The History Lesson
Because I am eons old, I’ve observed something throughout history that you may not be aware of: government fiat currencies are a relatively new invention, and none has endured. Eventually, they have all failed. Me? I’ve never been defaulted on or worth zero. Remember this the next time you have any doubts about my long-term worth.
Another of my roles is to protect your purchasing power. Here are a few examples of how my purchasing power has endured:
- During the time of Christ, an ounce of me purchased a Roman citizen his toga (suit), a leather belt, and a pair of sandals. Today, one ounce will still buy a good suit, a leather belt, and a pair of shoes.
- In 400 BC, during the reign of King Nebuchadnezzar, some scholars reported that an ounce of me bought 350 loaves of bread. Today, an ounce still buys about 350 loaves ($1,700 divided by 350 = $4.85/loaf).
- In 1979, my average price was $306.68. This bought an average-priced full-size bed. Thirty-three years later, $1,700 would still buy you a nice full-size bed (and then some).
You can rest assured that over time, I will hold my value. And when you near the end of your life, you can pass me on to your loved ones, knowing full well they will have something that cannot be devalued, debased, or destroyed.
What Color Is Your Money?
Like you, I’m concerned about the current state of fiscal and monetary affairs. It seems your government leaders have boxed themselves into a corner. They’ve incurred too much debt and are spending too much money. It’s important that you understand some lessons from history about this kind of behavior so that you’re certain of what I can do for you.
The common denominators that lead to the downfall of every fiat currency are the two big Ds: debts and deficits. With that in mind, consider the following:
- Morgan Stanley reported that there is “no historical precedent” for an economy that exceeds a 250% debt-to-GDP ratio without experiencing some sort of financial crisis or high inflation. US total debt currently exceeds GDP by roughly 400%.
- Detailed studies of government debt levels over the past 100 years show that debts have never been repaid (in original currency units) when they exceed 80% of GDP. US government debt will exceed 100% of GDP this year.
- Investment legend Marc Faber reports that once a country’s payments on debt exceed 30% of tax revenue, the currency is “done for.” By some estimates, the US will hit that ratio this year.
- Peter Bernholz, a leading expert on hyperinflation, states unequivocally that “hyperinflation is caused by government budget deficits.” Next year’s US budget deficit is projected to be $1.3 trillion.
The solution many of your leaders are pursuing is to create more currency units. Here’s an updated picture of the increase in the US monetary base vs. my rise in price since 2008, when your problems starting surfacing.
The monetary base has grown 205.8%, while my price is up 65.8%. This alone implies that my price in dollars is likely to climb much higher.
This is also the reason why I’m not in a bubble, as some have tried to claim. It is your central banks and bond markets that are in a bubble. The fact that my price is rising is a warning that what your leaders are doing is unsustainable and potentially dangerous to your currency.
Think about this: the US has debt backed by debt, based on debt, dependent on debt, and leveraged with debt. You can, for example, buy a bond (i.e., lend money) on margin (i.e., with borrowed money). This is not a sound way to run financial markets.
Meanwhile, the warning bells continue to sound regarding Europe’s debt crisis. In just the past 30 days:
- Moody’s cautioned that it may cut the triple-A status of France, Austria, and the UK; and it downgraded six other European nations including Italy, Spain, and Portugal.
- Standard & Poor’s cut the triple-A status of France and Austria, while Italy, Spain, Portugal, Cyprus, Malta, Slovakia, and Slovenia were downgraded.
- Fitch downgraded Belgium, Cyprus, Italy, Slovenia, and Spain, and stated there was a 50% chance of further cuts in the next two years.
- Standard & Poor’s downgraded 34 of Italy’s 37 banks.
- Moody’s warned just last week that it may cut the credit ratings of 17 global financial institutions and 114 European ones.
The European crisis is far from over; and the path of least resistance for politicians is to create more currency units. This action can and will have clear and direct consequences: currencies will devalue, and inflation – perhaps hyperinflation – will result.
Once again, I encourage you to use me to protect some of your wealth.
How Much Is Enough?
Given the state of your monetary system, you should accumulate me (and silver) on a regular basis. Just buy some every month and put it in a safe place. After what I’ve witnessed throughout history, and based on the current path your government leaders insist on pursuing, I suggest using me as your savings vehicle instead of putting dollars in a bank.
If you don’t own enough of me when these fiscal troubles really accelerate, I fear you will regret it. I’ve warned many in the past about the dilution of nations’ currencies, and those who didn’t heed my warnings experienced severe financial pain. Excuses won’t pay the mortgage nor feed the family when the effects of currency debasement hit your home and pocketbook.
Make sure you own enough of me to make a difference to your portfolio. This means having more than a couple coins or a few shares of GLD, the latter of which is only a proxy for my price.
How do you know if you own enough? Ask yourself:
- If inflation returns, or even hyperinflation hits…If the economy is flat…
- If uncertainty and fear continue around the globe…
- If stock markets languish…
- If the amount of spending from the world’s governments proves futile…
- If government interference in the economy continues to increase…
- If the value of the US dollar takes a major fall…
- If the world enters a recession or depression…
- If you wonder if you have enough “safe” money…
… would you feel that you own enough of me?
Buy a sufficient amount so that as your currency continues to lose value, your portfolio won’t. If you do your part, I promise I’ll do mine.
Your monetary friend,
Gold
[Now that you know the truth about gold, how do you start buying it and investing in it? Download this free report to get the answers and get started today.]
