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Fiat paper counts in critical moments

Gold may be a wonderful inflation hedge through the years and the centuries of civilization, but average people need to get through their day-to-day lives and find their next meal when they are hungry.

An all-gold investor might find this approach to be deficient in certain circumstances.

Some cash is also is required, that is if experiences of the Greek financial crisis are any guide. This cash is in the form of fiat euro bank notes.

Stories in the financial news media in the last few days are very instructive.

When the Greek banks were closed earlier this week, the processing of credit card payments apparently closed with them and tourists used to living fully in the electronic age suddenly found themselves needing cash to pay bills.

Some went from empty ATM machine to empty ATM machine in search of one that would give them bank notes.

These tourists could have traveled with gold.

What would that get them?

Haggling with strangers in a foreign land who know that you are desperate is not likely to lead to getting a fair price.

What if you are Greek with gold?

You might have a buddy who is a local jeweler who might have the cash to buy your gold at a fair price. Then again, how many people with gold have buddies who have the cash to pay them in a crisis?

The odds are the buddy will be scrambling to find his next meal, too, and won’t have the cash to pay a fair price even if he was inclined to.

What if you are hungry and desiring to buy food from a grocer or a restaurant owner?

They might know what gold is. They might think it a good idea to take it, but then what will they do with it?

The suppliers of grocery stores and restaurants want cash – fiat paper.

This chain of interdependence means that average people, no matter how well fixed they might be for the next decade or half century because of their gold investments might find themselves in situations where they are trying to get through the next half day.

Worse, you would probably be marked as a guy who has gold to the general population that is also experiencing the crisis and looking for their next meal.

Gold is not ideal for these short-term circumstances.

Whatever you might think of the long term-future of fiat paper money, there are situations that can arise where in the short term it is the only game in town and you had better be sure to have some.

With the cash to get through the short term, a long-term gold holding can do its job.

Buzz blogger Dave Harper is winner of the 2014 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”


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One Response to Fiat paper counts in critical moments

  1. soubitos says:

    Greetings from a rather rainy Athens, Greece
    Mr Harper, I would like to point out a couple minor or more important issues in your otherwise interesting article

    1. Greece is the place where hospitality was born… An incarnation of God Zeus in ancient Greece was Xenios Dias, freely translated as Zeus of Hospitality. To do harm to a stranger was wrong… To offer your bread and comfort a stranger was a blessing….
    2. couple thousand years later, Greeks are still born with the same DNA although the conditions and modernization of our way of life plus a couple million illegal foreigners or refugees gradually infiltrating our culture over the past 2-3 decades have altered our reactions indeed… we are trying to be more careful and more protective of our own or in many cases, simply afraid of cultures and people unknown to us, people who we feel their suffering but we cannot offer any help especially in the past few years, a period their numbers increase maybe even double every few months…
    3. On the other hand, Greece is a beautiful country and welcomes several million of tourists from more countries of the world than i can remember their coins denominations 🙂

    To the point…
    You write : “When the Greek banks were closed earlier this week, the processing of credit card payments apparently closed with them and tourists used to living fully in the electronic age suddenly found themselves needing cash to pay bills”

    Let me provide some intel about what really happened early this week.
    Banks closed as they always do on Friday evening. People have been withdrawing cash from our banks over a period spanning several months now, but withdrawals increased as we came closer and closer to the end of June …. first lines of people waiting to take money from ATMs were promoted by Media on Saturday night right after the referendum was announced. A bank run was launched during the weekend and Bank of Greece was forced to suggest a Bank Holiday late Sunday evening.
    Some ATMs have been emptied during the weekend and they were all shut down on Sunday night.
    They were refilled with cash on Monday morning and resumed operations with a 60 euro limit per card per day ever since.

    The total time of ATMs being offline was maybe less than 16hrs in most cases, no more than 18hrs total…. since they were put back online, they serve foreign issued credit and debit cards without any limits as those that apply to Greek citizens and their locally issued plastic, simply because even in our worst moments we respect our “heavy” industry which is tourism and we know happy holidays bring more next time! -yes, we do have bad apples.. in other countries they might make cider with them.. we let them rot-

    Let me also mention that over the past 5 years one of the booming “industries” in crises stricken Greece has been “WE BUY GOLD” shops who have helped exporting legally or illegally thousand of gold ounces every year in any form you can imagine.. also silver, and diamonds or Rolex watches etc…. in a numismatic point of view, I am deeply concerned that many silver and gold coins, common or rare must have found their end of life in a smelters kiln and were exported to Germany mostly.

    I want to assure you that as far as i know, from the press, internet, media etc in the few cases of tourists who found themselves without any cash in a not so “modernized” area of the world with little penetration of plastic money in total anyway, locals took care of them, offered them a drink of water and food, hotels and rooms to let did not kick them out, they didnt find themselves in a deserted place hungry and thirsty……. not because those locals had to do that…. but because we understand our heritage and want to say “Thank you for visiting our beautiful country” and “Sorry for the mess we let it become”.

    No, Gold would not be a safe way to try and work around a situation like that…. not in Greece and hot without risking too much…. also, Gold is a “dense” value meaning, even a few grams might worth couple hundred euros…. not so practical when you only need some food and a cab to the airport…

    In a country like Greece though you can trust me that especially in tourist areas you can work your way with USD… in some areas you might even be able to change rubles or shekels thanks to tourists from those areas.. GBP would be welcome too…. and its a lot different to accept a lower exchange rate on a 50$ bill just to get you going that on a half ounce gold bar in a “we buy gold” shop…….

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