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THE WORSE FINANCIAL CRISES ARE YET TO COME!
It is almost 2013, and the majority of us are still suffering from the consequences of the financial crisis that started in 2007! Since this time, developed nation have been struggling to cope with the management of their economies, taking on unimaginable amounts of debt, and continuing with crippling cuts to their essential services.
To name just a few, the average person is facing more pressure due to falling house prices, increased unemployment rates, increased student tuition fees, and higher petrol and food prices.
The bad news is that there appears to be no end in sight, in fact, concerning the economy; detailed studies indicate that far worse is yet to surface, as the inherent nature of financial system is deeply flawed.
To discover how you can protect yourself – and even profit tremendously – it is important that you are able to read the signs of another financial crisis (a currency crisis), which is expected to occur in the near future. Therefore, I highly recommend that you read ‘The Dollar Meltdown,’ written by Charles Goyette.
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‘THE DOLLAR MELTDOWN’
In order to understand exactly why a currency crisis is fast approaching and cannot be stopped, Goyette provides us with:
(1) A short history of the use of gold as a form of money
(2) The relationship between gold and the US dollar
(3) The relationship between governments, banks, and inflation
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GOLD AS A FORM OF MONEY
Goyette informs us that, throughout history, people had discovered that gold meet all the essential requirements to act as an effective form of money. This is because it is:
- Relatively scarce: there is a limited amount of gold in the world, and the current volume is unlikely to change drastically, especially as mining the precious metal involves a huge amount of time and expense.
- Universally desirable: due in part to its’ relative scarcity, for centuries, gold has been recognised and valued everywhere around the globe.
- Fungible: one unit of gold is capable of being exchange for another unit of the precious metal that comes from a different part of the world, without a meaningful change in its value (exchangeable).
- Durable: gold does not rust or corrode, and is the most stable and least chemically active metal.
- Divisible: gold is the most malleable of the metals, to the extent that it can be processed until it is thin enough to be eaten.
Because of its attributes, as a form of money, gold (as well as silver) maintained a quality and relative fixed quantity that was objective and not dependant on the stability, or honesty, of a government or issuing authority.
In fact, a close examination of history reveals that where gold was used as money, there was no need for rulers, leaders, governments, or states to direct the monetary system; people would choose gold to act as a currency without the need for laws or decrees. Conversely, whenever rulers of nations abandoned the connection of gold or silver to their currencies, their nations would subsequently suffer from serious economic and political consequences, leading to the eventual break-up of their empires.
The British pound, for example, was linked to gold for nearly two hundred years, from 1717 until 1914. This allowed the tiny island nation to establish territories that covered the entire world:Africa,India, the Far East,Australia, the South Pacific, and North and South America. However, when the link to gold was broken in 1914, it inevitably led to the bankruptcy and collapse of the British Empire.
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GOLD & THE US DOLLAR
Despite the removal of gold and silver coins from America’s domestic monetary system in 1933 and 1965 respectively, the US dollar (paper money) was still connected to gold.
Significantly, after World War ll (1945), this connection had initially caused the US dollar to be accepted as the reserve currency of the world. In other words, the central banks of many countries around the globe hold huge quantities of US dollars as an asset and investment. This continues today. Therefore, whatever happens to the US dollar potentially affects the financial health of every country on the earth.
In 1961, the London Gold Pool was established to allow anyone to convert his or her dollars into gold. The rate of conversion was $35 to an ounce of the precious metal. However, on 14th March 1968, as many foreigner holders of the dollar sought to covert their holding to gold, the London Gold Pool stopped operating.
As the foreign demand for convertibility could not be contained, in 1971, President Richard Nixon turned his back on America’s promise to redeem dollars in gold, and severed the link between the precious metal and the US currency.
From that day, abandoning the link prevented gold from imposing a discipline on how the US authorities manage the supply of money within their economy. The reason is that governments cannot simply increase the amount of gold that they hold due to its relative scarcity, whereas with an ample supply of ink and wood, they can produce paper money very cheaply, quickly, and conveniently.
As a result, the US’ monetary authorities were now free to print as many dollars as they saw fit (fiat). And like all other currencies that have been disconnected from gold (or silver); the dollar was now set to be subjected to a serious financial curse: inflation
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INFLATION
Inflation is simply the increase of the supply of money or credit within an economy. Consequently, an increase in the supply of money (or credit) causes the price of goods and services to rise. This is because an economy is like a large auction with people bidding for a limited number of goods and services. Therefore, if a government attends the auction and gives people more money to spend (increases the supply of money and credit), with more funds, individuals would start to bid higher for the available goods and services, causing prices to rise.
