Rich dad guide to investing in gold and silver pdf creator
It was probably that heart — and one solid principle. Yours is the kingdom, O Lord, and you are exalted as head above all. Both riches and honor come from you, and you rule over all. In your hand are power and might, and in your hand it is to make great and to give strength to all.
And now we thank you, our God, and praise your glorious name. There is nothing that we own apart from him Job ; 1 Corinthians , Lewis said: Every faculty you have, your power of thinking or of moving your limbs from moment to moment, is given you by God.
If you devoted every moment of your whole life exclusively to his service, you could not give him anything that was not his own already. Any wealth, power, or strength we have originated with God. Any gift or talent we have — the same is true James ; 1 Corinthians — Even our ability to give generously comes from God Deuteronomy ; 2 Corinthians — The Panic of was a particularly devastating one for the U.
In Congress created the National Monetary Commission to research the situation, and to recommend banking reforms that would prevent such panics, as well as to investigate the Money Trust. Upon his return, Senator Aldrich decided to take some time off and organized a duck hunt with some friends.
Davison senior partner at J. Morgan , Charles D. Morgan Bankers Trust, and to become the first Federal Reserve head. The retreat took place on a little island off the coast of Georgia called Jekyll Island. I am not romancing. I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written.
Forbes, Forbes magazine, The results of the conference were entirely confidential. Even the fact there had been a meeting was not permitted to become public. Though eighteen years have since gone by, I do not feel free to give a description of this most interesting conference concerning which Senator Aldrich pledged all participants to secrecy. I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System.
We were told to leave our last names behind us. The servants and train crew may have known the identities of one or two of us, but they did not know all, and it was the names of all printed together that would have made our mysterious journey significant in Washington, in Wall Street, even in London. Discovery, we knew, simply must not happen, or else all our time and effort would be wasted.
If it were to be exposed publicly that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress. Frank Vanderlip, quoted in The Saturday Evening Post, February 9, Secrecy was so important to the attendees of this summit because Aldrich, as the chairman of the National Monetary Commission, was charged with investigating banking practices and recommending reforms after the Panic of , not to conspire with the bankers on a remote island.
So the bankers who were under investigation for needed reforms got together with the chairman of the congressional investigating committee the guy that was supposed to investigate the suspects at a secret meeting on an isolated island and concocted a bill, the Aldrich Plan, for a private central bank that they the suspects would own. When the bill was presented to Congress, the debates raged. I have alleged that there is a Money Trust. The Aldrich Plan is a scheme plainly in the interest of the Trust.
Why does the Money Trust press so hard for the Aldrich Plan now, before the people know what the Money Trust has been doing? Not accepting defeat, the bankers essentially took the Aldrich Plan and changed a few details. In a nearly identical bill, called the Federal Reserve Act, was presented to Congress. Again the debates raged. Many saw this bill for what it was: a prettied-up version of the Aldrich Plan. But on December 22, , Congress gave up its right to coin money and regulate the value thereof, which was given it by the Constitution, and passed that right to a private corporation, the Federal Reserve.
The Fed creates all currency, not the U. This is one reason why the national debt keeps expanding. It can never be paid off. It is mathematically impossible. But even more disconcerting is the way the Federal Reserve creates currency: 1. It makes loans to the government or banking system by writing a bad check. It buys something with a bad check. When the Federal Reserve writes a check, it is creating money. They are creating currency, not money.
And once those newly created dollars are deposited in the banks, the banks get to employ the miracle of fractional reserve banking. Here is fractional reserve banking in a nutshell. All banks have a reserve requirement, meaning they must keep a certain amount of currency on hand for withdrawals and such.
If the reserve requirement set by the Fed is 10 percent the bank must keep 10 percent of the currency deposited on hand just in case someone wants to make a withdrawal; however, they are allowed to loan out the other 90 percent of those deposits. Then, if those brand-new loaned dollars are deposited in a checking account, the bank is allowed to create another 90 percent of the value of those deposits, and then another 90 percent of that.
Then the process is repeated, and round and round it goes. Coincidentally, the same year that the Federal Reserve Act was passed, there was also an amendment added to the Constitution: the Sixteenth, which created the dreaded income tax. Before there was no income tax. The entire government was paid for by tariffs duties on imports and excise tax taxes on things like alcohol, cigarettes, and gas. These taxes, and only these taxes, generated enough income for the government to operate.
Welcome to the rabbit hole. Welcome to your new context. However, because the United States did not enter the war for almost three years, it became the major supplier to the world during that time. Gold flowed into the U. When the European Allies could no longer pay in gold, the U. Once the U. The U. The world currency supply was exploding. After the war, the world longed for the robust trade and economic stability of the international gold standard that had worked so well before the war.
Thus, throughout the s most of the world governments returned to a form of the gold standard. Instead, it was a pseudo—gold standard called the gold exchange standard. During the war, many countries inflated their currency supplies drastically. Conversely, many European countries had large supplies of U.
In the meantime, the U. How can you create currency out of thin air and still back it with gold, you ask? You impose a reserve requirement on the central bank the Federal Reserve , limiting the amount of currency it creates to a certain multiple of the units of gold it has in the vaults. Fractional reserve banking is like an inverted pyramid. Adding a fractional reserve central bank, underneath fractional reserve commercial banks, was akin to placing an inverted pyramid on top of an inverted pyramid.
