A Publication of Austin Rare Coins November 2008
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U.S. Dollar – How Low Can You Go?
“The National Debt is up from $5.7 trillion when President Bush took office in January 2001 and it will top $10 trillion sometime right before or after he leaves in January 2009. It’s expanding by about $1.4 billion a day– or nearly $1 million a minute. U.S. Debt: $30,000 for each man, woman, child, and infant in the U.S.” – USA Today The Bernanke Fed is playing Russian roulette with the greenback, and a serious breakdown of the fiat (paper) currency system might only be a Fed rate cut or two away.” – Gary Dorsch “Gold rises in inflationary conditions, and its recent record highs suggest that gold perceives inflation as an ongoing threat. China is flirting with 8% inflation, the EU 3%, and the US nominally 4% but more like 8% in reality.” – Chris Laird “The best indicator of inflation is the 295% rise of gold from $255 to over $1,000.” Michael Byrd, Editor, The Austin Report No Country Has Ever Created So Much Paper Money In recent weeks, many of the predictions and dire warnings we’ve been sharing with our readers came to pass. The Sub-Prime Mortgage Crisis suddenly took control of the world’s financial marketplace sending Stocks into a tail-spin. As a result, fear created some wild gyrations throughout the stock and bond markets. Waves of stock selloffs and mortgage bank runs were barely stopped by the creation of $400 Billion Dollars of liquidity by the Federal Reserve. There wasn't time to print that much paper money, so they simply pushed a computer button and created Billions out of thin air. After the $400 Billion Dollar bailout of the mortgage industry, the Stock Market naturally breathed a sigh of relief and quickly rebounded from 8.25% declines. Friends, we barely dodged a bullet back in August of 2007 and at a cost that only history will be able to measure. To keep the U.S. economy out of an immediate recession and to prevent a Stock Market collapse some risky decisions were made in creating $400 Billion “brand new” U.S. Dollars.  Hello Inflation, So Long Dollar When the Federal Reserve faced a choice of financial panic and collapse OR letting inflation take over the American economy, they opted for inflation. That’s bad, bad news for the U.S. Dollar. However, it's great news for gold and precious metals. It is no coincidence that during the August 2007 Wall Street panic, oil hit an all-time high, the U.S. Dollar fell to an all-time low, and the price of gold surged to a 28-year high. Since then, the Dollar has remained below the critical eighty point level while Gold is making new all-time highs over $1,000. The creation of fiat paper money to the tune of $400 Billion in three days is highly inflationary. In the end, the Federal Reserve's decision may turn the value of almost every investment you own upside down. As the graphic shows, as the value of the U.S. Dollar falls, the only result can be that the price of gold will go up– perhaps not day by day, but decidedly in a teeter totter fashion over time. Could Gold Soar 2,428% Again? To fully understand how the U.S. Dollar has been weakened over time, we need to share a little history. Up until 1971, the U.S. Dollar was intricately tied to the world’s “Gold Standard.” The price of an ounce of gold was fixed at $20.67 from 1880 to 1934. Monetary inflation of the money supply could not occur. An equivalent amount of gold or silver had to be mined and stored at Fort Knox or a Federal Bank for every U.S. Dollar the government wanted to print. Except for during times of war, wages and prices were fairly stable. No one had every heard of inflation. All that changed in 1971 when President Richard Nixon took the U.S. off the Gold Standard. Over the next decade, the price of gold rose by 2,428% to its former all-time high of $850 an ounce in January of 1980. Nixon's decision turned loose a Pandora’s box of hardships on the American people that came under control years later after the prime interest rate topped 21.5 in December 1980. The U.S. economy punished Americans with recessions, high unemployment, and inflation that ranged from 11% to 13%, from 1974-1980. The Coming Crisis of Fiat Paper Money Today, we live in the shadow of a once great monetary system that was backed by real money– gold and silver. Today's fiat paper money is failing miserably at maintaining its value. That's because of the rapidly increasing supply of money being created.  Virtually all of today's Dollar problems can be traced back to the government
spending money it doesn't have, creating a massive national debt, and then
