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What is Gold Trying to Tell Us
Karibu (Welcome) G&G Readers,
As I've said many times before, if you want to make sound investment decisions, you need to study history and learn from the good and bad of the past. And an important piece of th past is plotting the story and history of Gold … the currency/money that as been around since the beginning of time.
Before we move on, we need to consider one more piece of the gold story... What happened to gold during the Great Depression tells me all I need to know about my government.
Many Americans don't remember (or were never taught) that all privately held gold bullion was confiscated in 1933. Yes, the government handed over $20 for each ounce, but it wasn't a free exchange. It was forced on the threat of 10 years in prison. If a thief sticks a gun in your face and takes your wallet, does it matter if he gives you back a token of your former possession? Nope.
If you are not familiar with the story, listen to the audio, "The Creature from Jekyll Island: http://www.gngassociates.net/ConfCalls/The_Creature_from_Jekyll_Island.mp3
The confiscated gold – all of the privately held gold in the country – was then loaded onto 500 railroad cars and sent to Ft. Knox, which was built especially for the purpose of holding all this stolen gold. All this gold – or at least a lot of it – would eventually be sent overseas in exchange for debts owed by our government.
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In the 1960s and 1970s, as our government's annual budget deficit soared, our foreign creditors (namely France and Spain) routinely demanded gold in exchange for dollars at the artificially fixed price of $35 per ounce. Doing so made financial sense for them. On world markets, gold was trading for far more than $35 – it was going for $60-$100 per ounce. By trying to hold the dollar against the artificial $35 price, the U.S. ended up sending about two-thirds of our gold hoard – much of which had been stolen from private American citizens – to our overseas creditors. Finally in 1971, Nixon simply defaulted on our promise by shutting the gold window forever.
Few people talk about this... but the actual impact of all these legal moves and foreign borrowing was that the U.S. government ended up taking its citizens' gold and giving it to European central banks. There are a lot of "new world order" conspiracy theorists out there, but I've never heard any of them talking about how nearly all of America's privately held gold was stolen and then shipped overseas during the 1960s and 1970s. It's not a theory or conjecture. It happened. Even so, I'd bet less than one American in 100 has ever figured this out.
Just think about how that would have made you feel... especially if you or your sons had fought in World War II. Americans risked their lives to save Europe from tyranny... only to see Europe's governments conspire with the federales to take our gold. If it wasn't true, nobody would have ever dared to make it up – it's too implausible. And yet... that's exactly what happened.
Why This Crisis Will be Worse
Than the Great Depression
As I mentioned, in Buffett's upcoming annual letter, he rants against gold, saying, in effect, it's worthless and provides society with zero intrinsic value. It's hard to know if he really believes that's true... especially since his father understood the vital role of gold intimately. {You can read Congressman Howard Buffett's essay "Human Freedom Rests on Gold Redeemable Money" here: http://www.fame.org/pdf/buffet3.pdf}.
In any case, it's important to remember that before the Great Depression, our currency was still linked to gold and Americans owned more gold than any other nation in the world (until the federal government stole it from them...) Back in January 1933, citizens could exchange notes for gold at any Federal Reserve Bank. And America was still a net creditor to the world.
If you have never seen a Gold Certificate before, click on link below:
http://db.tt/cUgZKXNt
Why does this matter?
Because even though the 8.3% of GDP stimulus that was unleashed by President Franklin Delano Roosevelt in 1933 caused us to default on the gold standard, it did not destroy America's credit. We were still a wealthy nation – by far the wealthiest on Earth.
Watching the rise of the Nazis, the Communists, and hearing FDR's rhetoric about a "new deal," creditors decided to stop lending gold – to anyone. That shut down credit markets around the world, rendering the global banking system insolvent. (As I mentioned, our government responded by taking all the privately held gold in America and stashing it at Ft. Knox – the largest hoard of gold ever assembled in history.)
These facts offer an important lesson. Even though the Great Depression was the worst economic disaster we'd ever faced as a country, it didn't bankrupt us – in part, because our government and our citizens kept their savings in gold.
This is one of the many advantages of gold that Buffett doesn't understand (or chooses to ignore). In a time of crisis, gold retains its value because it is the only universally accepted financial asset that isn't someone else's liability. Gold doesn't require the backing of any bank or government.
The problems we face today are much more serious. What plagues the world's financial markets isn't the political rhetoric of Western leaders – it's their balance sheets.
Today, America is not only a net debtor to the world, it is the world's largest debtor. Most of you already know that the federal government's total outstanding debt exceeds $15 trillion – not counting any future liabilities. Our government's debt is now certain to surpass our annual GDP in 2012. Keep in mind, detailed studies of government debt levels going back further than 100 years show that governments never repay debts in excess of 80% of GDP in sound money.
Obviously, that's a pretty big problem. But what isn't commonly understood is how these obligations also weigh against the total debt levels in the U.S. Americans also hold another $15 billion in personal debt – things like credit cards, student loans, and car loans. Plus, there's state and local debts... corporate debts, etc. In total, counting up all of the debts we currently pay interest on, the total debt of the U.S. is around $56 trillion.
The GDP of the entire world is only $64 trillion. Thus, our total debts are nearly 90% of the entire world's GDP.
This, if nothing else, should tell you there's a huge problem with the U.S. economy and, by extension, the world's economy.
My goal in 2012 is to find ways to take advantage of this attack on your savings for my GGIS Subscribers. I will share many of those ideas here in the weekly G&G e-newsletter as well.
But it is on you… If you're relying on the government or the traditional way of investing to prepare you for retirement, you need consider the reality that history does repeat itself if you keep making the same mistakes.
You can hope that it will not? But, unless you do something different to change the course, you'll keep getting the same results. In reality, you need to do more than hope. You need to make changes… See Quote below.
"Investing is much like gambling. But, the difference is that with knowledge in investing you can at least increase your odds of winning."
J. Carter
As always…feel free to pass this information on to anyone you think is interested in increasing their tax & financial IQ.
If you need a one-on-one consultation to learn how to implement these investments or any other on the GGIS portfolio, feel free to contact me to setup an appointment.
If you missed any past G&G newsletters, click on link below for the archive:
http://ezinedirector.com/admin/publisher/archive/public/?fuseaction=a&e=7944575E0843077440
Meda Ase p (Thank You Very Much),
Asar Maa Ra Gray
Tax & Financial Consultant, RFC
G&G Associates
757-251-3757 office
866-361-3872 toll free fax
www.gngassociates.net
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"Investing is much like gambling. But, the difference is that with knowledge in investing you can at least increase your odds of winning."
J. Carter
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LEGAL NOTICE: This work is based on what I've learned as a financial researcher and analyst based SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you should not base investment decisions solely on what you read here. It's your money and your responsibility. Nothing herein should be considered personalized investment advice.
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