Advance Praise for The Coming Collapse of the Dollar and How to Profit from It
“Turk and Rubino are right: There is a crisis coming, and it will cause a collapse in the mountain of credit fostered by the monopoly central banks of the world. Read this book and find out how you can protect yourself while there's still time.” —Robert R. Prechter, author of the bestseller Conquer the Crash
”Should be read by everyone who is interested in both their own investments and this nation's future. I recommend this book highly.” —Richard L. Russell, Editor, Dow Theory Letters
“[Turk and Rubino] lay out a road map for avoiding the ‘Perfect Financial Storm.’ By reading this book you will be able to keep you and your loved ones safe, and. build real wealth in the process.” —Jim Puplava, Puplava Securities, Financial Sense Online
“A home run here for investors who want to profit from the dollar collapse.” —Bill Murphy, Chairman, Gold Anti-Trust Action Committee and founder, LeMetropoleCafe.com
“Fast moving, compelling, and extremely relevant for all investors.” —Rob McEwen, CEO, Goldcorp
“Every American investor and every foreign investor in dollar denominated investments ought to read this book.” —Franklin Saunders, Editor, The Moneychanger
“As Turk and Rubino note, hard times are hard only for the unprepared. Read this book and you will not only be prepared, you will profit greatly from what lies ahead.” —Robert Bishop, Editor, Gold Mining Stock Report
The dollar is in trouble. It has fallen against other currencies for the past three years, and now its orderly retreat could well become a rout. This spells potential disaster for the American economy—and potential riches for a few smart investors. In The Coming Collapse of the Dollar and How to Profit from It. financial gurus James Turk and John Rubino show how the dollar arrived at this precipice, why it will plunge, and how you can profit from the resulting financial crisis.
The U.S. today is the world’s biggest debtor nation, printing money with abandon to sustain the illusion of prosperity. The federal government owes $7 trillion and its debt is soaring. As a society, we owe more than $37 trillion, or about $500,000 per family of four. Our trade deficit with other countries is staggering, and to finance this mountain of debt we’re flooding the world with dollars. The inevitable result: The dollar will decline until it is displaced as the world’s dominant currency. Precious metals will soar in value, and gold will reclaim its monetary role at the center of the global financial system.
Traditionally a haven during times of uncertainty, gold has risen dramatically since 2001. By the fall of 2004 it was up by nearly 50 %. at over $400 an ounce. But this is just the beginning.
James Turk, a leading gold authority and the founder of GoldMoney.com, and veteran financial writer John Rubino, show readers how to capitalize on gold’s dramatic climb. In The Coming Collapse of the Dollar. Turk and Rubino reveal which stocks and bonds will falter as the dollar declines and why that decline is virtually inevitable. They offer strategies for using gold coins, gold stocks, gold-based digital currencies, and other hard assets to create a profitable portfolio. And they explain how to make the most of your gold and other precious metal holdings, identifying the opportunities and pitfalls of buying gold mining stocks and the mutual funds that invest in them.
America’s debt binge has put its economy at grave risk. The value of the dollar is falling; many stocks are once again wildly overvalued; and bonds, tied to an ever-diminishing dollar, are a disaster waiting to happen. By investing in gold and other hard assets, Turk and Rubino explain how you can protect yourself from these dangers.
The Coming Collapse of the Dollar and How to Profit from It is a must read for every investor, whatever the size of his or her portfolio.
For more information, visit www.dollarcollapse.com.
From the Inside Flap
Periodically, the global economy shifts gears in a fundamental way, turning conventional wisdom on its head and producing new categories of winners and losers among investors. The spectacular growth of the last twenty years has slowed; and the dollar, once the world's dominant currency, is falling in value every day. One sure winner has emerged from the debacle, however: gold. Historically a haven during times of uncertainty, gold began rising in 2001 when high-tech stocks imploded. At the end of 2003 it was up by 50 percent, trading at around $420 an ounce. With governments running up record debts and printing money with abandon to sustain the illusion of prosperity, gold is now poised to soar in value against most national currencies and reclaim its place at the center of the global financial system.
In THE COMING COLLAPSE OF THE DOLLAR AND HOW TO PROFIT FROM IT, James Turk and John Rubino explain how ordinary investors can preserve and increase their wealth by investing in gold coins, gold mining stocks, and gold-based digital currencies. They delineate the potential profits, as well as the risks involved, in the various options; discuss how to integrate gold into a balanced financial portfolio; and point out the pros and cons of buying shares in funds that invest in gold-mining stocks.
