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Greece: A Simple Lesson in Insurance

In case you haven’t been watching the news, or you are just uninterested in global economics, the country of Greece—a part of the European Union (EU)—is teetering on the edge.

Similar economic calamities throughout history have produced the exact same images as the news is showing today…  angry, scared mobs lined up outside of banks and/or government offices.

The loss of confidence in Greece’s banking system coupled with the capital controls put into place by the government have created uncertainty and chaos of both the orderly and disorderly kind. Thousands of people lined up outside of banks and ATMs hoping to get something, anything, that can get them through to the next day. To the truly lucky, maybe even the next week.

Gold, Greece, Chaos, Bank, Insurance, Economic Crisis, Fear, Panic

The country’s struggles have been long and winding. Arguably drawn out and worsened by the meddling of bureaucrats in Brussels, Belgium, and unelected un-sovereign wealth funds (read: International Monetary Fund), it is somewhat astonishing to realize that the Greek government-debt crisis (also known as the Greek Depression) started back in 2009 and is just now coming off its hinges.

I realize that most people outside of politics, economics, finance, and the media and those who do not reside somewhere in or around Greece see the news and shrug it off as “not my problem.” And for the most part this is probably true. If it doesn’t somehow disrupt our daily routines why should we give it a second thought, right?

Rather than pontificate on why you should pay attention to this situation, or why you should understand the risks of contagion, I will instead give one simple piece of advice that may in the future keep you from being one of the hoards.

OWN SOME GOLD

Sounds so simplistic, doesn’t it? Maybe to some who don’t understand money it may even sound ridiculous. But to savvy individuals who have accumulated some sort of wealth in their lives it makes perfect sense, even to those who work for the government and/or a banking institution who may have been indoctrinated to think otherwise.

Put into perspective, gold has been a currency in one form or another for thousands of years. Moreover, it has been considered a precious metal used in jewelry for even longer. Precious metals like gold are some of the oldest items used for barter on the planet—maybe only food, beads, and shells can claim to be older. All three, by the way, would fail in today’s world to store value, unlike gold’s inherent properties.

Paper money on the other hand was introduced centuries later by the Chinese during the Tang Dynasty (approximately A.D. 800), and was used primarily for private issues of credit. As is so often the case with many things, though, it became distorted, inflated, deflated, and rendered worthless after centuries of misuse.

Interestingly though, out of the thousands of years that gold has been sifted, scratched, dug, and exploded from the earth, there’s only 165,000 metric tons of it above ground. Although that may sound like a lot, put into better perspective, think of it as a cube. If the entire world’s above-ground gold was melted into a nicely perfected cube each side would be just over 20 meters (67 feet) in length.

Of course 20 meters is relatively big if you’re standing next to it, but if you consider there are over 7 billion people who inhabit the planet, and might require or need a piece of that cube, then distributed evenly it would only equal 24 grams of gold for each person. Another way to look at it (credit Numbers Sleuth) each person would receive 5 gold rings at 18-karat purity.

But we’re talking about humanity here, so nothing is “fair.” We cannot use a constant system of distribution to represent how much gold exists in the world or how it would be distributed. A better way to look at how this asset is realistically owned is via an inverted pyramid shape. At the top you would have central banks, a stage below that would be hedge funds, banks, the uber-wealthy, etc., and there at the very bottom where everything is pulled into a fine point… that’ us, the citizenry.

INSURANCE, AS OLD AS THE HILLS

Times are extremely volatile in Greece. Some say they are on the precipice of tragedy. Every new day in Greece brings an additional struggle, a new challenge, a new idea, and a new setback. Many Greeks are probably growing numb to it all, and at this point all they care about is where their next meal is coming from, especially the poor elderly pensioners.

The age-old argument against gold as an insurance policy completely falls flat when examining Greece. Yes, it may be a case that a gold buyer might find it tough to part with cash for gold right now, especially if the situation there does grow even more confusing or turns completely dire. But unlike island nations like the U.K. or Japan, all you need to do is cross over the border to turn your financial circumstances around.

Gold is an insurance policy against bad government decisions and economic hardships. Its value remains strong, and will remain strong—even if the masses are aloof to it and paper and debt become exciting again. It has withstood thousands of years of war, economic chaos, unintended consequences of bad governments, natural disasters, and famine. It is the ultimate wealth protector, and a lifeboat when needed.

The simple lesson to learn by watching the Greek crisis is that nothing in economics or finance is guaranteed unless it is borderless, contagious, and its value is not based on human ingenuity.

Gold, and precious metals for that matter, offer all of these and more, and if it’s insurance you seek, there is absolutely nothing like it in the world.