Protecting Wealth from the Printing Press

With uncertainty, volatility and money printing the orders of the day, one asset is the clear winner when it comes to protecting wealth.

A bit of economic sense emerged recently -- out of Hungary, of all places. During a three-day summit on the Hungarian economy, the idea of a 16% flat tax was apparently floated as a trial balloon. Longtime readers will recall that a flat tax is one plank in my "platform," along with tort reform, term limits and abolishment of the Federal Reserve. It will be interesting to see how long this idea can remain aloft.

How to invest in gold

There's probably a better chance the Fed will pursue a slightly easier monetary policy, with lower interest rates, before we see it trying anything resembling a tighter one. Even The Wall Street Journal has come to that conclusion, with an article in the June 7 Money & Investing section headlined "Easy money to stick around a while." (You can read it online here.) I would think it's liable to be a lot longer than just a little while.

24-carat reasoning This leads me once again to a topic I've spilled plenty of ink over: gold. There has been so much recent verbiage regarding what a bad idea gold is that I felt the need to debunk those who hate the precious metal.

The worldwide propensity to attempt to solve structural problems with monetary "solutions" means that until the printing presses are taken away and we decide to pursue sound, long-term policies, both in the U.S. and elsewhere, money printing will remain the order of the day -- which is why we need to own gold to protect ourselves. Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 304, 314, {"configCsid": "MSNmoney", "configName": "player-money-4x3-articles-inline", "player.vcq": "videoByUuids.aspx?uuids= 65309ef5-3bea-45a8-9423-d42a20f56ede,f20a3a65-9b5e-4adb-9080-2c06d9c5e9a4,7ed20ecd-ac19-4ea7-bb11-8217ac80bf8e,60154769-c116-40d7-87ff-74f08267c2eb,b2c5ac8f-e047-49ac-8b85-ef505f42bb1d,9ad22bc1-dada-48a6-851a-5c1893ca184a,8f30df08-6776-4f51-b3bf-02250cc0fc47,e5cb230b-f754-4d83-ae17-4c004fe3ed32,7fb754cf-d606-41cb-8718-b548b7c61432,03e73fd7-bb9f-4c3d-b061-ed0488dc8fb4,4bcb2f53-6849-4a78-8953-d478e102345a,43486f57-5c69-4e36-96a6-a857c0c1bf87,40695b2a-7657-4acf-876a-1ca704d1b4b3,8e6a4510-8043-4ee8-8dd0-25a53b8e2b33", "player.fr": "iv2_en-us_money_article_Investing-ContrarianChronicles-inline"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=65309ef5-3bea-45a8-9423-d42a20f56ede,f20a3a65-9b5e-4adb-9080-2c06d9c5e9a4,7ed20ecd-ac19-4ea7-bb11-8217ac80bf8e,60154769-c116-40d7-87ff-74f08267c2eb,b2c5ac8f-e047-49ac-8b85-ef505f42bb1d,9ad22bc1-dada-48a6-851a-5c1893ca184a,8f30df08-6776-4f51-b3bf-02250cc0fc47,e5cb230b-f754-4d83-ae17-4c004fe3ed32,7fb754cf-d606-41cb-8718-b548b7c61432,03e73fd7-bb9f-4c3d-b061-ed0488dc8fb4,4bcb2f53-6849-4a78-8953-d478e102345a,43486f57-5c69-4e36-96a6-a857c0c1bf87,40695b2a-7657-4acf-876a-1ca704d1b4b3,8e6a4510-8043-4ee8-8dd0-25a53b8e2b33;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');My buddy Comrade Kuppy recently penned an excellent essay on the subject. One of my favorite passages argues that gold is "not really an investment per se -- it's an escape from government imprudence. You don't own gold because you expect it to do remarkable things -- you own it because you are scared of your government doing remarkable things. Think of gold like the credit rating of world governments. It's the (insurance) you buy if you don't trust the politicians and their stewardship of the currency."

