Goyette the dollar meltdown; surviving the coming currency crisis with gold, oil, and other unconventional investments (2009)

Table of Contents Title Page Copyright Page Dedication SECTION I - WHERE WE ARE CHAPTER ONE - The Day Jim in Scottsdale Figured It All Out—and How the Treasury CHAPTER TWO - Bailouts CHAPTER THREE - Debt SECTION II - HOW WE GOT HERE CHAPTER FOUR - Gold CHAPTER FIVE - Inflation CHAPTER SIX - American Money SECTION III - WHAT HAPPENS NEXT CHAPTER SEVEN - How It Comes Down CHAPTER EIGHT - Toppling the Dollar CHAPTER NINE - The Authorities Are in Charge SECTION IV - WHAT TO DO CHAPTER TEN - What to Do CHAPTER ELEVEN - Investing in Gold CHAPTER TWELVE - Silver CHAPTER THIRTEEN - Oil CHAPTER FOURTEEN - Real Things CHAPTER FIFTEEN - Bonds CHAPTER SIXTEEN - Alternative Currencies CHAPTER SEVENTEEN - Last Thoughts Information and Resources for Investors Acknowledgements Bibliography Index PORTFOLIO Published by the Penguin Group Penguin Group (USA) Inc., 375 Hudson Street, New York, New York 10014, U.S.A Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario, Canada M4P 2Y3 (a division of Pearson Penguin Canada Inc.) Penguin Books Ltd, 80 Strand, London WC2R 0RL, England Penguin Ireland, 25 St Stephen’s Green, Dublin 2, Ireland (a division of Penguin Books Ltd) Penguin Books Australia Ltd, 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd) Penguin Books India Pvt Ltd, 11 Community Centre, Panchsheel Park, New Delhi - 110 017, India Penguin Group (NZ), 67 Apollo Drive, Rosedale, North Shore 0632, New Zealand (a division of Pearson New Zealand Ltd) Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Africa Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R 0RL, England First published in 2009 by Portfolio, a member of Penguin Group (USA) Inc Copyright © Charles Goyette, 2009 eISBN : 978-1-101-14904-1 Commodity exchanges Commodity futures Investments Financial crises—United States—History—21st century I Title HG6046.G69 2009 332.63—dc22 2009021866 Without limiting the rights under copyright reserved above, no part of this publication may be repro duced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law Please purchase only authorized elec tronic editions and not participate in or encourage electronic piracy of copyrightable materials Your support of the author’s rights is appreciated While the author has made every effort to provide accurate telephone numbers and Internet addresses at the time of publication, neither the publisher nor the author assumes any responsibility for errors, or for changes that occur after publication Further, publisher does not have any control over and does not assume any responsibility for author or third-party Web sites or their content http://us.penguingroup.com To my wife, Ali, who makes everything she encounters better, including me; and to my sons Michael and Steven, who believe in Liberty SECTION I WHERE WE ARE CHAPTER ONE The Day Jim in Scottsdale Figured It All Out—and How the Treasury Secretary Saved Him from the Stock Market Crash! It didn’t have to be that specific day It could have been weeks or months earlier or later But something broke through for Jim on an ordinary day in the summer of 2008 I know because he called me on the air to let me know “Jim in Scottsdale, good morning,” I said, punching up line four on my morning talk show in Phoenix “Charles, I have been listening to you talk about the government debt and the U.S dollar for a couple of years now At first when you talked about what you call the Washington Party—the mess the Republicans and Democrats have gotten us into—it used to make me mad Because I thought my party was different and it was the other guys who were to blame Anyway, I just wanted you to know I sold all my stock yesterday I’m buying gold.” “Jim, you’ve had a breakthrough,” I said “What finally got to you?” “Well, your reports on the real estate market got my attention,” he said “I can see some of the things you were talking about in my own neighborhood.” “Foreclosure rates are rising,” I said, “and we’re just getting started.” “Yeah, that got me thinking,” he continued “But it was the story you told about the treasury secretary in China that did it Now I’m convinced These people are out of their minds! So I sold $100,000 worth of stock I want out of the stock market And out of the dollar Period And I’m going to start buying gold!” Jim in Scottsdale sure