Americans' net worth rises for third straight quarter

Friday, March 12, 2010

Stock gains boost Americans' net worth

Americans regained more of their shrunken wealth last quarter, mainly because of gains in stock portfolios. The Federal Reserve reported Thursday that household net worth rose 1.3 percent in the fourth quarter of 2009, to $54.2 trillion. Net worth rose 4.5 percent in the second quarter and 5.5 percent in the third. The value of stocks rose nearly 4 percent in the period, to $7.7 trillion. Higher home prices helped a bit: Real estate holdings edged up 0.2 percent.

Americans' net worth would have to rise 21 percent more to get back to its pre-recession peak of $65.9 trillion.

– Associated Press

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Here's the story as priced in gold:

Americans' net worth falls for second quarter in a row

Friday, March 12, 2010

Currency losses gut Americans' net worth

Americans saw their wealth shrink again last quarter, mainly because of losses in the value of the dollar. The Federal Reserve reported Thursday that household net worth fell 8.7 percent in the fourth quarter of 2009, to 1,526 tonnes of gold. Net worth had risen 2.5 percent in the second quarter and fallen 1 percent in the third. Aside from the second quarter's uptick, net worth has been falling every period since the third quarter of 2007. Falling home prices caused a major hit: Real estate holdings dropped 9.6 percent to 467 tonnes. The value of stocks fell 6.3 percent in the period, to 217 tonnes of gold. Underlying all of these drops is the continuing debasement of the US Dollar, as bogus "bailouts", "stimulus plans" and other reckless deficit spending take their toll.

Americans' net worth would have to rise 227 percent to get back to its pre-recession peak of 5,000 tonnes of gold.

– Associated Press and PricedinGold.com

"If you want to end up with the economy of Pakistan, the politics of Ukraine and the inflation rate of Zimbabwe, bank nationalisation is the way to go."

They suggest some ways to avoid a few of the potholes in the bank recovery roadmap, but ultimately it comes down to having the political will to do the hard things, to deliver sufficient pain to the banking and financial elite that created the mess in the first place with the willing collusion and encouragement of government. Pain that must be confronted to cleanse the system of toxic waste and moral hazard. What is the chance of this type of solution coming out of a bipartisan working group? And if it was offered, what are the chances of it being implemented? And if tried, how long would it last before being abandoned as "un-workable"?

It is so much easier to just put the patient on an IV drip of stimulants and pain killers… which the Fed is happy to provide in many forms, most powerfully by "quantitative easing" and "expanding it's balance sheet", also known as "printing money".

Of course, most of the "experts" say that once the crisis has passed, and things are "back to normal" (whatever the heck that means) the Fed can simply "drain excess liquidity out of the system" to avoid any serious inflation. This is roughly the equivalent of taking the patient, now living in a happy pain-free daze, out of the heart-lung machine, pulling the IV drip, and sending him home to go cold turkey. And handing him a huge bill – equal to a large fraction of his annual income – as he checks out of the hospital.

You get the picture.

What is the solution? Have some money that has no counterparty risk and cannot be counterfeited, even by governments. Of course that means gold, preferably physical gold in your personal possession. How much? That's up to you; but with gold paying about the same interest as treasury bills, with much lower risk, and with the multitude of economic problems still lurking out there, I think 10 to 20 percent of your liquid assets would be a good place to start, and going over half would not be at all imprudent. At the moment, Cash is King, and gold is the King of cash.

Don't get swept up in illusory losses and gains due to the volatile pricing of fiat currencies like the US Dollar, either. Track your investments and net worth in gold, and don't be afraid to cut the under-performers from your portfolio. However ugly things look now, you want to be worth more gold next year than you are worth today.

Let me know if there's any way Priced in Gold can help.

When someone talks about the price of gold in some currency like US Dollars, they are talking about the exchange rate between two currencies – gold and dollars. It makes just as much sense to talk about the price of the dollar in gold as it does to talk about the price of gold in dollars. It all depends on which currency is central to your thinking. For most of my life, I've lived in the United States, and used US Dollars to purchase groceries, keep my accounts, and so on. But when I lived in England, I used Pounds to buy my groceries, and keep my accounts. When building a boat in New Zealand, I had accounts in NZ Dollars, paid for the boat's construction in NZ Dollars and paid bills and expenses in NZ Dollars while visiting there. Same for my visits to Japan, Germany, Mexico, Tahiti, and so on. Still, as I traveled, I always related the value of the local currency back to my "home currency", the US Dollar. "How much is that in dollars?", I would ask myself. When I had the answer, I could assess the price and decide "Wow, cheese is a real bargain!" or "Sheesh! Gasoline is really expensive here!".