The devaluation of the dollar has already hurt millions of Americans: the real value of fixed incomes has shrunk; the stock market may be overvalued once again; and bonds, tied to an ever-depreciating dollar, are headed for disaster. In a clear, highly practical style, THE COMING COLLAPSE OF THE DOLLAR AND HOW TO PROFIT FROM IT shows readers why catching the "gold bug" now is the surest way to flourish in the future.
About the Author
JAMES TURK is founder of GoldMoney.com, which operates the leading digital gold currency payment system. He also publishes the Freemarket Gold & Money Report (fgmr.com), an investment newsletter he founded in 1987. Previously, after a decade with the international department of Chase Manhattan Bank, he managed the commodity department of the Abu Dhabi Investment Authority. His media appearances include CNN, Bloomberg, and CBSMarketWatch, CNBC, Barron’s. the Wall Street Journal. and Financial Sense Online.
JOHN RUBINO is the author of How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998). He spent the 1980s as a Wall Street financial analyst, and the 1990s as a regular contributor to theStreet.com, Individual Investor. Ziff/Davis/SmartBusiness. Online Investor. and Consumers Digest. He now writes for Fidelity, Kiplinger's Personal Finance. and CFA .
Excerpt. © Reprinted by permission. All rights reserved.
ILLUSIONS OF PROSPERITY
During the final two decades of the twentieth century, the U.S. economy was the envy of the world. It created 30 million new jobs while Europe and Japan were creating virtually none. It imposed its technological and ideological will on huge sections of the global marketplace and produced new millionaires the way a Ford plant turns out pickup trucks. U.S. stock prices rose twentyfold during this period, in the process convincing most investors that it would always be so. Toward the end, even the federal government seemed well run, accumulating surpluses big enough to shift the debate from how to allocate scarce resources to how long it would take to eliminate the federal debt.
As the coin of this brave new realm, the dollar became the world’s dominant currency. Foreign central banks accumulated dollars as their main reserve asset. Commodities like oil were denominated in dollars, and emerging countries like Argentina and China linked their currencies to the dollar in the hope of achieving U.S.-like stability. By 2000, there were said to be more $100 bills circulating in Russia than in the U.S.
But as the century ended, so did this extraordinary run. Tech stocks crashed, the Twin Towers fell, and Americans’ sense of omnipotence went the way of their nest eggs. As this is written in early 2004, three million fewer Americans are drawing paychecks. The federal government is borrowing $450 billion each year to finance the war on terror as well as an array of new or expanded social programs. Short-term interest rates have been cut
to an incredible one percent, and while growth is finally accelerating, borrowing at every level of society is rising even faster.The dollar, meanwhile, has become the world’s problem currency, falling in value versus other major currencies and plunging versus gold.The whole world is watching, scratching its collective head, and wondering what has changed.
The answer, as will become clear in the next few chapters, is that everything has changed, and nothing has. The spectacular growth of the past two decades, it now turns out, was a mirage generated by the smoke and mirrors of rising debt and the willingness of the rest of the world to accept a flood of new dollars. Just how much the U.S. owes will shock you. But even more shocking is the fact that we’re still at it. Like a family that has maintained its lifestyle by maxing out a series of credit cards,America is at the point where new debt goes to pay off the old rather than to create new wealth. Hence the past few years’ slow growth and steady loss of jobs.
So why say that nothing has changed? Because today’s problems are new only in terms of recent U.S. history. A quick scan of world history reveals them to be depressingly familiar.All great societies pass this way eventually, running up unsustainable debts and printing (or minting) currency in an increasingly desperate attempt to maintain the illusion of prosperity. And all, eventually, find themselves between the proverbial devil and deep blue sea: Either they simply collapse under the weight of their accumulated debt, as did the U.S. and Europe in the 1930s, or they keep running the printing presses until their currencies become worthless and their economies fall into chaos.
This time around, governments the world over have clearly chosen the second option. They’re cutting interest rates, boosting spending, and encouraging the use of modern financial engineering techniques to create a tidal wave of credit. And history teaches that once in motion, this process leads to an inevitable result: Fiat (i.e. government-controlled) currencies will become ever less valuable, until most of us just give up on them altogether. These are strong words, we know. But by the time you’ve finished the next two chapters we think you’ll agree that they are, unfortunately, quite accurate.
