Real Money Perspectives 2010
Table of Contents:
THE DOLLAR'S DESTINY:
“SOMETHING'S ROTTEN IN THE COTTON”
By Craig R. Smith and David M. Bradshaw
RARE COIN ALERT!
BEST OPPORTUNITY IN DECADES TO BUY QUALITY
By James Carrillo, Sr. Broker, SATC
AMERICA FOR SALE:
FIGHTING THE NEW WORLD ORDER, SURVIVING A GLOBAL DEPRESSION AND PRESERVING USA SOVEREIGNTY
By Dr. Jerome R. Corsi, Author
CASH FOR GOLD?
ARE YOU KIDDING?
By. Dr. Fred Goldstein, Sr. Broker, SATC
2010 ECONOMIC REALITIES
THE SAVAGE TRUTH:
MICHAEL SAVAGE INTERVIEWS CRAIG R. SMITH
2010 Special Report (updated monthly) <
WHERE DO THEY GET THEIR BULLION FROM?
By Jim Sinclair, jsmineset.com
SIX STEPS OF WEALTH PRESERVATION, CHINESE-STYLE
By David M. Bradshaw, Editor, RMP
REBUILD YOUR RETIREMENT NEST EGG WITH GOLD
THE DOLLAR'S DESTINY
Something's “Rotten in the Cotton”
By Craig R. Smith & David M. Bradshaw
Last year we said 2009 would be a “year of change”, and so it has proven to be. Americans' standard of living is changing alright, and with rare exception, not for the better. In the Great Recession of 2008-2009 Americans have endured a meltdown in the credit markets, an evaporation of home equity and a shrinkage of retirement nest eggs. Today's rising commodity prices, growing unemployment and not outright “dollar suicide” point to a “year of challenge” ahead in 2010.
We boldly proclaimed 2009 would be the year precious metals would emerge as, “the financial light of the world”. And so they have, with gold prices rising over 35% and silver jumping 70% - the ninth consecutive year of this long-term bull market. Fortunately, millions of Americans have already converted some of their assets into precious metals, this easing the pain of watching a large portion of their wealth disappear over the last year.
Or rest stop on the road to economic ruin?
A majority of economists now say America is on the rebound and the recession is officially over. But if the recovery has begun, it appears to be a jobless recovery, with 1 in 10 Americans presently unemployed and 1 in 6 underemployed. The Obama Administration says is wants to create jobs in “any way possible”, yet it refuses to stop spending and borrowing or to start cutting taxes. Instead, while 7 million unemployed Americans struggle just to feed their families, the Administration aggressively pushes a healthcare “reform” agenda that includes an exponential expansion of government control (aka the “public option”).
Meanwhile, the U.S. Dollar is plumbing new depths. The Federal Reserve, Treasury and White House all espouse a strong dollar, even as they embrace policies that will ensure just the opposite. So far government spending and printing of trillions in 2009 has resulted in a 15% drop in the dollar's value. Some economists are now predicting the buck will slide another 20% in 2010. The U.S. Dollar's six-decade reign as the global reserve currency is threatened as the world concocts an alternative global currency in hopes of creating a more trustworthy store of value.
A recent Rasmussen poll found 88% of Americans want the U.S. Dollar to remain the dominant global currency. That explains why politicians eagerly offer lip service to the idea of a strong dollar. But because the U.S. economy is not strong enough to permit the Fed to raise interest rates, our currency value reflects the perception that America is a weak nation in financial decline.
Sadly, most Americans are confused about how a declining dollar will actually affect their futures.
What a falling dollar means to you.
A falling dollar means your assets, your income and your labor are all becoming worth less over time, instead of growing in value. It means imported products are becoming more expensive- including gasoline, oil and virtually ever other important commodity.
In short, as the dollar fails to maintain buying power, so the government will fail on its promises of better days ahead. The old saying sums it up: “As the dollar goes, so goes the nation.”
It should be no surprise the U.S. dollar is declining. America has become entirely dependent upon the kindness of strangers and foreigners to finance out snowballing debt and deficits. In times past other nations have been happy to hold stable dollar assets in reserve. This allowed Americans to consume beyond our means for many years. But now that's all changing.
While there are few benefits of a weaker dollar for multinational corporations and U.S. exports, it is the little guy who bears the resulting burdens of higher inflation and a lower standard of living.