got the point of the story It was about John W Snow, the prior Bush secretary of the United States Treasury, in China a few years ago, instructing the Chinese to save less and borrow more! Americans saved nothing; the Chinese are among the biggest savers in the world I told the story because it explained the philosophy responsible for turning America’s economy upside down And Snow’s bizarro-world advice to the Chinese could be traced directly to the current chairman of the Federal Reserve System So I brought it up and wondered aloud at the secretary’s confusion China’s economy had been growing like crazy; ours not so much Their economic strength was waxing; ours was waning We, some of the world’s richest people, had to borrow from them, some of the world’s poorest, to keep our federal beast fed And Mr Snow thought the Chinese needed to take a lesson from us? “They’re just heeding the advice of that ancient Chinese sage Ben Franklin,” I said “It’s difficult to translate from the original Chinese, but it goes something like this: A penny saved is a penny earned!” But Mr Snow had been listening to a different Ben, a Princeton economist named Ben Bernanke, who served as chairman of Bush’s Council of Economic Advisers when he offered up his “they save too much” theory This Ben, now the chairman of the Federal Reserve, and the rest of the Washington wizards know better than Ben Franklin They would have the Chinese spend their way to prosperity Credit Suisse Currency controls, and monetary breakdown foreign See Foreign currency as investment hard currencies DB Commodity Services LLC, Debt, federal See Federal debt Debt securities exchange-traded notes (ETNs) U.S government See Treasury bonds Deflation bailout, effects on economic impact of myths about “pushing on a string” argument De Gaulle, Charles Deng Xiaoping Digital gold currencies GoldMoney Dollar as currency reserves deterioration, and oil-pricing alternatives devaluation and Fed overseas holdings Dollar standard benefits to U.S global dumping of Economic collapse, signs of Economic crisis (2008- ) bailouts command economy threat credit crisis and dollar standard federal debt government actions See Federal Reserve housing crisis impact of and interest rate cuts Iraq war, cost of and job losses See also specific topics e-gold Elements ETNs Emergency Economic Stabilization Act (2008), operation of Energy independence, myth of Energy trusts, recommendations Enerplus Resources Fund Trust (ERF) Engelhard England coinage debasement, impact of goldsmith as banker inflation and paper money See also Great Britain Erhard, Ludwig Ethanol Euros euro ETF (FXE) replace dollar Exchange-traded funds (ETFs) bond cautions about commodities-based foreign currency-based gold-based nationalization risk oil-based silver-based trading/operation of Exchange-traded notes (ETNs) commodities-based Elements ETNs Fannie Mae China/Japan holdings Federal debt amount of (2009) debt ceiling, increase foreign holders of hidden debt infinite horizon discounted value concept inflation as remedy interest expense on Medicare Part D, unfunded liability example monetizing debt percentage of GDP in trillions Federal deposit insurance Federal Reserve auditing of bailout funds cooling economy, actions for criticisms of system and debt monetization and devaluation of dollar federal funds rate fractional reserve banks inflation, creating by interest rate cuts and monetary policy and mortgage meltdown open market operations and Plunge Protection Team and politicized money public/private nature of secrecy related to stimulating economy, actions for as unconstitutional Federal Reserve Act (1913) Federal Reserve Notes Fiscal policy, defined Fisher, Richard Florin Food production demand, future view See also Commodities as investment Ford, Gerald Foreign currency, hard currencies Foreign currency as investment digital gold currencies exchange-traded funds (ETFs) speculative nature of Foster, Richard S Fractional reserve banking France dollar to gold conversion request Reign of Terror, economic conditions Franklin, Benjamin Freddie Mac China/Japan holdings Free market economy, versus command economy Friedman, Milton Geithner, Timothy, on Bush bailout, General Accounting Office (GAO), Federal Reserve, auditing by Germany postwar recovery war reparations, inflation as impact of Gold and economic crisis (2008) and hard currencies increasing reserves, global