Unsound Money

You might have noticed that my previous post on Silver and Stocks didn't once mention the US Dollar. Why? Because it's irrelevant. It may go up, it may go down. Most likely down, but so what? I try not to hold any more of it than necessary, unless I have reason to believe it's in an extended uptrend and decide to speculate.

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.