But to think of the US Dollar as "the center of the monetary universe" with all other currencies circling around it is silly. When friends of mine from England visit the US, they are doing just the opposite of what I did when visiting them – they are relating all the US Dollar prices they see back to their "home currency", the Pound Sterling.

I have now come to realize that we are all travelers… moving through space around the globe and through time as well. As we move to new places and new times we find people using new forms of local money. Sometimes these moneys have the same name, but very different values. Dollars in the US or New Zealand or Hong Kong or Australia or Zimbabwe do not have the same value as one another. And one US Dollar in 2008 does not have the same value that one US Dollar had in 2003.

Gold is a money that is recognized around the world, throughout all of history, and changes value very gradually over time. To my mind, this makes it the perfect money in which to value all the others. The perfect "home currency" to relate local prices back to, to determine whether things are cheap or dear.

In today's world of "floating exchange rates", the market sets the price of one currency in terms of another. Traders buying Japanese Yen with US Dollars, selling New Zealand Dollars for British Pounds, buying Swiss Francs with Euros, and so on, agree on how much they will pay for each transaction made. These transactions are posted electronically and become the bid and ask prices that guide other buyers and sellers, and are called the "spot prices" of currencies. Traders are also buying and selling currencies for delivery in the future, months or even years from now. The prices they set are based on the spot price, but also figure in estimates of future changes in value due to inflation, interest rates, expected demand and other factors.

Bonds are another form of currency exchange – you will be getting your principal back 2, 5, 10, 20 or more years in the future, and receiving a fixed "rental" (the interest) every so often until then. Although the currency lent and repaid have the same name, they are really two different currencies because of the intervening time. For example you might buy the bond with 2008 US Dollars, receive an interest payment in 2010 US Dollars and finally be repaid the principal in 2018 US Dollars. Although bonds are said to have no "exchange risk", many of the other factors that drive currency futures prices also drive bond prices… especially interest rates and inflation expectations. No one will pay $1000 for a bond earning 3% if a new bond with the same maturity and risk profile can be purchased for $1000 that will pay 12%. And if one expects the money returned at maturity to be worth less than the money being used to buy the bond (due to inflation) then one will insist on a higher interest rate… or pay less up front than will be returned at maturity. If a new issue is priced too high (by setting its interest rate too low) there will be no buyers. So traders also set the price of bonds, which is another way to say that they set interest rates.

Of course, the expected future value of a currency can be higher as well as lower. When people expect their money to buy more in the future, they tend to put off purchases because they expect a better deal to come along later. This activity is called saving. The monetary effect is called deflation, because the amount of money chasing after the goods available is declining, making each unit of money more valuable as time goes by.

As I write this, the "Credit Crisis" and recession being experienced around the world is making the US Dollar more valuable. Banks, hedge funds, traders, investors, governments, home owners (in fact, nearly everyone) have borrowed large sums of money to leverage their investments and increase their rate of return. Although this practice is very profitable in good times, it quickly reverses its effect and multiplies the magnitude of losses when the value of the underlying assets declines. When losses get large enough, they can cause individuals and firms to go bankrupt, leading to still more losses for those who were doing business with them. In attempting to reduce this leverage, and thus reduce the rate of losses, firms and individuals are scrambling to get dollars to repay those loans. They sell whatever they can to raise the money. This selling of assets and buying of dollars pushes the value of the dollar higher with respect to almost everything – stocks, real estate, oil, gasoline, steel, copper, even gold.

In investing, it is common to borrow an asset, like a shares of a stock or a large amount of a commodity like copper or silver, and then sell it, anticipating that the price of the asset will fall, and it can be bought back cheaper in the future when it needs to be returned to the original owner. This is called "short selling". It is legal, and can be quite profitable. It improves functioning of markets by making available commodities that would otherwise site idle in warehouses, and enables more accurate pricing of stocks and commodities.

When a large number of traders have short positions in an asset, and the price of the asset goes up too much, those traders are looking at large losses, and some will decide to exit their positions by buying back the asset they had sold, paying a higher price, and taking the loss. This buying pushes the price even higher, causing more traders to decide to buy back the lent asset, and this can become a vicious circle, shooting the value up much higher than is warranted on fundamentals alone. This is called a "short squeeze". Eventually, the sellers who must get out have completed their buying, and the "gravity" of fundamental value reasserts itself. The asset price that spiked higher so rapidly now falls back, often just as fast or even faster than it rose during the squeeze.