view as money, benefits of See also Gold coinage rise in price (2002-2008) Gold as investment broker, finding bullion bars coins commissions to seller digital gold currencies exchange-traded funds (ETFs) gold/silver ratio gold stocks index-type fund percentage of portfolio premium price forecasts pricing rare coins, avoiding sale, IRS reporting requirements storage, physical Gold coinage authentic, identifying to buy, recommendations and development of civilizations rare coins U.S., historical view Goldman Sachs GoldMoney Gold Reserve Act (1934) Goldsmiths, as bankers Gold standard abandoned, United States Bretton Woods agreement Grant, James Great Britain gold standard nationalization oil reserves of Great Depression Greenbacks Greenspan, Alan on dollars held abroad on housing bubble interest rate cuts on WIN program Gresham’s law Gross domestic product (GDP), federal debt in Gulf War Hard Assets Producer (HAP) fund Hard currencies Hayek, F.A He Fan Hickey, Fred Hitler, Adolf Housing crisis and Fed and interest rate cuts jingle mail Hunt, Bunker Hunt, Herbert al-Husseini, Sadad Hyperinflation and “crack-up boom,” features of Israel past periods of political implication of Index-type fund, gold-based India, poverty, decline of Indian rupee ETF (ICN) Infinite horizon discounted value Inflation as alternative to taxation and coinage debasement core inflation rate and distortion of market double-digit See Hyperinflation Federal Reserve, creation of historical view inflationary recession and malinvestment as monetary phenomenon official explanations of persistence of and price ceilings and price increases as remedy to debt as remedy to inflation and stagflation as theft Interest rate cuts economic impact of and housing crisis to stimulate economy Interest rates and bond prices raising, to cool economy and stagflation Investment recommendations bonds commodities foreign currencies gold gold/silver ratio information/resources for investors oil silver Iran, oil, pricing in euros Iraq war cost of and global rejection of America nonsupporting countries IRS bank transactions, reporting to financial behavior, reporting to See also Taxation Isaac, William iShares COMEX Gold Trust (IAU) iShares Silver Trust (SLV) Israel, hyperinflation James II, King of England Japan Fannie and Freddie holdings yen payable Treasuries, call for Japanese yen ETF (FXY) Johnson, Chalmers Johnson, Lyndon B Johnson Matthey Johnson, Paul JPMorgan Chase Kahn, Alfred Keynesian economics Khrushchev, Nikita Kiyosaki, Robert Kublai Khan Kyl, Jon Legal tender, meaning of Lehman Brothers Leveraged funds, ETFs Levine, Irving R Liquidation only trading, silver McCain, John Madoff, Bernard Malinvestment, causes of Mao Zedong Martin, William McChesney Marx, Karl Maybury, Richard Al Mazroui, Mohammed Medicare Part D, negative view of as unfunded liability Merrill Lynch, Elements ETNs Metals base See Base metals precious See entries under Gold; Silver Mexican Onza Mexican peso ETF (FXM) Midler, Bette Monetary policy, defined Monetizing debt Money currency controls functions of, historical view gold, benefits of Gresham’s law politicization of Money supply decrease, and deflation increase, and inflation Mortgage-backed securities Mortgages, adjustable Mugabe, Robert Mundell, Robert Munger, Charlie Mutual funds, bond-based Al-Naimi, Ali Nationalization banks gold ETFs oil resources See also Command economy Nero, emperor of Rome New Zealand dollar ETF (BNZ) Nixon, Richard and energy independence wage and price controls North, Gary Numismatic coins, avoiding Obama, Barack and economic crisis (2008- ) and energy independence Oil China imports demand, future growth domestic production and economic crisis (2008) embargo (1973) energy independence, myth of Middle East imports prices See Oil prices proved reserves U.S imports, annual Oil as investment Canadian energy trusts exchange-traded funds (ETFs) rationale for Oil prices dollar, pricing alternatives to pricing in euros production cuts and recession rise in price (2001-2008) and stagflation O’Neill, Paul OPEC dollar dumping See also entries under Oil Open Market Committee Open market operations, Fed Paper money as archaic supply, and inflation United States, historical view Paul, Ron Paulson, Henry and bailout and bank nationalization campaign spending of China mission Penn West Energy Trust (PWE) Persian Gulf nations, gold, increasing reserves