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I’d like to start this issue by quoting three great authors. Although they were from very different walks of life, they shared an understanding of exactly what the global economy is going through today, especially the events here in the U.S. …
“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”
— Ernest Hemingway, September 1932
“Destroyers seize gold and leave to its owner a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it.”
— Ayn Rand, Atlas Shrugged
“By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.”
— John Maynard Keynes, 1920
In my view, it all started in 1933, when President Franklin Roosevelt devalued the U.S. dollar from $20 per ounce of gold to $35 per ounce. That’s a whopping decline of 75%!
That was at the height of the Great Depression, when scores of banks were going under, and I don’t blame Roosevelt. It was the only way out of the depression. Debase the paper dollar by raising the price of gold. Get out of deflation by sparking inflation. Erode debt burdens by devaluing the dollar. Get the economy going again, no matter what.
It Largely Worked, But It Forever
Changed the Face of Economics
Ever since the devaluation of the dollar in 1933 — and the simultaneous upward revaluation of gold — central bankers and politicians around the world have come to the same conclusion as those authors I just quoted. Here it is, in my own words …
In the absence of a gold standard, central bankers and politicians are free to confiscate your money through inflation, at will.
Mind you, they don’t have much choice … just like Nixon didn’t have much choice in 1971, when he completely abolished all remnants of the gold standard, severing the link between gold and the dollar for good.
The cold hard truth of the matter is that now, whenever the economy hits a pothole, central bankers will put their pedals to the metal, creating as much money and credit as possible, even at the risk of running hyperinflation.
As Keynes pointed out in that quote above, “The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.”
So here’s my question to you: Which one are you going to be …
One of the 999,999 people who do not understand what the government is doing to their money?
Or the one in a million who does, allowing you to protect your wealth, and even profit from the government’s actions?
Now’s the time to decide. Reason: The dollar has already been getting killed in international markets for more than three years now, but …
The Dollar’s Decline Is About
To Get a Heck of a Lot Worse
The supply of money is suddenly surging at an annualized growth rate of 36.4%. By some estimates, that’s the highest rate of growth in the money supply since 1973!
There is no way the U.S. dollar can hold its current value when the supply of money is being pumped out at a 34-year high.
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URGENT INVESTMENT UPDATE » Bernanke and Bush vow to throw billions more newly created dollars at reckless lenders and defaulting borrowers … » U.S. dollar hammered on world markets … » Your buying power, investments and retirement in grave danger … |
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There is no way the U.S. dollar can hold its current value when the Fed is likely to cut the Fed funds rate on September 18, and do whatever it takes to rescue the critically-ill real estate and mortgage markets.
There is no way that the U.S. dollar can hold its current value when foreign economies are outgrowing the U.S. economy by miles.
And there is no way that the U.S. dollar can hold its current value when so many overseas investors — who have lent us hundreds of billions of dollars to finance our economy — are now waking up to the fact that the U.S. economy is staring into a black hole.
So, what can you do to protect yourself?
Consider Increasing Your Gold Holdings
To 10% Effective Immediately …
In my August 2 issue of Money and Markets, I suggested everyone up their holdings of physical gold to 3% of their net worth.
That was in addition to my long-standing policy that everyone should hold as much as 5% in gold-related investments such as gold stocks, gold ETFs, and gold mutual funds.
Now, because of the mortgage, real estate, and money market panics — which I think are still in their infancy — I think it’s a good time to up your total gold holdings again … to 10%.
To do this, you can use one of my favorite gold investment vehicles …
1. The streetTRACKS Gold Trust (GLD). This exchange-traded fund that owns physical gold on your behalf. Each share of the GLD equals 1/10 of an ounce of gold.
2. The Tocqueville Gold Fund (TGLDX). I consider this one of the very best gold funds around. It boasts a five-year annualized return of 29.66%. Plus there are no front-end charges, and it has a conservative expense ratio of about 1.51%. Minimum initial investment: $1,000.
3. U.S. Global Investors World Precious Minerals Fund (UNWPX). This is another one of the best gold funds around. Manager Frank Holmes truly understands what I’ve been talking about in this article.
The fund’s five-year annualized return is a hefty 40.91%. Again, it has no front end charges, and a low expense ratio of just 1.23%. The minimum initial investment: $5,000.
One last thing: No matter how strong the rallies look in the stock market, with the exception of gold and natural resource-related stocks, stay away from the majority of equities. As I’ve noted before, the Dow is likely headed down to about the 11,000 level.
Also continue to steer clear of the bond markets. Keep your liquid money safe in short-term money market funds.
Best wishes,
Larry
P.S. Martin will be delivering an important live webcast on September 7. The topic: Profiting from the next China-like miracle. This is an exclusive event, but as a Money and Markets reader, you’re guaranteed a front-and-center seat … for FREE! Just click here and register now!
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Adam Shafer, Andrea Baumwald, Kristen Adams, Maryellen Murphy, Red Morgan, Jennifer Newman-Amos, and Julie Trudeau.
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