If one thinks of money as a commodity, it makes sense that buying a stock (or a house) using leverage is a form of dollar short selling. Just like the silver trader who borrows silver and sells it for US Dollars is "short silver" (he is also "long the dollar" since he lots of that in his account) a house buyer with a mortgage has borrowed US Dollars and traded them for a house; she is "short the dollar" and "long real estate". The same can be said of stocks bought on margin – the trader is short the dollar and long stocks.

And just like any other commodity, the dollar is subject to short squeezes. When, let's say, stocks begin falling in value and many players in the market are short dollars and long stocks, they will be experiencing losses, and if those losses get large enough, they will need to "cover their short" by selling other assets to buy back the borrowed dollars. Note that this has nothing to do with the fundamentals of the dollar as a currency – how sound it is, how large the trade and current account deficits are, how fast the printing presses are running, nor does it matter how sound the assets they are selling are. The dollar short sellers need to get out NOW, and they will do whatever it takes to get out. It should also be clear that lending them more dollars is not an answer to their problem… they have already borrowed too much. They need to reduce, not increase, the size of their dollar short position.

And like all short squeezes, at some point the players who need to repay their dollars have done so, or have gone bankrupt trying. Now fundamentals reassert themselves, and the "overbought" dollar falls while the "oversold" stocks and commodities rise, each according to it's underlying value. Prices oscillate around for a while until balance is restored and the next cycle can begin.

Of course in the real world, there are many other processes going on at the same time. Uncertainty about true asset values, uncertainty about the soundness of trading partners, outright fraud, changes in production and demand, government and central bank policy changes and so on all play a role in determining the evolution of the overall economy.

How can we tell a dollar short squeeze during an inflationary period from a true deflation?

In both cases, the purchasing power of dollars is increasing, but the psychology is very different. In inflationary times, people look at a falling price and think, "Wow! I better scoop up that bargain now; it probably won't last long." In deflationary times they think, "No point in buying today, I'll wait until I really need it; it will probably be cheaper then."

I just experienced this at the local gas station. US gas prices in dollars have been falling since July, and are now about one half what they were then. In gold, they peaked in September, but have also fallen sharply. As I was driving by the station I saw a new lower price at the pump. My tank was half-full. In a deflationary mind-set, I would have reasoned that as I still had half a tank, I might as well wait for a few days to fill up, since the price would probably be lower than it is now, and by hanging on to the money I would be earning interest on it and gaining value. But that was not my reasoning… my reaction was to rush in and fill up quick at this great price while I still could. That is inflationary thinking.

True deflationary thinking takes time to develop. People have to experience falling prices for so long, that future low prices become their expectation. For almost 70 years prices have generally trended up as more and more money has been created.

Will the current "crisis" keep prices falling long enough to reverse that thinking?

It is hard to say for sure, but the fundamentals do not seem to be changing; if anything, they are deteriorating. Bailouts and stimulus programs are ballooning deficits and central banks are doing everything in their power to flood the system with liquidity. Let's look at what that means: the central banks (like the Federal Reserve) are selling dollars to the traders and banking houses who are desperate to reduce their dollar short positions. They are buying all sorts of assets, much of it the "financial toxic waste" that got the investment banks and hedge funds into this bad position in the first place. So now the Fed is shorting the dollar on a massive scale, taking the other side of the de-leveraging trade. But they have a huge advantage over other traders in the marketplace: they can never run out of dollars. No matter how big their losses get, they can always stay in the game. Or can they?

Where do they get the dollars they are supplying to the market? Most of them are borrowed from foreign governments that run trade surpluses, but ultimately, they will create them out of thin air if that's what it takes. And foreign governments and other large lenders will be increasingly nervous as they look at the central bank's balance sheet and see dwindling tax receipts and mostly junk bonds, non-performing mortgages, stock of failing or failed companies, and so on, as the primary source of future repayment. Of course they will get their money back eventually, but if the central bank just prints it up, its purchasing power in 5, 10 or 30 years will be only a small fraction of the value they are lending now. When they truly realize that, the game is over. When the central banks can no longer borrow, they will begin to print money in earnest. Then, it will be like the cartoon coyote running off the cliff: everything is going fine until he looks down and sees nothing but the canyon floor, far below him, and suddenly everything is not fine, gravity reasserts itself, and he is falling out of control, to eventually disappear in a puff of dust as he hits the ground. In economics, this is known as hyper-inflation. Think of Zimbabwe. Think of million-dollar bills, printed on one side only because it's too costly to print on both sides. Think of needing a wad of these to buy a single gallon of gas, or a gallon of milk, or a burger and fries.