With the new gold exchange standard, foreign central banks could use dollars instead of gold. That means that the real reserve ratio the ratio of real money that could be paid out against their currency was now only 1. Now there was an inverted pyramid, on top of an inverted pyramid, on top of an inverted pyramid. This was highly unstable. Ultimately, the gold exchange standard was a faulty system that governments imposed on their citizens, which allowed the governments to act as if their currencies were as valuable as before the war.
This was a system that was destined for failure. The Rise of Credit Culture But every pyramid scheme flourishes in its early days, and so did the gold exchange standard. With all the new currency available from the central banks, the commercial banks generated many new loans. This abundance of currency led to the greatest consumer credit expansion thus far in American history, which, in turn, led to the biggest economic boom America had ever experienced.
In a very real sense, credit put the roar in the Roaring Twenties. Before the vast majority of loans had been commercial. Loans on nonfarmland real estate and consumer installment credit, like auto loans, were almost nonexistent, and interest rates were very high. But with the advent of the Fed, credit for cars, homes, and stocks was now cheap and easy.
The effect of low interest rates combined with these new types of loans was immediate; bubbles sprang up everywhere. There was the Florida real estate bubble of , and then of course the infamous stock market bubble of the late s. During the s, many Americans stopped saving and started investing, treating their brokerage account as a savings account, much like many Americans treated their homes in our most recent housing bubble. But a brokerage account is not a savings account, nor is a house.
The value of a savings account depends on how many dollars you put in. But the value of a brokerage account or a house depends solely on the perception of others. If people believe things are great, then people borrow and spend currency, and the economy flourishes.
But if people have the least bit of anxiety, if they have doubts about tomorrow, then watch out! In , the stock market crashed, the credit bubble burst, and the U. The Mechanics of a Depression The popping of a credit bubble is a deflationary event, and in the case of the Great Depression it was massively deflationary. To understand how a deflation occurs, you need to know how our currency is born, and how it can join the ranks of the dearly departed.
When we take out a loan from a bank, the bank does not actually loan us any of the currency that was on deposit at the bank. Instead, the second the pen hits the paper on that mortgage, loan document, or credit card receipt that we are signing, the bank is allowed to create those dollars as a book entry.
In other words, we create the currency. The bank is not allowed to do it without our signature. We create the currency, and then the bank gets to charge us interest for the currency we created. This brand-new currency we just created then becomes part of the currency supply. Much of our currency supply is created in this way.
But when a home goes into foreclosure, a loan gets defaulted on, or someone files bankruptcy, that currency simply disappears back into currency heaven where it came from. So as credit goes bad, the currency supply contracts, and deflation sets in. This is what happened in —, and it was disastrous.
As a wave of foreclosures and bankruptcies swept the nation, one-third of the currency supply of the United States evaporated into thin air. Over the next three years, wages and prices fell by one third. Run, Baby, Run Bank runs are also enormously deflationary events because when you deposit one dollar into the bank, the bank carries that dollar as a liability on its books. It someday owes that dollar back to you. However, under a fractional reserve system, the bank is then allowed to create currency in the form of credit loans , in an amount many times that of the original deposit, which it carries on its books as assets.
But a serious problem can develop when too many people show up to make withdrawals at the same time without the counterbalancing effect of the relatively same amount of people making deposits. This was what was happening in , and it was one of the major contributing factors to the collapse of the U. This was a very dangerous situation. The public had lots of deposits and very little cash, and the banks also had very little cash to back up those deposits. By November of , bank failures were more than double the highest monthly level ever recorded.
But this was only the beginning. The largest single bank failure in U. The sixty-two-branch Bank of the United States collapsed. Worst of all, this was before deposit insurance. Then, to top it all off, on September 21, , Great Britain defaulted from the gold exchange standard, throwing the world into monetary chaos. Foreign governments, along with businesses and private investors from the United States and around the world, began to fear that the U.
Suddenly, there was a dash for cash. Within the U. The pyramid scheme that was the gold exchange standard began to crumble. To stop the bleeding, the Fed more than doubled the cost of currency in the U. However, was an election year.
Three long years into the Depression people were desperate for a change, and in November, Franklin Delano Roosevelt was elected president. Again gold flowed out of the vaults as foreign governments, foreign investors, and the American public lost even more faith in the dollar, and the most devastating bank run in American history began.
A month later he signed an executive order requiring U. On April 20, he signed another executive order, ending the right of U. On the same day, the Thomas Amendment was sent to Congress, authorizing the president, at his discretion, to reduce the gold content of the dollar to as low as 50 percent of its former weight in gold.
But there was still one major hurdle to overcome before Roosevelt could devalue the dollar: the infamous gold clause. During the Civil War, President Abraham Lincoln had to come up with a way to pay the troops and introduced a second purely fiat currency to the country, the greenback dollar.
When it first appeared, the greenback was worth the same amount as gold notes. But by the end of the Civil War they had fallen to just one third of the value of the gold-backed dollar. Many people who had made contracts or taken out loans before the war in gold notes paid them back in depreciated greenback dollars. Of course this was cheating the creditors and many lawsuits were filed.
The big problem for Roosevelt was that most government contracts and obligations also had this clause written into them. So devaluing the dollar would also increase the cost of government obligations by the same amount. So at the behest of President Roosevelt, Congress passed a joint resolution on June 5 defaulting on the gold clause in all contracts, public and private, past, present, and future.
This great government, strong in gold, is breaking its promises to pay gold to widows and orphans to whom it has sold government bonds with a pledge to pay gold coin of the present standard of value. Roosevelt gladly obliged. As far as I can tell, no one seems to know exactly who penned these proclamations and executive orders. But one thing was now clear. The government was no longer a government of the people, by the people, and for the people.
