For a smart appraisal of the trillion-dollar coin scheme, check out Jim Grant’s interview on CNBC:

A New Blog from the Original Gold Scams Detective

Usually this blog draws your attention to gold scams and common issues to be aware of when purchasing precious metals. Of course, it’s also important to understand the reasons for investing in precious metals in the first place, as well as the day-to-day precious metals trends. Since this blog doesn’t offer much in the way of gold news, I thought it would be worthwhile to share with you Peter Schiff’s new “Official Gold Blog.”

There’s been a lot of hubbub in the media lately about the future of gold, especially since it closed out 2012 with a 12-year run of rising prices. However, just as it can be tricky to determine the trustworthiness of a metals dealer, it’s also hard to know which commentators and financial pundits are reliable. Is an “expert” bearish on precious metals because they’re simply playing the markets on a short-term basis? Or perhaps they’re bullish because they’re heavily invested in a certain ETF.

I’ve long written that Peter Schiff is a big inspiration to me. His Gold Scams report got me started on this blog, and he has been supportive of the effort all the way. Schiff’s long-term, big-picture approach to investing is famously consistent (annoyingly so, to some). Schiff has been encouraging people to protect their wealth with gold and silver long before his metals dealer, Euro Pacific Precious Metals, opened its doors – so it’s hard to argue his bullish stance is simply a pretense for selling more gold.

Instead, Schiff’s approach comes from a realistic analysis of global economics: Western money-printing, Eastern growth and need for secure savings, the downfall of the dollar, and no reforms on the horizon. Simply put, Schiff is a lone voice of sound economics in a mass media awash with government-funded professors and lobbyists with their own agenda. Even if you disagree with him, his opinions are worth noting if only as counterpoints to the conventional wisdom. Every investor – whether in gold, stocks, or otherwise – should learn to take in various points of view. And Schiff’s blog is also a great resource for the latest hard news from the metals markets.

Whether you’re skeptical of the long-term potential of gold, or you’re already an avid precious metals bull, I think Peter Schiff’s Official Gold Blog deserves a spot among your bookmarks.

Let us know what you think on our Facebook page, and stay tuned to Gold Scams Exposed for even more buying tips and scams to avoid in the coming year.



Avoiding Bait-and-Switch Metals Dealers

Gold dealers have developed a reputation akin to the stereotypical car salesmen: fast-talkers with a tendency to mislead through omission. Vetting a prospective precious metals broker can be a tedious process. You might find yourself becoming chummy with a gold broker over the course of weeks or months, only to find yourself duped when you’re actually ready to buy.

We’ve recently heard of just such a scenario. An enthusiastic gold investor had been exchanging emails and phone calls with a broker at a well-known, national metals dealer. They communicated so often, the buyer started to think of the broker as a personal friend. The buyer wanted to roll his IRA over into precious metals, and when he was ready to do this, the broker convinced him to also purchase some gold coins. It wasn’t until he received shipment that the buyer discovered he had bought half-ounce gold eagles for $400 over spot! A fast-talking broker had gained his trust and taken him for a ride. This bait-and-switch swindle is the sort of thing Goldline got in trouble for earlier this year.

The lesson? No matter how personable your salesperson is, practice cautious buying:

1. Always be wary of a salesperson trying to sell you something you didn’t come in to buy. In the bait-and-switch scenario described above, the buyer was originally interested in a gold IRA, but was talked into taking physical coins for delivery. Since he felt he was getting a good deal with the IRA, he made the mistake of trusting the salesman about a product he didn’t want or understand.

2. Get the price quoted in writing before purchasing. If they don’t list their prices on their website, a trustworthy precious metals dealer will send you an email with a firm price quote. Remember, the spot price of metals can change quickly, and they’ll likely remind you of this with a disclaimer. So while you will have a limited amount of time to act on specific price, at least you have a record of exactly what you’re buying. This was the mistake in the scenario described above: the buyer trusted the salesman so much he didn’t ask to see a written quote or description of the coins before placing the order.

3. Do some basic research before you buy. It is always a good idea to go into a purchasing situation with at least a basic knowledge of the product you want and the market rate for that product. With a car, this means checking the Kelly Blue Book value. With precious metals, it means checking prices on a site like eBay. While eBay likely won’t have the best prices for precious metals coins – especially for large purchases – it should at least provide a benchmark of the market price of the product you want.

It is smart to be cautious, but don’t let worry prevent you from protecting your savings through precious metals investing. There are gold dealers who recognize the value of a long-term client relationship and will treat you with the corresponding respect. Using the few simple practices we described, you can find a good broker who will help you for years to come.