In reality, if the US government decided to double the amount of money each person has, in response, prices would adjust. The price of goods and services would be expected to double, even though no new wealth would have been created. This would cause the purchasing power of the dollar to be cut in half, as you would now need $2 to buy something that you previous bought for $1.
A major cause for concern with the current financial system is that governments, and the banking and finance sector, are the primary beneficiaries of inflation (increase in the supply of money), at the expense of the majority of people. The reason is that, typically, governments are the largest borrowers in an economic system, and an increase in the money supply has the affect of reducing their debts. Each currency unit (i.e. dollar) they borrow will reduce in value if, at some future point, the government increase the money supply (put more dollars in the system). Therefore, eventually the unit (dollar) will be worth less, so that when it is time for governments to repay their outstanding debt, they will end up paying less.
As accomplices, bankers and financiers:
- Are the enablers of inflation
- Have political connections at the highest level
- Have insider knowledge of monetary policies
- Have first access to any newly supplied money before it will eventually reduce the purchasing power of the relevant currency
After receiving any new supply of money, bankers and financiers are able to spend and invest immediately, at a time, when the cost and price of goods and services are still low. Once the new supply of money causes the cost and price of those same goods and services to rise (inflation), the bankers and financiers then receive greater profits from those same low cost investments that they had chosen earlier.
In contrast, the majority of people will be the last to receive or benefit from any new supply of money as it trickles down in various ways. Furthermore, with relatively low salaries, the masses are hurt the most by the price increases caused by inflation (increase in the money supply).
‘The rich get richer, and the poor get poorer.’
Those who save such as bank depositors, pension holders, and fixed income investors will all be penalised for their virtuous saving behaviour, because continuous increases in the supply of money (inflation) will keep reducing the value (predetermined interest rates) on their assets or investments.
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WHAT TO DO NEXT
In spite of the bleak assessment, and damaging information that the author reveals about the nature of the current financial system, he reminds us that in every crisis there are always great opportunities.
Thus, with a practical emphasis, he dedicates the final third of his book to recommending investment approaches or strategies in gold, silver, oil, agriculture, and natural resources that will allow us to protect ourselves and profit from inflation, or a currency crisis.
In regards to oil, for example, the author points out that within a few years after President Nixon disconnected the dollar from gold, oil prices quadrupled, and after 10 years, prices had increase 1,000 percent. Most global oil sales are conducted in dollars, and any devaluation to the currency caused by the US government can cause oil prices to rise explosively.
Other compelling reasons for investing in oil is that any war in the Middle East, a conflict between India-Pakistan drawing in surrounding countries, an escalation in the Israeli-Palestinian conflict, or increased Sunni-Shiite hostilities in Iraq, among many other potential global problems, will all cause the oil price to rise substantially.
If you choose to follow Goyette’s advice, for reasons that could not be explored within the scope of this review, he specifically advises us to invest in oil using the United States Oil Fund, or USL (the United States 12 Month Oil Fund). These are exchanged-traded funds that track crude oil. More details on exactly how to invest can be found on their prospectuses at www.unitedstatesoilfund.com.
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CONCLUSION
This review mentioned only two reasons, amongst many others, as to why Goyette argues that it is only a question of time before a currency crisis occurs in the near future:
- The world’s reserve currency, the US dollar, is no longer connected to gold or a precious metal
- At the expense of the majority of people and the global financial system, the US government in cohort with bankers and financiers continuously increase the supply of their currency (inflation)
As shown above in relation to oil, the author presents logical and well-reasoned arguments in favour of his investment recommendations throughout the final third of the text. These recommendations appear to offer credible ways for us to protect ourselves, and even profit tremendously, if a currency crisis were to unfold.
I conclude by mentioning that it was a self-taught multi-millionaire gold trader, who opened my eyes to significance of this subject area, and encouraged me to read ‘The Dollar Meltdown.’
As a testimony to the potential usefulness of the author’s investment advice, this gold trader was able to anticipate, wait, and then profit tremendously from the financial crisis that occurred in 2008 – whilst the majority of people were oblivious to what was going to occur – and are still unaware of what could potentially happen tomorrow. It is time for more and more of us to be awake and alert now, and able to read the signs of our economic times.
This book will prepare you at once to act in profitable ways because you will understand the underlying issues as they present themselves (p. 10).’
Tom