Instead it was a government of the bankers, by the bankers, and for the bankers. But there was still one more dastardly deed to be done. Weight Watchers On January 31, , Roosevelt signed an executive proclamation effectively devaluing the dollar.
But now, since the dollar instantly had This also meant that, with regards to international trade, the government had just stolen That is the power of fiat currency. The worst part of this whole situation is that people who followed the rules and turned in their gold as decreed were the ones who suffered the most because those who illegally hung on to their gold realized a Less than 22 percent of the gold in circulation was turned in, however, and it seems not a single person was arrested or prosecuted for hoarding.
But despite the efforts of the U. By forbidding the U. By declaring the claim checks on gold held by U. Chart 2 shows the accounting that gold did of the U. The gray line is U. The black line is the total value of the U. By devaluing the dollar from one twentieth of an ounce of gold to one thirty-fifth of an ounce, the value of the gold held by the U. Treasury now exactly matched the value of the monetary base. This meant the dollar was once again fully backed by gold.
It also meant that there was no reason for gold to continue being illegal since there was now enough gold to pay out against every paper dollar in existence, and the dollar could have been fully convertible into gold once again.
Chart 2. Monetary Base vs. Gold Reserves, — Source: St. Louis Federal Reserve Bank Gold had once again revalued itself, not with the knockout blow and the death of the currency as in previous chapters, but this time by a technical knockout. To halt the implosion of the U. Gold was still the undefeated heavyweight champion of the world.
But all the pain and suffering could have been avoided. Gold and silver require discipline and constraint from banks and governments, and both banks and governments resent gold for it. Numerous factors contributed to the Great Depression, but there was only one root cause.
Governments around the world, along with the Federal Reserve, foreign central banks, and commercial banks, all tried to cheat gold. What got us out of the Great Depression was the tremendous influx of gold from Europe. Remember, thanks to the Roosevelt administration, the dollar was devalued by over 40 percent. So its purchasing power overseas fell by the same amount, slowing our imports dramatically.
But countries buying from the U. Also, when a country fixes its currency to gold, it has to buy or sell as much gold as is offered or demanded to maintain that currency price. Suddenly, all of the gold mining companies around the world were selling their gold to one buyer, the U. So this, plus a tremendous trade surplus, accounted for most of the gold inflows from through But in , a new dimension was added.
And there was a transfer of wealth from European investments to U. European consumer goods factories were used to produce guns, ammunition, airplanes, and tanks. Thus most Europeans had to obtain everyday items from the U.
So, in reality, gold inflows, foreign investment, and war profiteering, not social programs, were what lifted the U. At this point, the United States held approximately two thirds of the world monetary gold reserves and had a thriving economy. Structurally, the U. Very quickly world leaders realized the dire economic situation they were in. This huge trade imbalance meant that at the end of the war the world monetary system would be in shambles. About a year before the end of the war, representatives from forty-four countries met in July of at Bretton Woods, New Hampshire, to figure out how they were going to make the world of international trade and finance work again.
They needed a system of international payments that permitted trade without the wild fluctuations in currency exchange rates or the fear of sudden currency depreciation that had crippled international trade during the Great Depression. It was decided that all countries would peg their currencies to the U. This meant that, from World War II on, all foreign central banks had to hold dollars instead of, or in addition to, what was left of their gold reserves.
But there were two big flaws in the Bretton Woods system. Actually the flaws were more like big gaping holes. First, there was no reserve ratio set as to how many dollars could be created for each unit of gold, allowing the U.
Second, even though U. This truly was a deficit war. And on top of that, he added his Great Society programs, enacting a guns and butter policy that borrowed heavily to fund wars abroad and social programs at home. But while we were waging a deficitfunded war in Vietnam, Charles de Gaulle, the president of France, was using the loopholes in the Bretton Woods system to quietly launch a full-blown assault on the U.
De Gaulle vs. Nor had anyone of such stature made so sweeping a criticism of the international monetary system since its founding in The Federal Reserve announced that the U. Then Great Britain devalued the pound in November , causing a run on gold. The pool was stretched to the breaking point, and the outflow of gold increased twenty-fold. By the end of the year more than 1, tons of gold had left the vaults. For years Gold Pool sales had averaged five tons per day.
By March of sales were heading past tons per day! Take a look at Chart 3. You can clearly see the rampant currency creation through the mid- and late s. You can also see that from to , more than 50 percent of the U. Chart 3. Louis Federal Reserve Bank The Gold Pool was closed and the parallel free market for gold was allowed to find its own price.
Gold had the dollar on the ropes and delivered a one-two punch! Gold had won this round, but the fight was not over yet. The Collapse of the Bretton Woods System By the Bretton Woods system had been completely overwhelmed by the will of the public and the free markets. For the first time in U. This was tantamount to the United States declaring bankruptcy.
Gold had won this match, and it was now free to set its own value on the open market. At this point most countries and central banks were now on a dollar standard, and were using dollars for international trade instead of gold. So with the end of the Bretton Woods system, in , the dollar was freed from any fiscal constraints, allowing the U. A power it still holds today.
No other country has this hidden advantage, and now U. This advantage gives the U. It also gives the U. Inflation of a currency supply respects no borders. Therefore, every new dollar that is printed devalues all other dollars everywhere in the world. Yes, the dollar was free from the fiscal constraints of gold, but gold was also freed from the dollar. On August 15, , gold became its own free-floating international money, no longer bound to any country. The Golden Bull After the collapse of the Bretton Woods system, all the debt that was created in the s monetary inflation to fund the Vietnam War and the Great Society came back with a vengeance in the form of price inflation in the s.