printing money to cover that debt. We then sell the debt to foreigners in the form of Treasury Notes. Our money today is fiat paper money. It is money only because the government says it is money. It is not backed by any more than a promise to pay. The value of fiat paper money is solely dependent upon supply and demand. In recent years, the supply has been increasing at an ever-expanding rate. The problem is that the more paper money we create, the less each outstanding Dollar you and I hold is worth. The economic system that nearly melted down last Summer continues to suffer from the negative effects of the 1970’s when we vacated the Gold Standard. Too Many Dollars Chasing Too Few Savers The more fiat paper dollars that are created, the less every existing U.S. Dollar out there is worth. That's a killer for baby boomers approaching retirement. To understand how out-of-control the money system is today, consider this fact: “From 1620 to 1974, it took the U.S. Government 354 years to create the first $1 trillion paper dollars in circulation. It only took 300 days to create the last trillion dollars of paper money.” The story gets worse. During the Sub-Prime Mortgage Crisis, the Federal Reserve and World Banks needed only three days to create $400 Billion Dollars in liquidity to patch together a world financial system that was on the brink of collapsing.We believe this massive creation of paper dollars has triggered a wave of investor gold buying. We may already be in the midst of another 2,428% rise in the price of gold like we saw in the 1970's. At the very least, we see gold responding to the U.S. Dollar decline by creating the strongest bull market for gold we've seen in 28 years. This is an opportunity that no one can afford to pass up any longer. Look Where Borrowing and Spending Has Left Us We know, and so do you, that the U.S. money supply cannot expand at 15% rates like this forever. Unfortunately, that is the single biggest downfall of our monetary system- in order to work, it has to keep expanding. Our economy today thrives on debt– government debt, consumer debt, and corporate debt. To create debt and stimulate the U.S. economy, the Federal Reserve must create the paper money to begin with and sell it as Treasury Notes. For debtors to repay the loans, the Federal Reserve must also create the Dollars necessary to pay back the interest. However, the Federal Government expands the National Debt by $3 Billion Dollars a day, money that we must borrow from foreigners (U.S. citizens are no longer savers, we’re a nation of consumers and spenders.) Since Congress continually spends and borrows, we owe interest on the old money we borrowed decades ago. Today, we owe interest on the interest... and the debt never ends until that day when the government defaults on the U.S. Dollar. This might be a good time to remind everyone of one simple truth about money: “Every paper currency ever created throughout history has failed– given enough time. The people in
charge of creating the fiat paper currency always reach a point where the temptation to create more and
more The continuous spewing of new paper dollars to keep up with exponentially increasing government spending means just one thing- the world’s faith in the value of the U.S. Dollar as the world’s reserve currency has finally reached an historic low point. To truly understand what's ahead, we need only to look at how disastrous U.S. policy has been since 1913 when the Federal Reserve took over the control of issuing Legal Tender.The Shrinking Value of the Dollar Texas Congressman Ron Paul is one of the few politicians to state the facts about U.S. money in unequivocal terms:
“The dollar today is worth only four cents compared to the dollar in 1913, when
the Federal Reserve started. Without a doubt in our minds, the U.S. Dollar is failing to serve as the world’s reserve currency. Throughout the history of mankind, when objects used as money became extremely plentiful, the value of this “money” failed. The only two historic exceptions have been silver and gold. Both are precious metals. While they have industrial and monetary uses, it is the psychological stability of gold and silver that people continually turn to when all other paper money fails to maintain its value. Over, time, all paper currencies are vulnerable to collapse, and history is replete with examples of great suffering caused by such collapses, especially to a nation’s poor and middle class. Monetary Inflation, The Hidden Tax on the Wealthy The more money you have and the more assets you own tied to the U.S. Dollar, the worse the decline of the U.S. Dollar will be for you personally. Millions of Americans will be blindsided. They’re likely to be folks entrenched 100% in real estate, stocks, and bonds. Their stock broker told them they were safe and diversified yet they won't own a single gold or silver coin while the U.S. Dollar falls to rock bottom. At its very core, the world’s financial system is in severe trouble. The boom and busts of the high tech stock market of the 1990’s, the Sub-Prime Mortgage Crisis, and the coming recession in housing are results of too much money being created and handed out. When our leaders continue to artificially infuse money into a weak and ailing system, they only make matters worse in the long run. Be Prepared Financially The 1929 Stock Market Crash and the world’s Great Depression of the 1930’s were not the first, nor will they be the last, dire events caused by the natural need of our financial system to correct abuse and reckless monetary policy. Please prepare yourself, your family, and your friends for what may be already underway– stagflation, a recession, or a stock market meltdown too big to stop next time. Silver can help in bad times, owning gold is even better. A core holding of at least 10% of your savings in precious metals is often recommended with increases in that allocation during periods of high profitability for gold and silver. Let’s