Where does the free money come from?

About the Guest Author​

The guest author of this blog post is Mr. Torgny Persson. Torgny is the founder and CEO of the Singaporean company BullionStar.com where you can buy gold and buy silver. Torgny is also the founder of the Swedish bullion dealer LibertySilver.se as well as the Estonian bullion dealer Liberty Silver.ee.

Torgny has a Master´s degree in Economics and has 10 years experience as a gold market expert and bullion dealer.

Where does the free money come from?

As a kid I was always fascinated by the interest appearing in the savings book at the end of the year. Yes, I am actually old enough to remember the physical savings book. I was eagerly going to the bank with my piggy bank the 2nd of January each year to find out how much free money I was going to get.

Where is the free money coming from? 

Want to study Economics?

I have a Master's degree in Economics. I'm sometimes asked to share my best advice to prospective students considering Economics as their major. Don´t do it. Yes,don't do it is my advice. 

Even so, I'm proud of my background as an economist. It has taught me a lot about how the world isn't working. I have to tell you that advanced economics was the starting point for a turnaround in my economical thinking. 

My first years studying micro- and macroeconomics was a lot of fun. Demand and supply. Carbon paper logics of the world. I was thrilled. A lot of logical reasoning theorized. I enjoyed it. It opened a new window of reasoning for me.

The latter years were also amusing but not because of the logics of economics. It was amusing because the economic models got more and more far-fetched. 

What started out as modelling the behaviour of people ended in obscurity. 

Take a professor in economics. A man with a lot of respect and authority. Seldom much real life experience. After reviewing too many increasingly unrealistic and illogical studies by his colleagues, he (because it is often a male) feels that he can come up with something equally abstract. A couple of peer reviews, a sweaty seminar and a journal publication later, and he can collect the membership card to the economics admiration club. 

To learn economics, self-studies are much superior to institutionalist studies. Mises is an excellent organisation teaching real life economics. For news coverage, there´s Zerohedge. By keeping to these sources you can learn much more about economics in a month than in four years at university. 

Where is the money?

Back to my original question. Where does the interest come from? It´s as simple as it is enthralling. The money for the interest didn´t exist before it was credited to the account. The interest is a mere book-keeping entry creating money.  

Interest, like money, is not a tangible. Most of it doesn´t exist in physical form. In Singapore, only 5.5 % of the money supply exists in physical form. In the US, the equivalent number is about 7 %. In Sweden, where I originate from, the banks are pushing strong for a cashless society, with the result that only 4 % of the money existing as notes and coins.  

When a bank is extending a loan to a borrower, where does the money come from? Depositors you may say. Wrong. Only a fraction originates from the depositors. All banks have much less deposits than money loaned out. The money is simply created out of thin air. It is lent into existence. Our current monetary system making this possible is called fractional reserve banking. With fractional reserve banking, a bank only needs to have a small fraction in reserves and can loan out create money out of thin air. 

How much is USD 17.4 trillion? 

With the stock markets like the S&P 500 index setting new records by the day, many financial journalists have a positive outlook on the economy. And sure, compared to many other economies, the Singaporean economy is strong. 

But what if we look at the major underlying economies of the world? What has changed since the financial crises in 2008? Sure, the consumption rate is higher but what does that tell us? If you look at the figures, there´s some scary information embedded. Western economies like the US is deeper in debt than ever before. 

USD 17.4 trillion. How much is that? Well, it's SGD 22 trillion. Hey wait, there's no such thing as SGD 22 trillion. The total money supply in Singapore, even calculated broadly, is only SGD 0.5 trillion. The US national debt is thus 44 times all Singapore dollar currency in existence!

I don't know how much a billion is as I can't really comprehend numbers like that. We as people are not equipped to understand trillion, quadrillion or billion figures. Money is supposed to be a unit of account, a frame of reference. USD 17.4 trillion is so out of touch from reality that not many even seem to notice how underwater the developed economies are. 

Gold

How does gold come into the equation?

History shows that gold is keeping its value and purchasing power over time.

Gold cannot be created out of thin air. 

Gold is no one's liability.

What if you put away SGD 1800 in a safe deposit box and left it there for 20 years? What would happen to your purchasing power in those 20 years? Judging from the history of unbacked fiat-money, there would be a loss in the value of the money. 

What if you instead deposited 1 oz of gold in the safe deposit box. 1 oz of gold today cost about SGD 1800. What would happen in 20 years? The gold would likely increasing in purchasing power being worth much more in 20 years. Why? Because it has kept value for 6000 years. Gold can´t be created out of thin air. Gold is a tangible asset in high demand but in limited supply. Gold is the superior metal because of its metallic characteristics such as being dense, soft and malleable.  

Gold is wisdom. Gold is a return to the safety of the past. 