If the dollar is replaced as the world's reserve currency, financing our national debt will be more expensive, making the budget deficit even worse and the burden on average Americans even greater.
A pillar of monetary stability?
“We must protect the position of the American dollar as the pillar of monetary stability around the world,” said President Richard Nixon nearly forty years ago. Then on August 15, 1971, the United States officially abandoned the gold standard and entered into a new era of competitive paper-currency devaluation. The dollar's decline began to accelerate, pushing inflation rates up from 6% in 1973 to nearly 14% by 1980. Sound familiar?
Today the Fed, the Secretary of the Treasury, and virtually every other politician are scrambling to make sure they are on record supporting a strong dollar.
However, as The Wall Street Journal recently said, “It's clear that the U.S. is not going to do anything to put meat on the bones of its strong-dollar policy. Most experts agree that unless the dollar's decline becomes much more rapid, U.S. authorities will continue to stand by and let the buck fall.”
More dollar devaluation needed?
* “The dollar should be devalued because the U.S. economy is less competitive than other economies and has higher debt, and some form of SDR [special drawing rights] should become the world's reserve currency,” said Wilbur Ross, of W.L. Ross & Co. to CNBC.
* “A stronger U.S. economy requires a weaker dollar. The U.S. dollar will mainly have to depreciate, if a long spell of overcapacity, high unemployment and low growth is to be avoided,” reports the Financial Times of London.
No! A stronger dollar or else!
* “To claim that a falling dollar is great because it boosts the earnings of multi-national corporations is tantamount to saying a rise in the number of car crashes would be wonderful for Americans because they can invest in air bag makers. It looks like the plan the U.S. wants to peruse is to continue to discourage foreign investment, punch our bankers (the Chinese) in the nose and punish those who are savers by crumbling our currency,” reports Forbes.
* “If money is a moral control between government and its citizens, we are being violated. The rest of the world, meanwhile, simply wants to avoid being duped. As the dollar is increasingly perceived as the default mechanism for out-of-control government spending, its role as a reliable standard of value is destined to fade,” reports WSJ.
Return to the gold standard?
The U.S. dollar is constitutionally defined as 1/20th of an ounce of gold, or one ounce of silver. But with the market price of gold currently near $1,200 an ounce, in reality today's dollar retains a mere two percent of its original value!
It's sad but true. Since 1913, when America shifted onto a fractional-reserve banking system under the Federal Reserve, the U.S. dollar's buying power has shrunk by 98% relative to gold prices.
Paper dollars, it should be pointed out, are not really paper at all. Today our currency is composed of 25% linen and 75% cotton- bringing new meaning to the old farmers' expression, “There's something rotten in the cotton”. Thanks to our decaying economic and political systems, the modern dollar, whether “paper” or electronic, stinks indeed!
During the present currency crisis the world is intuitively turning toward honest money: gold and silver. The possibility of returning the U.S. to the gold standard today is very remote given the trillions of dollars floating in circulation worldwide. That's not, however, stopping millions of Americans from putting themselves bank on the personal gold standard by holding physical precious metals and converting their retirement funds into gold and silver. Taking personal responsibility is the best counsel we can provide our readers.
Is the dollar destined to continue its decline and be abandoned by the world at large? That depends on whether “We the People” step up and demand that our government radically change its present economic policy of irresponsible spending, borrowing, deficits, bailouts and stimulus.
Now is time to hold the only real money with a 6,000- year record or preserving wealth during uncertain times like these – GOLD.
RARE COIN ALERT!!
By James M. Carrillo
Sr. Portfolio Adviser, Swiss America
This is a Red Alert to all gold buyers to start looking into and buying rarity now. Why?
Because of the Fed's decision to print, print, print trillions of dollars. This action will create INFLATION like we've never seen before!
As many of you know Swiss America has been recommending lower grade to mid grade common date gold Liberties and St. Gaudens and we still do, because they have outperformed almost every other investment over the past 36 months.
The reason we're recommending rare dated coins now is simple; the Fed is tripling the money in circulation! The only reason rarer coins have not performed as well during this time frame was the liquidity crisis. Most investors were looking for the “pure” gold play.
Things change dramatically in 2009 with the Federal Reserve's money creation. Once the money supply has tripled, the average price level in the U.S. will triple as well. This is a basic application of the law of supply and demand, which was proven by Adam Smith as the very beginning of the science of economics.