But it will still take about the same amount of gold to buy a gallon of gas, or a meal, as it does today. Perhaps, if there is a massive flight to the safety of gold, gold's price may be pushed up compared to most other things, and it may take even less gold to buy a gallon of gas then it has historically, at least for a time, until things settle down again.

At the moment, it is quite profitable to speculate by buying and holding dollars and other fiat currencies. No one knows how high they will go, or how long it will take before they begin to fall again. But it is a speculation in a highly volatile commodity that has terrible fundamentals and is undergoing a powerful short squeeze. It is playing with fire, and it will take both luck and skill to make a profit and keep it.

Gold on the other hand is just a sound money. Holding it will not make you rich, but will keep you from getting poor. It will not build anything, employ anyone, or pay any interest. But it will retain its value. It is true cash that can be traded for enough local currency to buy what you need any place at any time.

If you have experienced large paper losses in your securities portfolio, be sure to evaluate those losses in terms of gold. Remember that the rising dollar may make your losses look bigger than they really are. Be sure to honor your stops: exit positions to preserve your capital, don't go on hoping they will recover. Look at each position and ask, "If I had the cash, would I buy this today, knowing everything I know about the security, the economy, and my own risk preferences?" If the answer is "yes", then keep the position; otherwise close it out, whether at a loss or a profit.

Take advantage of the dollar's rise to accumulate solid assets like gold (your cash position) and stock in the world's best companies, to buy debt-free real estate and to diversify yourself internationally. Invest in yourself. Learn a new skill or a new language. Travel. Improve your health. Exercise. Meditate. Start a business that can be profitable on a small scale without needing to take on debt, one that can exploit the market gaps that will be left as large old-line companies burdened with debt and union contracts go under. Or start an information publishing business to share what you've learned with others and help them weather the storm, prosper and become happier and healthier.

The bottom line is that health and happiness come first. Spend time with your family! Time is a tricky asset… as we grow older, we have less and less of it, and each second becomes more precious. Spend it wisely. Never confuse happiness with financial success. And never confuse your dollar net worth with your true wealth as measured in gold.

The big claim is that after peaking in 2000, incomes fell, bottoming in 2003, and have now climbed back to make new highs in 2006.

The author examines IRS data showing average Adjusted Gross Income and Wages and Salaries as reported on US tax returns. The numbers quoted are a bit confusing – some are adjusted to 2006 dollars, some are totals and some are averages. But one thing is clear to me: stated in gold, Adjusted Gross Incomes in 2006 are down about 50% from their 2000 levels, about where they were in 1995. Wages and Salaries, stated in gold, are also down about 50% from their peak in 2000.

I'm not sure how useful this data is, as Adjusted Gross Income is merely a number used for calculating taxes, and is subject to all kinds of exclusions, deductions, and so on, that relate solely to the complexities of the tax code. I prefer to watch the Per Capita Disposable Income, a number reported monthly that shows on average, the money available after taxes for consumption, investing and saving. This number also fell about 50% from 2000 to 2006, and has continued to fall since then. It is currently about where it was in the late 1980s.

People do have more dollars to spend… but those dollars are worth much less. Don't be fooled! Make sure your income and net worth are rising when measured in gold.

Even though I missed only a few of the general sessions, I can't wait to get my hands on the recordings to go through them again for profitable ideas, and to clarify in my own mind the arguments, pro and con, on issues that will be key to my investment decisions in the coming months.

One of those "out in the hallway" discussions got me to thinking about wages, valued in gold… and I put together a chart of wages (average hourly earnings of US production workers, as tabulated by the BLS in series CES0500000008, to be precise) to see what they've been doing.

I was shocked to see that since January 1964, a total of 534 months, there have been only 36 months in which wages were lower than they are today – mainly in the period from 1979-1981. The most recent period when they were this low was early in 1988, 20 years ago. Since then they have seen a high of 1.75 grams/hour in April of 2001, before falling back to their current level of 0.6 grams/hour in July of 2008.