Pick, Franz Plunge Protection Team Polo, Marco Population, projections (1979-2050) Position trading, commodities Poverty, and command economy PowerShares DB Agricultural Fund (DBA) PowerShares DB Base Metals Fund (DBB) PowerShares DB Commodity Index Tracking Fund (DBC) Prechter, Robert Precious metals See entries under Gold; Silver President’s Working Group on Financial Markets Price elasticity, defined Prices controls, in command economy government control, negative impact of high, as antidote to high and inflation oil See Oil prices price ceilings price floors, examples of and shortages “Pushing on a string” argument, on deflation Putin, Vladimir Rare coins, avoiding Rationing, and shortages Reagan, Ronald Recession inflationary inflation as remedy and oil prices Regan, Donald Reid, Harry Reign of Terror Renaissance Retirement plans and economic crisis (2008- ) gold, holding in Roberts, Paul Craig Roberts, Dr Russell Rockwell, Lew Rogers, Jim commodity index Rogers International Commodity Index (RICI) Elements ETNs linked to features of Rogers-Van Eck Hard Assets Producer (HAP) fund Roosevelt, Franklin D Rothbard, Murray Royalty trusts, Canadian Rubin, Robert Rumsfeld, Donald Russia -China alliance resource nationalism trade currency, proposal for Russian ruble ETF (XRU) Rydex CurrencyShares Rydex Inverse Government Long Bond Strategy Fund (RYJUX) Savings Chinese versus Americans negative rate (2005) Schiff, Peter Scully, Thomas A Shadow Government Statistics Web site Shedlock, Michael Sherman, Brad Shi Jianxun Shortages and prices and rationing Short sales, ban on Silver certificates Silver coinage abandoned, in U.S to buy, recommendations U.S., historical view Silver as investment bags and bars bull market, end of coins demand-supply for silver exchange-traded funds (ETFs) gold/silver ratio Hunt brothers purchases liquidation-only trading percentage of portfolio volatility of Silver as money See Silver coinage Snow, John W., advice to Chinese Social Security shortfall, dealing with Trust Fund, as fraud South African Krugerrand Spain, age of exploration, inflation in Sparta SPDR Gold Trust (GLD) SPDR S&P Metals and Mining ETF (XME) Spitzer, Eliot Spot price, precious metals Stagflation combined with bailout, impact of defined and interest rate volatility past periods of Stahl, Leslie Stark, Pete Steel, exchange-traded funds (ETFs) Stiglitz, Joseph Stimulus amount spent per person China Stock market, and economic crisis (2008- ) Subprime mortgages Swedish krona ETF (FXS) Swiss franc, collapse, threat of Swiss franc ETF (FXF) Tanaka, Nobuo Tauzin, Billy Taxation versus inflation sale of gold, reporting requirements Timber, exchange-traded funds (ETFs) Treasury bonds inverse performance investments mutual fund investment prepurchase questions TIPS yen payable, call for zero percent (2008) Treasury Inflation-Protected Securities (TIPS) Treaty of Versailles Troubled Assets Relief Program (TARP) United States command economy scenario gold and silver coinage gold and silver coinage abandoned gold certificates, redeeming gold holdings, decrease in gold-inflation connection off-gold standard United States Oil Fund (USO) United States 12 Month Oil Fund (USL) U.S Buffalo U.S Gold Eagle U.S Silver Eagles U.S Treasury bonds Van Eck ’s Market Vectors Gold Miners ETF (GDX) Venezuela euro versus dollar gold mines, seizure of resource nationalism Volcker, Paul von Mises, Ludwig Wachovia Bank Wage and price controls lifting, impact of Nixon era Wage-price spiral Walker, David Walking Liberty half-dollar Washington Mutual Water exchange-traded funds (ETFs) Wells Fargo Wen Jiabao White, Andrew Dickson Wiggin, Addison Will, George F Williams, John Wilson, Woodrow WIN (Whip Inflation Now) WisdomTree Dreyfus Wolfowitz, Paul World War I, Germany, war reparations Xia Bin Zimbabwe, inflation crisis ... for the difficult crisis ahead If you already understand the dollar meltdown, the importance of tangible assets like gold and silver, oil, and other natural resources in a currency crisis, and. .. his “they save too much” theory This Ben, now the chairman of the Federal Reserve, and the rest of the Washington wizards know better than Ben Franklin They would have the Chinese spend their... together: how the dollar meltdown happens, the most likely scenarios, the role of foreign creditors like China, and how the authorities will react to these problems of their own making A currency