Thu 22 Feb 2007
Material Possessions = Wealth
Posted by RichSlick under Financial Safety
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There is a new round of “don’t buy that Plasma TV” posts making the PFBlogger circuit and I’m writing about looking at the issue from a slightly different perspective.
What started me along this path was the following news item about Feds taking over a credit union because of possible insolvency. The article begs the question: What would happen if ALL financial institutions went insolvent? What if citizens lost faith in the US Dollar?
Assume for a minute that the US Dollar became worthless overnight. You might have had $10,000.00 “saved” in your bank account but that’s now only worth $10.00 in purchasing power. What would you do? Where would you get the money to buy food or medicine?
You can easily see how a person with numerous material possessions (Plasma TVs, Luxury Cars, Jewelry, Clothing, Crystal Vases, Art work, etc) would be in a fairly good position to be able to barter for food, medicine and other items in the event of a crisis whereas a person with paper wealth would be broke.
I’m not advocating everyone go out and load up on things they can’t afford but I am saying that material possession has a purpose as PRESERVATION OF WEALTH. Whether you buy gold bullion, diamonds, Plasma TVs, real estate or luxury cars they all help preserve your wealth.
February 22nd, 2007 at 2:43 pm
Sorry, diamonds, Plasma TVs, or luxury cars DO NOT equate to preservation of wealth.
February 22nd, 2007 at 6:03 pm
The problem with the idea of a plasma TV as a preservation of wealth is that it becomes obsolete quickly. If you buy one now and the dollar crashes in 10 years, it’s not going to be worth a lot in barter. How much is that luxury car going to be worth in 10 years if the dollar collapses then?
Along similar lines, what if people decide tomorrow that gold has no value. I think that titanium looks better and it’s stronger, so gold to me is only useful as a good conductor of electricity. If others start to agree with me (and a lot have) it will be worth less than titanium, which is pretty cheap. What if man-made diamonds catch on and it becomes trivially cheap for companies to make their own diamonds? Suddenly bartering a diamond is silly because they are too abundant. It’s only value is in it’s scarcity.
In your asset allocation, don’t you have money in foreign markets? That seems like a much better way to preserve your assets if you ask me.
February 22nd, 2007 at 6:19 pm
Everything is always relative and everything always depends on your frame of reference.
What is MORE likely to happen: People lose faith in paper currency and electronic journal entries or people lose faith in Gold as a store of wealth?
From a historical perspective, how many times have people lost faith in gold in favor of paper currencies or tulips?
Gold has been a medium for money for at least 5000 years as have emeralds, diamonds, rubies, silver and other rare minerals & metals.
You present many hypothetical events that may or may not happen but the most obvious thing to do is to base your assumptions on historical events.
Alchemists have tried to turn lead into gold for centuries and they haven’t succeeded. diamonds can be artificially produced but that is not what holds their value. Truth be known, there are nearly an equivalent amount of diamonds stored in vaults and in the ground as there is sand on beaches. the value of diamonds is based on the marketing behind it.
It is all supply vs. demand. In some likely events (war, natural disaster) the likelihood of certain items (food, medicine, plasma tvs) becoming scarce grows exponentially. At the end of the day, you would need to barter with something and paper is pretty worthless during crisis.
Could you barter with titanium in the event of war or natural disaster?
What is more likely, you trade a diamond ring for 10 gallons of gas or you trade 5 ounces of titanium for 10 gallons of gas?
Kings & Queens throughout the ages preserved their wealth in crown jewels, cutlery (silver), goblets (gold), clothing (fine silks) and weaponry (swords, arrows).
During a crisis, you’ll quickly understand how the human mind and human desires really work and things always revert to their earlier days. I hope none of us ever live to see those days…
February 23rd, 2007 at 9:45 am
Rich,I agree with the point your trying to make.As the previous two posters mentioned however,I don’t think plasma TV’s are good examples to use to make your point.
I recently cashed-in a 401k from a previous employer.I used the money from this to finish my basement.By doing so,I have doubled the living space in my home for my family to enjoy.My networth remained the same since I just transfered assets from one class to another.Plus,if times get bad I can rent out my basement.I think my basement finishing job would qualify as an example of one of your “PRESERVATION OF WEALTH” ideas.
