Banks in Greece reopened on Monday, and even with strict withdrawal limits in effect, it at least gave the appearance of a return to normalcy. But Greeks also woke up Monday to a painful new reality that should serve as a warning to Americans.
Massive tax hikes went into effect, part of the austerity measures demanded by creditors in the latest bailout deal. As the AP reported, the increased taxes are another blow to Greeks already battered by years of economic crisis.
There are few parts of the Greek economy left untouched by the steep increase in the sales tax from 13 to 23 percent. The new rates have been imposed on basic goods, from cooking oil to condoms, as well as to popular services, such as taxi rides, eating out at restaurants and ferry transport to the Greek islands.
“The tax hikes are part of a package of austerity measures that also include pension cuts and other reforms that the Greek government had to introduce for negotiations to begin on a crucial third bailout.”
Gold is power.
We know that gold historically holds its value over time and serves to preserve wealth, especially in times of economic chaos. But gold also offers its holder political power.
Countries that stockpile gold create a foundation of stability for their monetary systems. This is precisely why China is increasing its gold holdings. As we reported last week, China now boasts the fifth largest story of physical gold in the world. The country continues to buy up the precious metal as it eyes a more dominant role in the world’s monetary system.
But it’s not just countries looking to gold to provide political clout and economic power. Texas recently laid the groundwork for its own gold depository. The reason? To wrest some economic power from the Federal Reserve by bringing some monetary autonomy to the Lone Star State.
In his podcast released yesterday evening, Peter Schiff explains why the price of gold plunged on Sunday night. More importantly, he reminds investors why gold is not a faith-based asset, like fiat money. He also reviews China’s relationship to gold, and compares the current market to the last time a bear market in gold ended.
I am convinced, when his market turns, it’s going to be vicious. When the people who have been selling their gold try to buy it back, it isn’t going to be there. Because the people who have been buying into the selling… they’re not going to turn around and sell it. When the speculative sellers are gone, there are no sellers left… I think the market is going to go up even faster than it has come down…
Gold fell to about $1,090 an ounce last night after the biggest single-day decline in its price in two years. It is now hovering around $1,110 an ounce.
Market consensus is that the sharp drop in price was triggered by major selling in the Shanghai gold market by gold speculators. The drop in price is not a product of fundamentals.
In fact, analyst Todd Horowitz told Bloomberg that he believes many investors see this as a major buying opportunity. He points out that from a technical perspective, gold is in very unusual territory when compared to the S&P 500:
It is a hard asset, a commodity, that I think everybody should own in part of their portfolio… I think gold is a hard asset that typically appreciates in value like everything else. If you compare it to the S&P, the S&P is twice as much as gold is now, which is one of the largest discrepancies in history, which means we should see a divergence back into that. Fundamentally, we have seen probably a low point here.”
The People’s Bank of China (PBOC) announced today that it’s gold holdings have grown by 57% to about 1,658 metric tons. This is the first official update to China’s gold reserves since 2009.
China’s gold reserves are now the fifth largest of any country in the world and sixth when you include the holdings of the International Monetary Fund (IMF). Only the United States, Germany, Italy, and France hold more gold than China.
However, many believed China would announce even larger holdings than this. Ross Norman, CEO of bullion broker Sharps Pixley, told the Wall Street Journal, “The figure published by the PBOC is roughly half the market consensus on what we had thought they had accumulated…”
While visiting Athens, SchiffGold President Mike Freedman spoke with two Greeks about their country’s economic crisis. One had voted “yes” in the July 5th referendum, while the other had voted “no.” His conversations were eye opening and hold important lessons for America. Find Mike’s personal thoughts on the matter below.
Could America go the way of Greece?
Most people don’t seem to think so. In fact, proposing that US policy could lead to a Greek-like meltdown will still elicit incredulous eye-rolls in most circles. But some of the structural problems that led Greece down her road to ruin already exist in the United States, especially when we look at state pension systems.
Greece has actually improved its pension system. It now ranks as the eighth worst in the world. That’s up from dead last. According to Eurostat, Greece spends 17.5% as a proportion of GDP on pensions, the most in the European Union.
Fund managers are starting to view gold as a bargain.
According to Business Insider, in its latest survey of fund managers, Bank of America Merrill Lynch found the majority view gold as “undervalued.” In fact, this is the first time since 2009 that fund managers have marked gold as a good buy.
By Bank of America’s measure, gold is currently undervalued by about 1%. The current price sits some 40% below its all-time high in 2011.
I like chocolate. In fact, I like it a lot.
That said, I sure wouldn’t pay $150 for a chocolate bar.
But apparently a lot of Americans value chocolate about that much, or they simply don’t understand the value of precious metals.
Since nobody wanted to buy silver at such a deep discount, Dice tried to simply give the silver away. Last week, Dice recorded people facing the choice between a free, 10-ounce silver bar or a chocolate Hershey Bar. Every person took the chocolate.
Supporters of a $15 per hour minimum wage continue to insist that it won’t impact employment. But the economic problems underlying the Puerto Rican debt crisis tell a different story and provide a possible glimpse into America’s future if the country continues down that path.
Last month, Puerto Rico Governor Alejandro García Padilla announced that the island cannot possibly pay its roughly $72 billion in debts. With more municipal bond debt per capita than any US state, a Puerto Rico default would have a much greater impact on Americans than the situation in Greece. As Peter Schiff recently noted, “Most Americans don’t own any Greek government bonds. But they probably own some Puerto Rican government bonds. Whether they know it or not, they’re in their muni bond portfolio.”
Many policies combined to drive Puerto Rico into this situation, but a recent report reveals labor and wage policies were a big part of the problem.