Or as Jim Grant of Grant's Interest Rate Observer stated in 2001, when gold was $290 an ounce and we had seen only the post-dot-com-bubble binge of government money printing (which was kid stuff compared with the latest round): "The risk to the holders of dollars is that the policy makers will succeed beyond their wildest dreams. . . . Gold is the hedge against 'success' of currency-manipulating and deflation-fighting monetary institutions everywhere."It's only a paper currency moon As for the "dress rehearsal" to our ultimate funding crisis, aka the current financial mess in Europe, my oft-cited source the "Lord of the Dark Matter" had this to say about where we are in the unraveling of the euro:

"It took over three years from the first EPDs (early payment defaults) in the summer of 2006 until Lehman's demise. Economic and monetary union has been from inception an experiment wrapped in a tissue of economic lies. . . . Its unraveling -- for that is what is actually happening in the plumbing -- has been telescoped into a few short months, and because the unraveling is all in the plumbing, I do not think the median investor nor median policymaker is able to grasp the significance of the unstoppable process that appears to be under way. . . . The enormity of the problems there cannot be overstated, and the chances they can be overcome are diminishing by the day."

In short, he thinks there really is not much hope for the euro in the end. As he says, "Europe's Lehman Bros. is actually Europe." (And Lehman Brothers' collapse, of course, precipitated Wall Street's near meltdown.)

However, as I noted recently, I think it will take some time for all of this to play out. As has become apparent to the world's investors, paper money is no good, hence the worldwide bid for gold.

This doesn't stop gold from being volatile, nor does it guarantee that every day it will increase in price or rally on the days that one thinks it ought to. But over time it has, and it will protect folks' wealth from consequences of the printing press.

At the time of publication, Bill Fleckenstein owned gold. More from MSN Money

Market spinning but going nowhere

Time for investors to wait and watch

Waking up to the golden rule

Always bet on the bad guys

Europe's dilemma: Print money or cut debt?

Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=8.4; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=20;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board MSN Money InsightNew Investor CenterMarket DispatchesJubak's JournalTop Stocks blogCompany FocusContrarian ChroniclesSmart Spending blogFast AnswersDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingRecent Contrarian Chronicles ArticlesMarket spinning but going nowhere 06/04/2010Waking up to the golden rule 05/28/2010Europe's dilemma: Print money or cut debt? 05/21/2010More . . .Contrarian ChroniclesAbout Contrarian ChroniclesLearn the Contrarian Chronicles lingoSubscribe to Market Rap on Fleckenstein CapitalFund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='gwaeaw7p03wc5jqqvw2gpi4tge7a0jpy';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Be the first to add a comment.To add a comment, pleasesign in /*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*

Or as Jim Grant of Grant's Interest Rate Observer stated in 2001, when gold was $290 an ounce and we had seen only the post-dot-com-bubble binge of government money printing (which was kid stuff compared with the latest round): "The risk to the holders of dollars is that the policy makers will succeed beyond their wildest dreams. . . . Gold is the hedge against 'success' of currency-manipulating and deflation-fighting monetary institutions everywhere."It's only a paper currency moon As for the "dress rehearsal" to our ultimate funding crisis, aka the current financial mess in Europe, my oft-cited source the "Lord of the Dark Matter" had this to say about where we are in the unraveling of the euro:

"It took over three years from the first EPDs (early payment defaults) in the summer of 2006 until Lehman's demise. Economic and monetary union has been from inception an experiment wrapped in a tissue of economic lies. . . . Its unraveling -- for that is what is actually happening in the plumbing -- has been telescoped into a few short months, and because the unraveling is all in the plumbing, I do not think the median investor nor median policymaker is able to grasp the significance of the unstoppable process that appears to be under way. . . . The enormity of the problems there cannot be overstated, and the chances they can be overcome are diminishing by the day."

In short, he thinks there really is not much hope for the euro in the end. As he says, "Europe's Lehman Bros. is actually Europe." (And Lehman Brothers' collapse, of course, precipitated Wall Street's near meltdown.)

However, as I noted recently, I think it will take some time for all of this to play out. As has become apparent to the world's investors, paper money is no good, hence the worldwide bid for gold.

At the time of publication, Bill Fleckenstein owned gold. More from MSN Money

Read Full Article »