Classic gold coins offer rare opportunity
This rare opportunity is not for everyone. This should only be considered by people who have the liquidity to hold these coins for a minimum of three years, and preferably a decade, to maximize the return. Remember, all this freshly printed cash will gradually make its way into circulation. These rare U.S. gold and silver coins could explode in value overnight, but it may take some time.
The graph below is an actual example of the money made between 1970 and 2005 with a $1,000 investment. Note that just $10,000 invested in the 12-Piece gold coin type set would have had a maximum return of over $1,200,000! I firmly believe that we are entering this same type of cycle today.
* 12-Piece Gold Set: The 12-Piece Gold Set is an industry index used frequently within the world of rare coins for financial evaluations. It consists of the 12 U.S. Gold coins most commonly traded over the last 50 years. It is an index like the DJIA is an index, meaning it is designed to represent the composite performance of a given market.
* Dow Jones Industrial Average: The Dow Jones Industrial Average consists of 30 companies. The 30 companies in today's DJIA are not the same as the 30 companies in 1970, though. Some companies have been dropped and other added for a variety of reasons, including poor financial performance. Of course, the DJIA does not include stock dividends, which might be re-invested and increase the overall performance of the equities.
Even with the advantage of regularly dropping, poor performing stocks from the DJIA index, rare U.S. Gold coins still have a far superior track record for capital appreciation and could be considered a bargain at today's levels.
Well-established third party grading companies provide data on quality and quantity of coins. It is easy to track value and prices for virtually any type of coin. Rare coins are also a very liquid investment. Several NASDAQ like trading networks exist as well as regularly scheduled auctions for Ultra Rarities.
Certified Rare coins offer you tremendous profit potential, a proven track record of appreciation and an infrastructure for buying and selling that rivals the equities market. Many financial advisers agree that rare coins should be a part of a diversified portfolio.
Introducing CAC Coins
Third party independent grading services like PCGS and NCG revolutionized the U.S. rare coin industry be evaluating and certifying the condition and the grade of coins. Evaluations, however, can be subjective and over time, coins of varying quality have received the same grade.
Swiss America is proud to provide the finest protection for rare coin investors be offering "Certified Acceptance Corporation" (CAC) certified coins. Only U.S. rare coins meeting the highest of standards qualify for the unparalleled security offered by CAC.
CAC certified coins guarantee excellence. Now, Swiss America clients can rest assured we are providing the very best quality product when a CAC seal is present.
All graded coins are not equal, why? As is all areas, there is what is deemed the 'best of the best'. Certified PCGS and NCG coins are no exception. Now, there's an easy way to identify elite within any grade. Just look for the CAC verification sticker.
In conclusion, the opportunity that exists today looks to be far greater than that of the 1970's, using basic economic principles. There have been many such cases of significant increase in the money supply in American history but none as great as today. There is a potentially staggering amount of money to be made. We are now targeting key areas we feel have the greatest potential for our investors. Seize this golden opportunity!
CASH FOR GOLD?
ARE YOU KIDDING?
By Fred Goldstein,
Sr. Broker SATC
For the better part of a year Americans have been besieged with television, radio and print ads imploring us to sell our gold coins and jewelry for cash. Aside from helping a poor soul in need of immediate cash, the concept is flawed and needs to be analyzed and exposed.
The ads usually say the gold price is near or at all time highs. 2009 marked the ninth year in a row the price of gold rose, up nearly $200/ oz. since January 2009. Anyone who sold their gold earlier has left a good amount of money on the table.
These ads also never disclose that while the nominal price of gold is at an all time high, if adjusted for inflation gold is less than half of an inflation-adjusted price of $2,350/ oz. I am not critical of companies making profits, but I am critical when ads mislead consumers and prey on the uninformed.
Since the US officially cut the tie between gold and the US dollar in 1971, Keynesian economists have harped on the concept that dollars are "money" and gold is a barbaric relic. However, in 2009 it appears the Federal Reserve note is becoming the barbaric relic, while gold is reemerging as the ultimate universal money.
An honest, trustworthy "money" system or currency must have four basic qualifications. It must be; 1) Portable, 2) Dividable, 3) Liquid, and 4) Scarce. It is obvious Federal Reserve notes do not meet the technical definition of "money" because honest money must be scarce and have intrinsic value (a store of wealth). You can't print trillions in paper money and expect the value not to decline.