Coincidentally, on August 15, , the same day Nixon took the U. History was once again repeating itself; Diocletian had committed the same folly centuries before as the Roman economy collapsed. I remember seeing peach farmers protesting on the evening news by dumping their peaches on the roadside and leaving them to rot because the price they could legally sell them for was below their cost of production. Shortages ensued and store shelves were bare.
Once again, it was proven beyond a shadow of a doubt that governmentmanaged markets do not work. Most people think that this was a key factor leading to the inflation of the s. Again, they are mistaken. Even though the Arab states were meting out punishment to the West for supporting Israel, the bigger picture is that the purchasing power of the dollar had been falling since the United States started flooding the world with dollars in the mids, and the price increases in oil only served to bring the value OPEC received for a barrel of oil back up to the levels they had received under the Bretton Woods monetary system.
In , the Shah of Iran, one of the U. You increased the price of wheat you sell us by percent, and the same for sugar and cement. The rising dollar price of oil, back then, just as today, was only so that the producers of oil could recover the lost purchasing power of the dollar. But it was still illegal for Americans to own gold. He held press conferences while brandishing illegal gold bars, publicly defying the federal authorities to throw him in jail.
He worked tirelessly lobbying Congress to get bills introduced, and his reward came on December 31, , when President Gerald Ford signed the bill that made it legal for U. Even though gold was now freely traded, it was not traded as a currency; instead it was traded as a commodity. People had been using paper currency for so long that most had lost interest in gold and put their faith in paper.
It was once again acting like a currency. America had gold fever. But the mainstream was wrong. The gold fever was now turning into a twentieth-century gold rush. In cities throughout the U. This dealer was located in the center of the block, on a major city street, and the line of people went out the front door, down the block, around the corner, and up the side street. The lines were being compared to those for Star Wars and Apocalypse Now!
I was twenty-four years old and wrapped up in a business I had just started. But my father did, and so did the fathers of all of my friends. They were part of the masses of unsophisticated investors that were buying with the herd. The strategy is simple: Buy low, and sell high. How many years does it take the Dow to triple? With gold, you could have done it in little more than one year. If you had bought at the bottom and sold at the top you would have realized eight and a half times your investment in less than three and a half years.
And if you bought outside the U. Throughout history, governments and the banking system start with a certain amount of gold and silver. But the trouble is that they never stop printing. Chart 4 is, once again, the same as charts 2 and 3, but this time with a little twist. It runs longer, until And the black line is still the value of the U. The lower gray line is the same U. I would argue that credit outstanding adds to the currency supply.
Even though credit card dollars are phantom dollars, which sprang into existence with a signature, and are owed to the bank, they purchased a good or service when they sprang into existence. Once the seller of the good or service has that dollar it becomes a regular dollar that is not owed to a bank. It can therefore go on to purchase other goods and services and so becomes one of the drivers of price inflation.
That phantom dollar circulates in the currency supply until someone earns it back and pays off their credit card debt with it. As long as credit outstanding is growing, so is the currency supply. In this amazing chart you can see that gold once again did the accounting it has been doing for more than 2, years, since it did its first accounting in Athens, in B.
Chart 4. Gold Reserves — Source: St. Louis Federal Reserve Bank Yes, gold did what it has always done. In a move that saw it rise more than twenty-four times 2, But the most amazing thing is that, once again, for a short while, the United States of America had the opportunity to go back on the gold standard. Because if they had, the greatest wealth transfer in the history of mankind would not be happening, and so the opportunity to have wealth transferred toward you would also not exist.
But it is happening, and the wealth can be transferred toward you. Read on. One thing is for certain; the crash of was the largest one-day crash in history. The most popular explanation was computer selling by program traders; others say it was a correction due to overvaluation, or blame it on lack of liquidity.
Rumors spread, and the dynamics of herding and mass psychology took over. The real cause of the crash probably goes back to the late s and early s. Paul Vocker took over as chairman of the Fed in August of and realized the need to raise real rates interest rates minus inflation into positive territory to get runaway inflation and the price of gold under control. The higher rates only served to make a really bad recession worse, and by the time Ronald Reagan took over the White House in the economy was in bad shape.
So, in March of the Fed goosed the economy by eliminating the reserve requirement on time deposits of thirty months or more, and in September changed it to eighteen months. In the two-year period from January of to January of , the currency supply increased by a whopping 21 percent.
On top of this vastly increased currency supply, the Fed reduced rates from over 11 percent in late to about 6. All that currency had to go somewhere. In a very short period of time, the index went from extremely undervalued to extremely overvalued in terms of earnings.
The investing public was caught up in a contagious euphoria similar to that of any other bubble and market crash in history. This euphoria made people believe, once again, that the market would always go up. However, due to extremely strong economic growth, inflation was becoming a concern. The Fed raised short-term interest rates to temper inflation.
This had a negative effect on the markets. On Wednesday, October 14, a sell-off began. By Friday the Dow had plunged more than 10 percent. Then on Monday, October 19, , the majority of U. The Dow lost Fearing the crash might cause a worldwide depression, banking crisis, or both, the Fed intervened by increasing the currency supply, which had the side effect of taking the real estate booms that were happening in different pockets of the country and turning them into mini-bubbles.