I thought it would be fun to take a look at how things have changed over that 20 year period in terms of gold prices, many of which can be found in the charts section of this web site. Here is a summary:

1) Although wages are about the same, per capita disposable income is up 9%. I suspect this is due to many factors, including lower tax rates, changes in government "benefits", more dual earner households and smaller families. It could also be influenced by the proportion of "production" jobs in the economy. In any event, this is a modest increase for 20 years!

2) First class postage is down 6%, one of the few things I could find that was down!

3) Stocks were a mixed bag. The Dow Jones Industrials are around 400 now, up from about 125 in 1988 – a rise of 220%, even after their spectacular fall from the 1999 high of 1,400. What a roller-coaster ride! On the other hand, Japanese stocks as measured by the Nikkei 225 Index were much stronger in 1988, and have fallen from 12 to 4.5 – a drop of 63%. I plan to do a more detailed comparison of these markets in a future post.

4) Home prices, as measured by the Case-Shiller CSXR Index, are up about 33%, even after falling more than 50% over the last three years.

5) Commodities are up strongly: silver up 29%, gasoline up 89%, copper up 98%, crude oil up 275%, and wheat up a whopping 347%.

The US government's own debt is also a huge and growing problem. While in 1988 it was a "mere" 2.6 trillion USD, today it is over 9.4 trillion USD, up 262%. If this debt had to be settled in gold, that would require 308,376 tonnes of gold today, up from 204,000 back in 1988. It's a good thing that this debt is denominated in US Dollars that can be created out of nothing with the press of a few computer keys! There are only 8,133 tonnes of gold in the US reserves (even this figure is disputed, as it has not been physically audited for decades.) And to put the size of this debt in perspective, all the gold ever mined, since the beginning of time, is estimated at about 150,000 tonnes – that's less than half of the current US Federal debt.

But these figures, as grotesque and gargantuan as they are, are just the officially acknowledged tip of the iceberg. They don't include off-budget borrowing, consumer borrowing, or the real elephants in the room, the ones no one in polite society wants to talk about – the "unfunded liabilities" and future entitlements of social security, medicare, and related programs. While current taxes are generating enough cash to cover these at the moment, due to changing demographics they are growing at a rate that cannot be met simply by new tax increases. Unless changes are made, their costs will overwhelm even the ability of our printing presses to pay for them!

How did we get to this point? What can we do about it?

At the Vancouver Symposium there was a showing of a new documentary film called I.O.U.S.A. that addresses many of these points via fascinating interviews with Pete Peterson, Warren Buffett, former Comptroller General of the United States David Walker, and other luminaries. It's a wonderful film, well made, very thought-provoking, and highly recommended.

Most people have little grasp of what is happening with their money. Most have no idea what is heading down the tracks toward them financially. If you have family and friends in this situation, I urge you to take them to see this movie. It is fun, fast paced and informative. They may be shocked, but they won't be bored!

There will be a special "one day only" premier showing of the film all over the USA on Thursday, August 21st. I'm going, along with many of my friends who weren't able to see it in Vancouver. You can get details, watch a trailer and check out the special offer Agora Financial is making to those who pre-purchase tickets, as well.

I hope you will join me!

The first part of this interview covered Paul van Eeden's background and laid out his views on gold, inflation and interest rates. In this final segment, we'll discuss what to do about this situation – how to translate this view of the world into investment action.

Paul has been working hard on a more accurate model for the money supply that will give investors a clearer picture of what's coming in terms of inflation and interest rates. The best way to get access to this information is to subscribe to his newsletter – something I strongly recommend.

As I write this, there are still a few seats left for the 2008 Agora Financial Investment Symposium, to be held in Vancouver, BC from July 22 to 25. Paul and I will be there along with the legendary Jim Rogers, Rick Rule, Bill Bonner, Doug Casey and a boatload of other excellent speakers. If you will be attending, be sure to drop me an email or leave a message on the Priced In Gold Hotline at 888-868-5656, and we'll see what we can work out for a get-together. Keep an eye out for my pith helmet!

Last year, in July of 2007, I attended the Agora Financial investment Symposium in Vancouver, BC. There were a lot of excellent speakers and sessions covering all aspects of investment, with quite a bit of emphasis on natural resources and a strong international flavor. One of the speakers who impressed me the most was Paul van Edeen. On my return home I subscribed to his newsletter – which has since become one of my favorites.