Doug Casey of Casey Research wrote recently, "Gold is particularly good for use as money, just as aluminum is particularly good for making aircraft, steel is good for the structures of buildings, uranium is good for fueling nuclear power plants, and paper is good for making books. Not Money. If you try to make airplanes out of lead, or money out of paper, you're in for a crash. That gold is money is simply the result of the market process, seeking optimum means of storing value and making exchanges."
Since March 2009 the U.S. dollar has lost 10%-15% against major currencies and some commodities. Steve Watson of Inforwars.net reports (6/18/09), "The amount of U.S. taxpayer money committed to bailouts over the last 12 months by far exceeds the combined cost of major historical events dating back over 200 years. The combined amount spent, lent, consumed, borrowed, printed, guaranteed, assumed or otherwise committed to bailouts by the government from March 2008 to March 2009 amounts to come $15 TRILLION. The cost of World War Two, the race to the moon, the New Deal, and the Iraq, Vietnam and Korean wars combined does not come close to the amount spent so far in just 12 months on the bailout of a handful of privately owned offshore corporations."
In Demise of the Dollar, Robert Fisk of the London Independent wrote, "In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the U.S. currency for oil trading."
Michael S. Rozeff, a retired professor of finance and an author, recently wrote on lewrockwell.com, "If one or more foreign central bankers, such as those in China, Russia, Brazil, and the Middle East, have finally decided that they no longer wish to accept dollar that are inconvertible into gold, they have no choice but to establish their monetary systems with gold as a reserve asset...In the end, no matter how the divorce from the inconvertible dollar occurs or what travails we must go through to get the final decree, the outcome is going to be a marriage to gold." -Divorcing the Dollar and Marrying Gold.
A fool and his money are soon parted, the old saying goes. Please do not be lured to a gold selling party or to a dingy hotel to sell your gold for cash or the promise of a $10 gas card and the highest prices paid!
Now is the time for savers and investors to put themselves on their own gold standard, while there is still enough confidence left in the fiat US Federal Reserve notes to exchange them for real money; gold. The window is closing fast as the gold price in US dollars is rising dramatically. Meanwhile, mine supplies cannot keep up with worldwide gold demand. Rumors abound that the short sellers are having delivery problems on the NY COMEX and the ETFs do not have enough physical gold to back their paper gold.
We have always offered resources to help educate individuals about the gold and silver ownership. Whether you are new to the precious metals arena or are considering adding to your position, I urge you to act quickly. In the past gold ownership may have been considered a luxury while today we consider it a necessity.
James Sinclair of jsmineset.com sums it up with this quote, "Gold has no agenda, no allegiance and functions as honest money in a world of lies, corruption, overstatement and spin"
Michael Savage Interviews Swiss America Chairman Craig R. Smith
1) America's Weak Dollar Policy
Savage: The federal government, Treasury, Federal Reserve and Wall Street all seem OK with allowing the U.S. dollar to decline further. So why are you, among others, so critical of a defacto "weak dollar policy"?
CRS: I think the reason why we're so much against this weak dollar policy is because it doesn't work. You know the Bush Administration and three secretaries of the treasury said, "We maintain a strong dollar policy." The dollar dropped 30 percent during the Bush Administration. It's dropping again now under the Obama Administration. And while the weaker dollar policy may be very good for Wall Street, it's horrible for Main Street. Here you have a home dropping in value, while your cost of living is increasing.
We have to create jobs in this economy, we have to strengthen the US dollar, and we have to get government spending and deficits under control. If we don't, we will continue to see a long-term devaluation of the US dollar. And that affects everyone in America. Clearly our government policy and our Federal Reserve policy are being looked at by our foreign trading partners as ludicrous in its nature.
Our trading partner, one of the G-20 members, Australia, just raised their interest rates a quarter of a percent. Why? Because they have to mop up that excess liquidity. They are not going to allow inflation to run rampant in Australia. They're exercising pretty good policy. They reduced the rates and the reaction to the crisis, they created government stimulus that was not "feel good" stimulus, that actually went into real programs and they're starting to see a recovery. We need a strong dollar policy in America, it's just that simple.
2) Government Stimulus: Helping or Hurting?
Savage: President Barack Obama is taking credit for rescuing the U.S. from a modern Great Depression by dishing out trillions in stimulus and bailouts. But you say that government intervention in the 1930s actually prolonger the Depression -- by creating higher taxes and inflation. Aren't we doing the same thing today?