By , all that new currency that was created after the stock market bubble had popped just a year earlier was causing home prices to shoot up. People in her area were trading homes like crazy. All through and the first quarter of the Fed raised rates from just over 6. The Fed accomplished its objective, the property boom went bust, and a recession started on the East Coast, sweeping west across the country.
Home prices slid further and the country fell into recession. In response, the Fed cut the reserve requirement on time deposits from 3 to 0 percent, and in it cut the reserve requirement on transaction deposits from 12 percent to 10 percent. Over the same period, interest rates were slashed from 8 percent to less than 3 percent.
But this time these measures had little immediate effect, and the economy continued to drag. Ironically, at the time of the writing of this book nearly twenty years later we again have a Bush as president George W. Real estate prices in her neighborhood fell dramatically. One of her neighbors was a contractor who was building fourteen homes in the neighborhood. When homes stopped selling and prices started falling he was forced into bankruptcy, and all fourteen homes were foreclosed on.
So his bank put them all on the market at the same time, pricing them enough below the comparable properties in the neighborhood to insure their quick sale. Then, within the next couple of months, two other banks had a wave of foreclosures that hit the market. Nothing was selling and everyone was trying to price their home just a little below the next guy to make sure their home was the next one that sold.
Her house had a larger lot and a view, but still, it was worth less than half a million. Home prices in her neighborhood had plunged by 60 percent. Now, this home was almost considered a teardown. I saw it; it had peeling paint, a dead lawn, and had never been remodeled since it was built in the early s.
Unfortunately for him, the prices for housing dropped dramatically and quickly. He was underwater for ten years until his home finally exceeded the purchase price in Anyone who bought income property during the early s, however, could easily get property that cash-flowed well, and soon after, real estate values appreciated more than anytime in the past. All that fiddling the Fed did with reserve requirements and interest rates back in and finally kicked in with a vengeance in In the currency supply exploded and never looked back.
In the decade from to the currency supply increased about percent. That means that in those ten short years, more currency was created than in all the preceding eighty-three years. In fact, more currency was created than the entire previous history of the United States, and it resulted in the biggest real estate boom in history, as well as a whole bunch of bubbles in bonds, derivatives, consumption, debt, and once again, stocks.
Dot-Bomb But the bubble of all bubbles—with maybe the exception of the recent real estate bubble—was the tech bubble of the late s. Their quick rise and huge profits attracted other companies to jump on board the tech train.
As that train accelerated, the masses lost their collective mind and threw money at companies of no substance. So basically, anyone with an idea could get together, incorporate, go public, buy Ferraris, install a golf course in their backyard with the proceeds, and issue stock like toilet paper. Finally, in order to prevent a market meltdown from the Y2K bug, the Fed, with Alan Greenspan at the helm, pumped so much liquidity into the markets that they started to rise at an amazing pace. The frenzied speculation sucked in so much capital that it eventually became a pyramid scheme, requiring an ever increasing mountain of currency to maintain its upward trajectory.
Essentially, the dot-coms turned into dot-bombs. The financial fallout included the popping of the dotbubble, the collapse of companies such as Enron, WorldCom, and Global Crossing. Many investors lost their retirement funds, houses, and savings. In the case of the Nasdaq, there were fourteen years where you could have bought your tech stocks while the index was under 1,, and you had about a year to sell stocks over 3, If you timed it really well and were able to sell your tech stocks at 4, or 4,, good for you.
In the end, the bubble burst and lives were ruined. It requires a lot of education and investigation to find an undervalued asset class at the beginning of a new bull market. Those opportunities only go to the very few who do the work required, and those that are able to think for themselves. Most investors get their advice from the same place as everyone else.
They do things the easy way and wait for advice to come to them from the TV, the big investment firms, and their friends and neighbors who are already getting rich. During the dot-com rush, most investors who bought into the mass media advice also bought into the pitch. But remember, in times of financial upheaval, wealth is not destroyed, it is merely transferred. The opportunities this creates for the educated investor are enormous. The price means nothing. Since the end of the Bretton Woods system in the s, the dollar has been a dirty, double-dealing, back-stabbing liar, and it still is today.
As I write this chapter, the Dow is at 13, and is trying to push north toward its highs of just over 14, It also appears that we have just witnessed the end of the greatest real estate bubble of all time. Man, that was a long time ago. Boy, those were the good old days. Regardless of their price in terms of dollars, in terms of value, both the Dow and real estate have been crashing for years. The Dow Is Crashing!
This is a blind spot investors must be mindful of, and guard against, if they are to prosper. The only reason the Dow looks like it is going up is because the Fed has pumped so many more dollars into the currency supply that all asset classes are rising. If everything is going up getting more expensive , that means the dollar is going down. Under these conditions, the only way to see where true value lies is to eliminate the dollar from the equation.
You have to measure each asset class, not with the dollar, but against another asset class. To do this I took the Dow and divided it into the price of the other asset I am measuring it against. The result? By measuring the Dow in terms of purchasing power it is clear that stocks have been tanking for quite some time, even while their price has been rising relative to the dollar.
All of the following information is current as of April Since January , the dollar has plummeted negative This has caused money gold to rise measured in currency dollars as more and more investors move out of their currency and into real money. In Chart 7, I measure the Dow the way you are used to seeing it, in dollars. But in Chart 8, I measure it with real money, not currency. It took almost 45 ounces of gold to buy one share of the Dow in As I write this it takes less than At the writing of this book, the proceeds would only buy you So measured in real money, the Dow has lost two thirds of its value, and crashed by 67 percent.