Now, what does a collapse in the value of the dollar mean for your finances? Many things, mostly bad but some potentially very good. First, it hurts people on a fixed income, because the value of each dollar they receive plunges. Ditto for those who are owed money, because they’ll be paid back in less-valuable dollars (hence the disaster about to hit many banks). Bonds, which are basically loans to businesses or governments that promise to make fixed monthly payments and then return the principal, will be terrible investments, since they’ll be repaid
in always-depreciating dollars. For stocks and real estate, the picture is mixed, with a weak dollar helping in some ways and hurting in others. We’ll walk you through this labyrinth in Chapter 17.
The only unambiguous winner is gold. For the first 3,000 or so years of human history, gold was, for a variety of still-valid reasons, humanity’s money of choice. As recently as 1970, it was the anchor of the global financial system. And since the world’s economies severed their links to the metal in 1971, it has acted as a kind of shadow currency, rising when the dollar is weak and falling when the dollar is strong. Not surprisingly, gold languished during the 1980s and ’90s, drifting lower as the dollar soared, and being supplanted by the greenback as the standard against which all things financial are measured. But now those roles are about to reverse once again. In the coming decade, as the dollar suffers one of the great meltdowns in monetary history, gold will reclaim its place at the center of the global financial system, and its value, relative to most of today’s national currencies, will soar. The result: Gold coins, gold-mining stocks, and gold-based digital currencies will be vastly better ways to preserve and/or grow wealth than dollar-denominated bonds, stocks, or bank accounts.
That, in a nutshell, is the story.The rest of this book will put some meat on this chapter’s rhetorical bones, but as historians once said of Aristotle, all that follows is mere elaboration.
FIAT CURRENCIES ARE DOOMED TO FAIL
Before we explain why the dollar is headed for trouble, let’s return to Chapter 1’s assertion that fiat currencies always collapse. An extravagant claim, yes, but also demonstrably true. The history of such currencies is, in fact, an unending litany of failure.
Why is this so? Put simply, governments are fundamentally incapable of maintaining the value of their currencies. Every leader, whether king, president, or prime minister, serves two powerful constituencies: taxpayers angry about what they currently pay and steadfastly opposed to paying more, and those receiving government help
who support greater spending on everything from defense, to roads, to old-age pensions. Alienate either group, and the result can be an abrupt career change. So our hypothetical leader finds himself with two choices, the most obvious of which is to level with his constituents and explain that there’s no such thing as a free lunch. Taxes have to be paid, but government largesse can consume only so much of a healthy economy’s output, so no one person or group can have all they want. This looks simple on paper, but in the real world it makes the leader vulnerable to rivals willing to promise whatever is necessary to gain power.
Our leader doesn’t like this prospect at all, and so turns to his remaining option: borrow to finance some new spending without raising taxes. Then create enough new currency to cover the resulting deficit. The anti-tax and pro-spending folks each get what they want, and no one notices (for a while at least) the slight decline in the value of each individual piece of currency caused by the rising supply. Human nature being what it is, every government eventually chooses this second course. And the result, almost without exception, is a gradual decline in the value of each national currency, which we now know as inflation.
But a little inflation, like a little heroin, is seldom the end of the story. Over time, the gap between tax revenue and the demands placed on government tends to grow, and spending, borrowing, and currency creation begin to expand at increasing rates. Inflation accelerates, and the populace comes to see the process of “debasement” for what it is: the destruction of their savings. They abandon the currency en masse, spending it or converting it to more stable forms of money as fast as possible. The currency’s value plunges (another way of saying prices
soar), wiping out the accumulated savings of a whole generation. Such is the eventual fate of every fiat currency.
To illustrate the process, here are a few of history’s more spectacular currency crises. Note that they all follow roughly the same script, with excessive government spending leading to excessive currency creation, leading, in turn, to inflation and its inevitable consequences.
Rome: Barbarians at the mint. During its five or so centuries of dominance, Rome had ample time to perfect the art of currency debasement. Various leaders made their coins smaller, or chopped wedges or holes in them and melted these bits to make more coins. Or they replaced gold and silver with lesser metals, either outright or by mixing them during the smelting process. By the time Diocletian ascended to the throne in the third century A.D. his predecessors had already replaced the realm’s silver coins with tin-plated copper. And to his credit, Diocletian made an initial stab at reform by issuing coins of more or less pure gold and silver.
Perhaps this newfound honesty would have had the intended stabilizing effect, but the world chose not to cooperate. Rome at the time was a vast, sprawling empire stretching from Spain to present-day Syria, beset on all sides by fast-growing populations of rough Germanic and Asian tribes. Defending the empire was costly, and Diocletian, loath to cross his major constituencies, adopted the now-familiar “guns and butter” approach, hiring thousands of new soldiers.