The Coming Collapse of the Dollar…

By on 24 December 2011

…And How to Profit from It: Make a Fortune by Investing in Gold and Other Hard Assets is a book by James Turk and John Rubino, about the coming hyperinflation. The entire book can basically be summed up in two words: BUY GOLD. It has more than just that, of course. It goes into the details of other metals, such as silver, palladium, and platinum; as well as exploring alternatives such as stock in gold mining companies.

Given that this book was published in 2004, it does seem a bit dated, but some of its predictions did come true. Gold is currently around US$1600 per ounce, nearly a fourfold jump from eight years ago. There was, of course, the economic downturn from 2008, which is still going on, which fuelled the rush for gold.

I am no analyst, or advisor, but looking at these numbers… the really scary one being the US unfunded liabilities, the sum of the social security, prescription drug, and medicare liabilities. This is to pay for all the pensions and medical needs of the soon-to-be-retiring baby boomers. This was not a problem, of course, as with more people entering the system and working, it was able to cover the pensions of the pre-WWII generations. That will no longer be the case. This pot of money is emptying faster than it can be filled, to the tune of about $1 million every ten seconds, currently at $117 trillion. In other words, those of Gen X’ers and beyond will have to work until we drop, to pay for the pensions of the boomers.

Of course, what this means is, massive hyperinflation, probably (but hopefully not) to the extent that Zimbabwe has just seen. Even so, in Zimbabwe, they were able to use more stable currencies, such as the US dollar, the euro, and the pound sterling. So, what will users of these currencies do when they’re faced with the same hyperinflation? What sort of stable standard will they turn to? Chinese yuan? Maybe, but yuan aren’t (yet) openly tradeable. I guess we’ll have to rely on the 79th element.

Between 1918 and 1924, the value of the Reichsmark fell by a factor of 1 trillion versus gold. Let’s take the same period (hypothetically, I hope!), 2018 to 2024. For the sake of simplicity, call gold $1600 per ounce at the start; and take a commodity, say, a $2 loaf of bread, or 40 mg of gold for a loaf. By 2024, it will still be 40 mg of gold for the bread, but it will be $2 trillion. If you diligently save(d) $1000 per month for the 40 years starting in 1984, and using a very generous 12% savings interest rate, you’d have about $15 million dollars. about enough to buy a few milligrams of bread.

Honestly, I don’t see the reason to invest in anything other than gold or silver, or something tangible, rather than this paper — or worse, electronic — money, which doesn’t even have physical form. And by this, I mean to actually have the gold in your hand, and say, leave it in a safe place, say, a tin buried in the garden. Not a safety deposit box, because as Turk & Rubino said, the government can order another gold seizure, and crack open the bank vaults. This is also a reason to use small coins rather than large coins or bars; easier to conceal from snooping G-men. Even with the currently rapacious markup on a 1/20-ounce coin (35%), or half that at 17% on a 1/10-ounce coin, that’s still nothing compared to the value once the fiat currency economy crashes.

Incidentally, at the abandonment of the Zimbabwean dollar on 12 April 2009 (using an exchange rate of 250 fourth-revision ZWD (2.5×1027 original ZWD) to 1 USD, gold at 880 USD per ounce, and 9.51×1022 atoms per ounce, it would have been over 23 million (original) ZWD per atom of gold! And in 1994, an old girlfriend expressed amazement that the little £1 coin was a huge 13 dollars in Zimbabwe!

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