Chart 5. Dollar Chart 6. Gold Chart 7. Dow in Dollars Chart 7. Dow in Dollars Chart 8. Dow in Gold I like Charts 9 and 10, because they show you just how much real stuff on the average the Dow will buy you. Commodities are the stuff you buy, or the stuff that goes into the stuff you buy, while the Agricultural Index leans more toward the stuff you eat and wear. These charts include everything from copper and steel, to natural gas and heating oil, to livestock, grains, cotton, sugar, and orange juice.
What these charts are saying is that you could buy three times as much stuff if you cashed out of the Dow in as the same number of shares will buy as I write this. Here is probably the most important chart. Chart 11 shows you how many barrels of crude oil our proxy for energy you can buy with your proceeds from the Dow.
If you sold one share of the Dow in early you could buy barrels of oil. As I write this it only buys Since , the value of the Dow has plummeted It is the single most useful commodity there is. Chart 9. Dow in Commodities Chart Dow in Food Chart Dow in Crude Oil Chart Dow in Industrial Metals Speaking of cars, along with plastics, cars are made of metals like steel, zinc, copper, and lead. And believe it or not, this is one of the reasons the U.
Just take a look at the stocks of GM and Ford over the same time frame. In Chart 13, I show the relative performance of the Dow bottom line , gold middle line , and silver top line. As a starting point, I selected the beginning of the precious metals bull market in All three start on the left-hand side of the chart grouped together on the zero line.
The chart shows the relative performance in percentage gains. As you can see, measured from , the Dow has risen only 15 percent, while gold shot up percent, and silver rocketed percent! Chart Relative performance of Dow, gold, and silver Call the Cops.
Why is this happening? Why does everyone think the Dow and real estate are going up in value, when they are actually going down in value? The answer is inflation. According to the Minneapolis Federal Reserve, total inflation from to , using the Consumer Price Index, was just about 22 percent. But, unfortunately, the CPI is an unreliable measuring stick. In calculating inflation, the Bureau of Labor Statistics BLS takes a basket of goods and services and tracks their prices throughout the years.
This worked just fine when they would track the actual price of the same items year after year. The problem is the BLS no longer uses the actual price, and they no longer track the same items year to year. For example, if the price of an item has changed dramatically from one year to the next which as you might imagine might make whoever is in the White House look bad the item can be dropped from the basket of goods deletion , substituted with another item substitution , or simply assigned a new price hedonic adjustment.
For an example of deletion, you need look no further than the BLS and the mainstream media. The argument is that food and energy prices are volatile and seasonal, and removing them makes a more consistent measure of inflation. This altered the treatment of housing costs by shifting the costs for homeowners to a rental equivalent basis. It took out the cut of choice top sirloin beef that it had been tracking since , and substituted chicken breast, because it was cheaper, which makes the CP-Lie lower.
When it comes to hedonic adjustment, nobody says it better that Adam Hamilton of zealllc. In other words, if the car you bought this year cost you 5 percent more than the car you had last year, but the new car has stability control, then they figure the price increase was offset by the quality improvement, so the cars actually cost the same, according to the BLS.
One might ask, Why is the Bureau of Labor Statistics doing these calculations? Labor really has nothing to do with it. Indeed, it would be much more appropriate for these statistics to come from the Bureau of Statistics or as I like to call it, BS. They have painstakingly re-constructed the pre-propaganda version of the CPI. CPI vs. Rising prices are not inflation, but the symptom of inflation.
Every newly created unit of currency dilutes the pool of currency already in circulation, thereby reducing its value. This happens because the increased quantity of currency is still chasing after the same number of goods and services, thereby bidding up prices. The Federal Reserve has different ways of measuring the currency supply. But on March 23, , the Fed decided to hide M3 from us, and they stopped publishing the data.
Do you think it could be because they intend to significantly inflate the currency supply? Thus, any investment that has returned less than percent over this time period is underwater. This means that the Dow would have to be above 25,, not 14,, to have the same value it had back at the turn of this century. And now it is estimated that M3 is inflating at a rate of about 18 percent per year and rising.
I would expect that prices could follow suit within a couple of years. Note that in Chart 15, the rate of currency creation today has already exceeded the rate of currency creation that kicked off the great precious metals bull market of the s. This is only the very beginning of what I believe will turn out to be the greatest bull market in history.
It shows cumulative inflation in the United States from to Note that back when we used real money, inflation netted out to zero. As you can see, with the inception of the Federal Reserve the official inflation rate became significantly lower than the actual Source: ShadowStats. The point at which the two lines diverge is when they began fiddling with the CPI.
The line on the bottom is the CP-Lie. The dark line on the top, which has the trajectory of a rocket to the moon, is the real CPI. M3 Growth with ShadowStats. The inflation tax is of the second kind. The greatest advantage an investor can have is to understand that fact and exploit it. Just to drive the point home, here is a chart Chart 17 of the Dow black line from the year , when the Fed opened for business, showing the crash and the spectacular bull run from through today.
Note that when you account for the stealth tax of inflation, in the Dow began a long, slow crash that would see it lose value over the next sixteen years. Chances are you never heard of the crash of , but I assure you it happened, and it resulted in the raging price inflation of the s eating away at investor profits. The Dow failed to sustainably surpass 1, points from to That represents a 66 percent loss in value. That is how the inflation tax can cause an invisible crash.
Many who invested in the Dow between and felt they were making a safe and prudent investment decision. They bought into the pundit hype that investments in stocks do well over long periods of time. All the while their currency was losing its value at an average rate of 6. As we will see later in the book, a smart investor would have recognized the ravaging effects inflation was having on their portfolio, and would have moved their money into investments that exploited the weakness of the U.