Last month I had an opportunity to interview Paul on the phone, and I picked up some great investment ideas and tidbits of investing wisdom that I am excited to pass along to you.

Because of it's length, I'm breaking the interview up into two podcasts. The first will cover Paul's background and lay out his views on gold, inflation and interest rates. In the second, we'll discuss what to do about this situation – how to translate this view of the world into profitable investment action.

I heartily recommend Paul's newsletter, and would love to see you at the upcoming 2008 Agora Financial Investment Symposium, to be held in Vancouver, BC from July 22 to 25. Paul and I will be there along with the legendary Jim Rogers, Rick Rule, Bill Bonner and a boatload of other excellent speakers. If you will be attending, be sure to drop me an email or leave a message on the Priced In Gold Hotline at 888-868-5656, and we'll see what we can work out for a get-together. Just watch for my pith helmet!

One of my favorite quotes from his Senate presentation:

“Whereas the prices of oil and wheat measured in dollars have soared over the course of this decade, they have, on the other hand, been remarkably stable when measured in terms of gold — gold having been the foundation of the world’s monetary system until 1971. It is, therefore, reasonable to conclude not that we are a experiencing a commodities bubble, but, rather, the end of what might usefully be termed a ‘currency bubble.’”

And from the Hard Asset talk, this wonderful idea:

So how could gold make a revival as a sort of international money? Well, we don't actually need a government run gold standard anymore. There are already private gold banks. They've been growing for some time. Their growth has roughly charted the decline of the dollar. People buy digital shares in gold. Gold is held in vaults by these banks, and you buy digital claims on them, just like when you buy a stock today you don't have a physical certificate. You have a digital representation of that stock.

If we all owned digital shares in gold, and we were able to move money from our accounts between us, and we were able to walk around with smart cards carrying representations of this digital gold, we'd be able to travel around the world, and to transact with one another. Think about it. You would go into a café in Sao Paolo, and you would order your cappuccino, and you would pay with a smart card that would debit your account for some flake of gold. And since people have always had confidence in gold as a long-term store of value, there's no reason why it couldn't play that role.

Dr. Steil also comments on why gold is a better monetary choice than a basket of currencies or commodities:

The problem with a basket is I think it's too abstract for people to connect with as a long-term standard of value. In other words, a basket is probably going to have to be run by some sort of institution, and people will probably over time lose faith in the institution.

The reason why I suggest that digital gold may have more attraction for people is because a system based on one commodity with unique monetary properties like gold does not have to be run by an institution. You can have a competitive market developing around gold as an international monetary standard. So that's the reason I think gold would probably make a better money than a commodity basket that would have to be managed by some large institution.

He points out that while the US Dollar may not be doomed in the immediate future, the dilemma described in 1960 by economist Robert Triffin remains unsolved today: if a national currency operates as the international currency, this currency must be supplied to the world by running either large balance of payment deficits, or large current account deficits. But when we do that, people eventually lose confidence in this currency because it can be printed without limit.

So far the US has pushed its deficits higher than many economists of the 1980s thought possible – past 3%, then 5% and recently 7%. But at some point, people will say "enough is enough. We don't trust your management of the dollar any more." And as Dr. Steil says, "that's a very dangerous situation to be in."

These are quite remarkable discussions of the US Dollar, gold, Federal Reserve policy and the future of money. I strongly recommend that you read through them, study the included charts and think about the implications for your investments.

Unlike stocks and commodities such as silver, individual fiat currencies do not have cycles that repeat over time – they are introduced, invariably debased at varying rates, occasionally supported for short periods, and eventually replaced as they leave the world stage worthless. This is the pattern that repeats, over and over through the centuries. The details are driven by the exigencies of war and politics. There is nothing new or different about the current US Dollar, Canadian Dollar, Euro or Yen.

Rome, France under John Law, Argentina, and the Weimar Republic in Germany are often cited as examples of failed fiat money systems. Of course the US had its own Continental Dollar (which created the saying "as worthless as a Continental") as well as Lincoln's "greenbacks" and the currency of the Confederacy.

Now, you might say that these are just banana republics and ancient history. Not so! Rome was the biggest economic powerhouse the world had ever seen, and it took over 700 years for its money to go from "good as gold" to worthless. Ever heard the phrase "as rich as an Argentine"? And France and Germany were counted among the world's most powerful economies; Germany, after several failed monetary regimes, is once more the mainstay of Europe.