Gold is a way to sleep tight at night - Gold is money! 

How to buy precious metals in Singapore

There are several different dealers offering physical precious metals in Singapore. The most important things to consider when buying physical precious metals are:

- Making sure that the dealer is presenting prices transparently online

- Ensuring that prices and storage fees, if you choose to store your bullion with the bullion company, are competitive

- Checking the track history and reputation of the bullion dealer

At BullionStar, we are proud of our price competitiveness, integrity and service. We treat our customers with utmost respect and confidentiality. We aim to offer the lowest prices for bullion in Singapore. If you choose to store your precious in our storage solution called My Vault Storage, storage is free until 2016!

If you are looking for further information about precious metals, please browse BullionStars articles section which cover topics such as precious metals, monetary economics and general economics.

 

Investment in Precious Metals in Singapore

Investment Precious Metals (IPM) has been exempted from GST in Singapore since 1 October 2012 as the Singaporean government is actively trying to create a regional hub for gold trading in Singapore. Singapore is one of the best places in the world to own and store precious metals since:

- There is no taxes for precious metals in Singapore (No GST or no capital gains tax)

- There is no reporting requirements for precious metals in Singapore

- Singapore is very safe with very low crime rates

- Singapore has very strong property ownership rights

- The Singaporean government is aiming to create a regional trading hub for precious metals in Singapore.

Enjoyed the article?

You can Subscribe to SG Young Investment by Email 
or follow me on my Facebook page

How to Invest in Gold Bullion?

How to Invest in Gold Bullion

Precious metals are naturally occurring metallic compounds of high economic value because of their rarity. Gold bullion is the more popular precious metal that is frequently selected by investors because this precious metal is often used as a hedge or harbor against economic uncertainty. Bullion is a bulk form of gold, and gold bullion is frequently traded on prominent commodities markets. Gold bullion can be traded as a commodity that is significantly affected by the central banking industry and the international monetary fund, for example.

Credit: www.123rf.com

Getting Started in Gold Investing

Gold bullion bars can be used as hedging products against inflation. Buy gold online through professional precious metals dealers to begin a precious metals portfolio. Buy gold bullion as a precious metals investment. This type of investment is tangible and is often more attractive to individuals who wish to have their own access to an account. Gold can be easily used as a purchasing agent. An investor can use their own storage facility or may use a safety deposit box at a local bank, for example. Insurance is available for an account that is stored by a professional gold dealer.


New Investor Tips

Buy gold online through an online professional precious metals and rare coins dealer. An investor may buy gold bullion successfully by using the following steps:

• Learn about the online dealer and the services offered.
• The quality and characteristics of the gold bars purchased are critical to understand.
• Gold purity is an important characteristic of a gold bullion purchase with higher purity levels being more valuable.
• Be sure the gold is genuine by using reputable dealers who sell only legitimate products.
• There are several makers of gold bars that use a valuable hallmark that identifies a genuine product.
• Check the spot price of gold to make sure that the sales price is appropriate.

Investing in Gold Bullion Wisely

Gold bullion bars can be held for a number of years as a long term investment. Investors often use gold bullion and other precious metals as retirement accounts. The bullion bars can be sold for emergency purposes. The following are several markets for gold bullion bars:

Contact an investment company directly in order to sell a gold bullion bar.
Auction websites can help a gold investor sell a certain amount of gold bullion.
A local jewelry store may want to purchase gold in order to manufacture new jewelry.
Pawn shops buy gold bullion for lower pay outs.


Summary

Gold is used as an additional account for an investor's portfolio. The value of gold has its own economic markets, and frequently the value of this yellow metal does not decline when other markets fall. This precious metal is used as a hedge against unstable economic markets and a harbor against inflation. There is a tangible value to this type of investing that is attractive to investors wanting more direct account access. Buy gold bars for long term retirement investments. Buy gold online through reputable broker dealers. Note the quality and characteristics ofgold bars prior to purchase. Investment caliber bars are stamped with a maker's hallmark and have a certain percentage of gold purity. Gold bullion bars can be safely stored.


*The above article is contributed as a guest post by Aew. 


My thoughts on investing in Gold

Gold is a long term investment. It is a hedge against inflation. When the value of paper currency depreciates, Gold becomes stronger as what we've seen over the years when the US dollar depreciated. Gold prices has fallen significantly over the past 1 year and may continue to fall as the US dollar get stronger due to the fact of the tapering of QE. It may be good to watch gold prices as it develops. There will certainly be chances for patient investors to buy Gold at cheap prices.

In Singapore, you can invest in Gold through the bank. UOB allows you to open a gold/silver account or you can buy the physical gold itself. Contact a professional advisor to know more about investment in Gold Bullion.