Any guess what those investments might be? Dow vs. Inflation Adjusted Dow Source: Minneapolis Federal Reserve Bank Beyond the shadow of a doubt the general equities markets aka stock markets are crashing, and have been since as early as and as late as , depending on how you measure it.
Even though the Dow is going up in price, its value is falling. If everything else is going up in price faster than the Dow, then it stands to reason that the Dow is crashing in relative terms. Just as there was an invisible crash from to , there is an invisible crash happening now, as I write, and just as it was last time, the hidden tax of inflation is the cause. It requires a rapidly expanding currency supply to obscure the fact that an overvalued asset class is correcting and reverting to fair value, or less.
It cannot happen on a gold standard with conservative fractional reserve banking practices. But it has happened numerous times throughout world history when a country leaves an asset-backed currency for a fiat currency. Those are just two of many throughout history.
The pattern is always the same. It never changes. Therefore, if you understand the pattern, you can use it to your advantage. Value Versus Price So this discussion begs the questions: Can an investor prosper under such conditions? Is there a way to beat inflation? In fact, a smart investor can achieve superior results under these conditions. Any investor that does reasonable due diligence, takes a position early, waits for the masses to wake up, and hangs on for the ride, has an extremely good chance of making boatloads of money.
Question: So how do I see what the value of something truly is? How do I see past the lie of the dollar? Answer: You must stop measuring value with the dollar. Stop thinking that way! So how do you measure true value? Most people know what other homes are selling for in their neighborhood, so just make a guesstimate of the price of your house.
Measured in value, everything just zigzags sideways throughout time. Once you learn to recognize the patterns of value cycles, then information is worth everything. You might be thinking to yourself, What causes things to go from over-valued to undervalued? Value shifts when the public rushes from one asset class to another. The public generally chases whichever asset class is the hottest, is on the cover of Time and Newsweek, is on late night infomercials advertised as the best way to get rich, and is the one that everyone is jumping onto the bandwagon for.
Those are the asset classes that are sucking capital away from other asset classes. From the end of World War II to , the hot assets were stocks and real estate. From to it was commodities and gold, once it was no longer our currency.
From to it was stocks and real estate. And, at this turn of the century, the hot asset class became gold and commodities once again. Those who are truly financially intelligent are able to not only recognize these cycles, but use the information to capitalize on them as well. Believe it or not, I wish I could just skip this chapter. There are a many doomsday books out there, and I wanted to keep this book upbeat.
But that would be irresponsible of me because it is the trends covered in this and the next chapters that will be the main drivers for the amazing future increase in the true value purchasing power of the precious metals. I have to admit that when I first started researching this chapter it scared me, and I developed a bunker mentality.
Then I met Robert Kiyosaki, and he changed my attitude in a matter of minutes, pointing out that bigger crises lead to bigger opportunities. I could hide in my bunker and emerge after the destruction to come, or I could profit from the impending storm. That is why I have so much respect for Robert and what he does. Rather than take his knowledge and wisdom, and profit for himself, he believes in educating everyone he can.
His desire is to see lives changed for the better by his message of financial education and intelligence. And by golly, that is a message I can get on board with. He might suggest that you move your livestock to a safer place, lock the barn doors, and secure the storm windows. These problems also add up to the potential death of the dollar.
This means that a baby born as a U. What about all the reckless deficit spending promised to future generations like Social Security and Medicare? They are promises made to our citizens that will have to be paid for someday in the future. Former U. Comptroller General David Walker says that U. In the U.
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As people began losing money, they spent less, which caused prices to crash. Unemployment rose quickly, which caused even less spending and even more deflation. It was a devastating spiral that led to the worst economic crash in US history. German-style Depression In Germany it was different. The German government decided to abandon the gold standard and began printing currency as quickly as the presses could handle. The result was massive hyperinflation.
When she came back out, her wheelbarrow was stolen but the money was left behind. That is the devastating effect of hyperinflation. The currency becomes essentially worth nothing because so much is being printed so quickly. As we know, the Fed went the way of printing more dollars And that's why I save so many of them. This sounds like a contradiction, but let me explain. The reason I save so many dollars, even though I think they're worth less and less, is because I don't intend hang on to them.
In my mind, cash is trash. One of the reasons why we have this enormous gap between the world's haves and have-nots is because the have-nots value money—they work for it, save it, cling to it, and lose it. Warren Buffett often says, "The best way to get rich is to not lose money. Some people call it inflation, I call it devaluation. A friend just bought a new SUV. It's a beautiful vehicle. He's now in debt, paying off a vehicle that's dropping in value with a dollar dropping in value.
He's a double loser. Psychologically, the more Americans' cash -- and the things they buy with it -- decline in value, the more they worry about money. Many begin to work harder or, even worse, go deeper in debt purchasing more consumer items with sliding value. Unfortunately, many wind up with fewer and fewer dollars that continue to sink in value.
The reason I have more and more dollars is simply because I don't hold on to them. Instead, I do my best to get as many dollars as possible and to keep those dollars moving into assets that are going up in value, not down. In the late s, when people were pouring money into the tech and dot-com stocks, my dollars moved into oil, gold, silver, and real estate, when prices were low.
Today, because the dollar continues to drop in value, I keep moving my money into those same asset classes, although much more cautiously. Impending Financial Disaster The primary reason why I keep my dollars moving is because I'm bearish on the greenback.