"Yeah, but that was in the old days. It's all different now…", I can hear someone muttering. I don't think so – as I am writing this, Zimbabwe's Dollar is going through the same fate. Once a shining example of prosperity for the rest of Africa, it took about 13 ZWD to buy one gram of gold in 1980. Today it takes more than 225,000,000 ZWD to buy one gold gram, and inflation in Zimbabwe has been estimated at over 100,000% per year and rising.

My advice? Keep on hand what you need for your day-to-day transactions and to repay your fiat currency debts. Anything more than that is a wild speculation… too risky for my taste! And please don't be fooled by FDIC insurance on your bank accounts – they only promise to give you back your dollars. There is no guarantee that those dollars will buy as much as they did when you deposited them. Your FDIC insured account with a healthy $100,000 balance was worth 3,718 grams of gold on Dec 31, 2007. Today it is worth 3,089 grams. Think about that: a 17% loss in less than 3 months, in a fully insured cash account. And you can't even deduct the loss for tax purposes!

The point of all this? Forget the incredible shrinking dollar. Don't wait for some monetary messiah to return the world to sound money – take control of your own future, right now! Track your investment performance in real terms and always make your investment decisions by pricing them in gold. Say "BUY!" to things that are growing in gold value, and say "SELL!" to those that aren't. It's as simple as that.

Your financial future depends on it, and I'm here to help.

From a March 11, 2008 story in the Financial Times:

As stated in dollars:

Wall St enjoys best one-day rise since 2002
By Chris Bryant in New York
Published: March 11 2008 13:01 | Last updated: March 11 2008 20:41

US stocks enjoyed their best one-day advance in more than five years on Tuesday after the Federal Reserve announced a $200bn plan to boost liquidity at troubled financial firms.

Banking stocks surged with financial firms chalking up gains of more than 10 per cent, as traders rushed to cover short positions. The central bank plan helped allay fears that liquidity pressures were spiraling out of control.

Energy companies and other commodity producers were among the best performers as crude oil surged to another record.

The S&P 500 closed up 3.7 per cent at 1,320.63 points, its best performance since October 2002. The Nasdaq Composite soared 4 per cent to 2,255.76 and the Dow Jones Industrial Average climbed 3.6 per cent to 12,156.81 points.

The co-ordinated central bank announcement was a welcome salve for equity investors alarmed at the pattern of recent selling.

Until Tuesday the market had retreated for three successive sessions as investors were unnerved by reports of margin calls at hedge funds and soaring home foreclosures.

Tobias Levkovitch, chief US equity strategist at Citi Investment Research, had warned that “hopelessness” was setting in.

Restated in gold:

Wall St enjoys best one-day rise of the last three weeks
By Chris Bryant in New York and Charles Vollum in Honolulu
Published: March 11 2008 13:01 | Last updated: March 11 2008 20:41

US stocks enjoyed their best one-day advance in more than 3 weeks on Tuesday after the Federal Reserve announced a plan to bail out troubled financial firms that will cost 6,413 tonnes of gold – an amount equal to 79% of the current US gold reserves.

The value of the US Dollar (32.07 mg of gold, down 0.02 mg) was almost unchanged by the announcement, but banking stocks surged with financial firms chalking up gains of more than 10 per cent, as traders rushed to cover short positions. The central bank plan helped allay fears that liquidity pressures were spiraling out of control, but astute observers know that the additional liquidity will soon show up in further declines in the value of the already beleaguered Dollar.

Energy companies and other commodity producers were among the best performers as crude oil moved up slightly to 3.487 grams per barrel. Crude prices are still about 5% lower than at the start of 2008, and more than 30% lower than their high of 5.049 grams on August 30, 2005.

The S&P 500 closed up 3.6 per cent at 42.347 gold grams, its best performance since February 13th. The Nasdaq Composite soared 3.9 per cent to 72.332 and the Dow Jones Industrial Average climbed 3.5 per cent to 389.813 gold grams.

The co-ordinated central bank announcement was a welcome salve for equity investors alarmed at the pattern of recent selling, but experts warn that this relief will come at a high price as it depresses the value of the currency.

Until Tuesday the market had retreated for three successive sessions as investors were unnerved by reports of margin calls at hedge funds and soaring home foreclosures.

Tobias Levkovitch, chief US equity strategist at Citi Investment Research, had warned that “hopelessness” was setting in. He may yet be proven right, as even after today's bounce, the markets stand more than 20% below their values starting the year and more than 72% below their all time highs of August 1999.