February 23rd, 2007 at 10:37 am
The assumption is that Plasma TVs will keep coming into the US from China/Taiwan/Korea and the price will continue to drop. What happens if we were to go to war with China?
Will they still send Plasma TVs over here? It’s a bit extreme but it always breaks down into Supply vs. Demand.
During crisis, supply dwindles and demand soars.
Remember video clips from Katrina. What were people looting? Food, Clothings & TVs amongst other things. Don’t ask me why they were looting TVs but they were….
February 23rd, 2007 at 10:44 am
Your historical point of view on gold and jewels is noted, but I believe we are in an age where that’s not relevant. In those times, things such as, well electricity, didn’t exist. Give a child a piece of gold vs. a Tickle Me Elmo and he/she will take the Elmo every time. In a disastrous situation, I don’t want a rock that I can’t do anything with, I want basic necessities.
The value of gold is going to change as people realize that it’s unimportant. Historically it was the plasma TV or luxury of the wealthy - it showed off their status. That is changing as modern items replace it. When was the last time your village got together to talk about the person with a new piece of gold jewelry? It doesn’t happen. However, it’s quite often that I hear the guy buying some modern tech toy.
As for diamonds, you are right, it is all about the marketing and forced scarcity by the DeBeers corporation. This monopoly is going away as today’s alchemists can make diamonds that are indistinguishable from those that come from Debeers. This means that supply could skyrocket to the point where their value drops to nothing.
“What is MORE likely to happen: People lose faith in paper currency and electronic journal entries or people lose faith in Gold as a store of wealth?” I say people lose their faith in gold and the odds of that is increasing more and more each day.
February 23rd, 2007 at 12:49 pm
Only time will tell Lazy man….it was Albert Einstein that said the fourth great war will be fought with sticks and stones. As for the village comment. Turn your TV to ShopNBC, QVC or any other shopping channel and you will see gold jewelry being sold day in and day out. Yeah….no one wants gold any more… 
February 23rd, 2007 at 9:16 pm
It depends on how each person defines wealth, honestly.
But most often then not, people believe more in what they see. If you tell me you have a Billion dollars in the bank, yet you are renting an apartment that looks like it could be shut down by the public health office it will be hard to believe.
But if you roll up in a Maybach with your own butter opening the door for you. You betcha I’m going to think in my mind that you must be filthy rich and very wealthy.
Would you believe someone that showed you statements of his accounts that he’s a millionaire yet lives as though he has barely enough money to eat? Or would you believe more in the guy with the maybach?
Which doesn’t go to proof that wealth equals happiness. It makes the case that material things do show, that at lease on the surface, you are wealthy.
February 24th, 2007 at 3:24 pm
I made it clear that I’m not advocating anyone go out and buy material possessions Jake, I’m just pointing out that possessions do serve multiple purposes and one of those purposes is, to some extent, wealth preservation.
March 2nd, 2007 at 8:08 pm
the dollar is becoming more and more worthless everyday.
thats why i’m buying gold and silver coins. i’m sure they’ll come in handy when i need to rush down to mexico!
March 5th, 2007 at 12:46 am
Certainly keeping an ear to the ground is warranted. I’m a bit fond of Au/Ag myself.
When TSHTF more pedestrian luxuries like coffee, cigarettes, matches, ammo, etc. are handy for bartering. But that’s a bit different than hyperinflation.
Depending on what flavor of S hits the F, a plasma TV or luxury car could be absolutely useless if there’s only expensive electricity or gas to operate them.
Hard to tell, but I see where you’re coming from.
March 5th, 2007 at 1:10 pm
I guess the fundamental question is this:
IF people lose faith in paper currency (i.e Federal Reserve Notes), WHAT will be used as money?
Historically for THOUSANDS OF YEARS, gold, silver, gems have been used as a store of wealth.
Recently, Cars, electronics, clothing, shoes have been showing high demand. Why do people pay $5000 for a hand bag or $400 for a pair of shoes or $2000 for a TV when cheaper alternatives are readily available?
Both Gold/Silver AND “Fancy” stuff are stores of wealth and IMHO act as “insurance” in worst case scenarios.
I say you own a little of both in addition to your paper investments.