suppose for a moment that you do not own precious metals as an investment. If these are the safe havens during uncertain times, we would have to wonder why you are not already holding gold and silver? Gold Up 295%, Silver Soars 415% Since 2001 The case for owning gold and silver can easily be made on fear of loss and the need for safety. But with the two metals reaping marvelous year-over-year profits, we have to wonder at what time greed becomes your top motivation for owning gold and silver. Even over the last 12 months, we can make the case that gold and silver are far outperforming the Dow Jones Industrials and the NASDAQ Stock Indexes. If your stock broker or financial counselor has NOT recommended gold and silver over the past five years, then something is very, very wrong. Perhaps your broker is compensated for keeping your money in stocks or mutual funds. Maybe they are so brain-washed by their employers that they never, ever recommend precious metals. Here’s all you really need to know to get started. A Bull Market for gold and silver generally follows the path of other commodities. A typical Bull Market is driven by inflation and lasts for about 22 years. During that time, demand for gold, silver, and commodities coming from new sources exceeds the available supplies. The shortages result in consistent, long-term increases in the cost of production which drives the commodities up to higher and higher values. Metals Defy the Law of Supply and Demand Gold and silver are the only investments we can think of whose demand increases faster and faster the higher the price goes. Last year, we predicted that gold would likely cross the $850 line sometime in 2007. By March, Gold had already soared through the $1,000 level. Every newspaper, magazine, and major news network has been touting its rise, “Gold making new all-time highs daily!” We sent out a Red Alert each time gold crossed an historic landmark and each time gold popped up $50 to $75 in a few days. We're telling you now, early, well ahead of the rush– start buying gold and silver immediately. We feel it's important to move a portion of your cash (earning even less and less interest these days) into gold and silver now before the coming rush depletes available supplies. Now that gold has surpassed the key resistance level of $850 and blown through $1,000 the demand is likely to pick up dramatically around the world.People in China, Asia, India, Russia, and especially the United States have already been buying investment gold and silver since the August Sub-Prime Crisis. In recent weeks, we've seen individuals calling us at Austin Rare Coins & Bullion locking in $25,000, $500,000 and $1,000,000 portfolios anticipating coming gains. When we leave history behind, the next most logical stop for gold from the $850 high in 1980 Dollars… would be the inflation-adjusted gold price of over $2,400 an ounce. No one can or will attempt to predict the future price of gold and silver with 100% certainty. That $2,400 number seems very high, but gold has done better in past bull markets. Then again, past performance does not guarantee the future value of any investment. But, all in all, looking at the fear of loss and the hope of gain based on recent performance, it’s impossible for us to be anything but negative on the U.S. Dollar and absolutely positive about precious metals. The wild gyrations in the Stock Markets and the falling interest rates on money in the bank are the two best reasons we have to encourage our Austin Report readers to buy gold, buy silver, move money out of U.S. Dollar denominated assets now. We feel with a little planning you can create a better, stronger plan for your future, one that will balance and diversify your portfolio by simply trading a few paper dollars for genuine gold and silver coins. |
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Austin Rare Coins & Bullion The Austin Report is a service of Austin Rare Coins, Inc. 7200 North Mopac Ste 310, Austin, Texas 78731 Serving Investors and Collectors Since 1989
Disclaimers: Austin Rare Coins & Bullion has prepared information on this site for the private use of our readers. It should not be taken as personal financial advice. The information herein is obtained from a variety of sources that we believe to be reliable, but we cannot guarantee the accuracy or that information has not been condensed or may be incomplete. All opinions expressed by the editors of The Austin Report and those expressing opinions are subject to change without notice. We are not financial advisors. The information about future predictions, projections, or financial advice could prove to be unprofitable. This firm is specifically in the business of selling gold, silver, platinum and rare coins to the public and offers its opinions from that viewpoint. We generally make available news and opinions that relate positively to our markets and do not seek to present a balanced view of the investment markets. We advise that you seek out information from a variety of news sources before making any investment decisions. It’s important to always remember that past performance is no guarantee of future value. These products may not be suitable for every individual as the value of gold, silver, and rare coins go down as well as up in value. |