We have all heard the saying, "The U. I don't believe Americans have the stomach to make the changes that are required to run a fiscally responsible government and save the dollar. When President George W. Bush attempted to reform Social Security, that proposal was more unpopular with Americans than the Iraq war.
People love their entitlements. To me, all hope of avoiding financial disaster was gone. The American people have voted. Gold vs. Dollars have value because people have deemed them to have value. But as the writer in The Economist points out, dollars can be printed easily and at will, devaluing them quickly.
Gold on the other hand has an intrinsic scarcity to it. People believe the flimsy pieces of paper we call dollar bills are worth some basket of real goods only because everyone else believes the same thing. The crucial difference in the perception of value is that new gold can only be obtained at great difficulty while new bills can be produced by the truckload at virtually no marginal cost. The writer concludes that dollars will always be money going forward because people have decided to be content with them with money.
And regarding gold? What happens when people no longer want to accept paper dollars as money? Then what will be money? The writer in The Economist conveniently forgets to share this fact. And throughout history, societies have always resorted back to gold as money.
As the writer in The Economist points out, this has gone on for 6, years. The writer can call this mystical if desired, but I call it a hell of a track record. The reality is the dollar is living on borrowed time If the US defaults on its debt, the dollar will be toast, and savers will be losers. Because just like has happened many times over the last 6, years, people will turn to it as the repository of value again.
But perhaps the US will fix its debt problems. If so, then the dollar will live on—for a time. But like all fiat currencies before it, the dollar will eventually fall to zero. That's why I recently bought more gold as well as more silver—to bet against the dollar and oil yet again. So far, I've been pretty accurate. Inflation or Recession? In many ways, the conditions are far worse now than they were in Today, we have a slowing demand for the dollar.
At the same time, it appears that the Federal Reserve is increasing the supply of dollars. As you know, low demand and high supply means a drop in value of anything, including the dollar. When our troubles started with the Great Recession, the then new Fed Chairman, Ben Bernanke, had a tough choice to make: If he printed more money to bolster the dollar, inflation would increase and the dollar might collapse. If he raised interest rates to slow inflation, the economy might go into recession.
Let me explain. American-Style Depression The Great Depression was caused by governments trying to cheat on the gold standard. Heavy debts were incurred during World War I. Governments had a hard time paying off those debts because their currencies were pegged to gold.
Gold made it so only so much money could be printed. If you had a million ounces of gold and you could only print three dollars for every ounce, you could only print three million dollars. Yet, governments tried their best to find a way around the gold standard. There was no FDIC, so if a bank failed you lost everything. As people began losing money, they spent less, which caused prices to crash.
Unemployment rose quickly, which caused even less spending and even more deflation. It was a devastating spiral that led to the worst economic crash in US history. German-style Depression In Germany it was different. The German government decided to abandon the gold standard and began printing currency as quickly as the presses could handle.
The result was massive hyperinflation. When she came back out, her wheelbarrow was stolen but the money was left behind. That is the devastating effect of hyperinflation. The currency becomes essentially worth nothing because so much is being printed so quickly.
As we know, the Fed went the way of printing more dollars And that's why I save so many of them. This sounds like a contradiction, but let me explain. The reason I save so many dollars, even though I think they're worth less and less, is because I don't intend hang on to them. In my mind, cash is trash. One of the reasons why we have this enormous gap between the world's haves and have-nots is because the have-nots value money—they work for it, save it, cling to it, and lose it.
Warren Buffett often says, "The best way to get rich is to not lose money. Some people call it inflation, I call it devaluation. A friend just bought a new SUV. It's a beautiful vehicle. He's now in debt, paying off a vehicle that's dropping in value with a dollar dropping in value. He's a double loser. Psychologically, the more Americans' cash -- and the things they buy with it -- decline in value, the more they worry about money.
Many begin to work harder or, even worse, go deeper in debt purchasing more consumer items with sliding value. Unfortunately, many wind up with fewer and fewer dollars that continue to sink in value. The reason I have more and more dollars is simply because I don't hold on to them. Instead, I do my best to get as many dollars as possible and to keep those dollars moving into assets that are going up in value, not down.
In the late s, when people were pouring money into the tech and dot-com stocks, my dollars moved into oil, gold, silver, and real estate, when prices were low. Today, because the dollar continues to drop in value, I keep moving my money into those same asset classes, although much more cautiously. Impending financial disaster The primary reason why I keep my dollars moving is because I'm bearish on the greenback.
We have all heard the saying, "The U. I don't believe Americans have the stomach to make the changes that are required to run a fiscally responsible government and save the dollar. When President George W. Bush attempted to reform Social Security, that proposal was more unpopular with Americans than the Iraq war.
People love their entitlements. To me, all hope of avoiding financial disaster was gone. The American people have voted. Gold vs. Dollars have value because people have deemed them to have value. But as the writer in The Economist points out, dollars can be printed easily and at will, devaluing them quickly. Gold on the other hand has an intrinsic scarcity to it. People believe the flimsy pieces of paper we call dollar bills are worth some basket of real goods only because everyone else believes the same thing.
The crucial difference in the perception of value is that new gold can only be obtained at great difficulty while new bills can be produced by the truckload at virtually no marginal cost. The writer concludes that dollars will always be money going forward because people have decided to be content with them with money.
And regarding gold? What happens when people no longer want to accept paper dollars as money? Then what will be money? The writer in The Economist conveniently forgets to share this fact. And throughout history, societies have always resorted back to gold as money.
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