CRS: We are responding the same way to this financial crisis as we did to the crisis during the Great Depression, but the dynamics are different. During the Great Depression, we were a country that produced and saved. We produced products and we saved our money. Today we are a country with a consumption- based economy; we consume and we spend and we borrow. And therefore, to use the same playbook Mr. Bernanke subscribes to get us out of the Great Depression, to get us through where we are today, does not work.
It hasn't worked, it won't work, and that's why, no matter how far around the country or world you look, you'll find very few people, if any, who will not suggest that inflation is coming back in a strong way. Now whether that inflation is coming back in the next two years or next two months, that's the big question. But there's no doubt the Federal Reserve has created way too much liquidity and they cannot mop that liquidity up.
I find it comical that the Obama Administration is taking credit for the recovery, because let's be honest about it, is there was a recovery like Australia's suggesting there is, they would be raising interest rates right now to mop up liquidity. But what did the Federal Reserve say? They intend to keep interest rates at virtually zero until they're confident recovery is well underway.
We also have Europe taking that position; we also have many of the central banks taking that position, Japan for example. And yet if the recovery is well underway, and if Mr. Obama's moves to avoid the Great Depression pulled us back from the precipice as we were told, if they were working, then we should be able to start at least signaling that interest rates are going to go up. We're not doing that; we're exercising the same bad behavior that got us in this problem in the first place - cheap money to anybody who wants to borrow it and it's not going to work.
We cannot continue to expect our foreign trading partners to lend us money and then allow the losses in those currencies to be passed on to the people that lent us the money. They now have an understanding of how we're running out system in my opinion, the game is over. That's why you see so much talk about the United States losing its reserve currency status.
Traditionally reserve currencies are for nations that are net creditors and lenders to the world. We're net borrowers and net debtors. We can't keep on this track. And so you're right. They're actually prolonging this recession that we're in. They're not fixing it. I have argued in several white papers that I've written and other interviews I've done, that if the government hadn't been involved in this, we'd probably have 90 percent of this past us. All Mr. Obama and his administration are doing, and quite frankly, what Mr. Bush and Mr. Paulson have done, is take care of their friends on Wall Street and prolong a bad situation we should already be through, if they had just stayed on the sidelines.
3) Commercial Real Estate Crisis?
Savage: As we look ahead into 2010, I read that commercial real estate mortgage defaults are rising dramatically. Should we be worried about this? Could it lead us into a recession double-dip or perhaps yet another government bailout?
CRS: Yes, it could definitely be the next show to drop. A new wave in commercial mortgage-backed security foreclosures leading to further home foreclosures, bank failures, government bailouts, and weaker dollars. They could all have a huge impact on this already weakened economy.
Commercial real estate is valued at somewhere around three-and-a-half trillion dollars and has experienced an already 39 percent decline across the board over the peaks that we saw two years ago, at least according to the MIT Center for Real Estate. And what is going to happen to this economy when one to two trillion dollars in commercial mortgages taken out between 2005 and 2008 come due? Or have to be refinanced at new rates, when the value of the property securing those loans has dropped 40 percent? You'll either need to have dramatic principle reductions or there won't be loans available.
I think the commercial mortgage-backed securities industry is getting ready for a real shakeup. I think you could see defaults, which are already running six, seven percent and maybe higher by the end of the year. Home foreclosures have now exceeded 300,000 for the sixth straight month in September. That's up 18 percent from a year ago. There's still a trillion dollars in toxic assets produced from the sub prime crisis out there. You've got millions of adjustable rate mortgages getting ready to reset. We have ten percent unemployment for all intents and purposes. Some say that number could be as high as 16 percent in real terms.
So yes, there's a possibility of a double dip recession, and of course higher taxes, which the Obama Administration is proposing for healthcare. That could cause a double dip in the recession. So I don't think by any stretch of the imagination we're out of the woods yet. I don't think it's time to just assume everything is going to get better just because time has passed.
4) Wall Street Volatility Ahead?
Savage: Let's talk about the prospects for Wall St. Stocks are on track to finish their worst decade in memory in 2009, yet since bottoming out last March the bulls seem to be back in charge. Do you see true value in stocks right now or are we in for a rocky road in 2010?
CRS: There's no doubt recent rallies from March of 2009 to date are too much, too fast, and too soon. I agree with Dr. Nouriel Roubini when he says this market is way overdone. So no matter what gauge you look at, especially the S&P earnings, these stocks are very, very overvalued right now in my opinion.
Keep in mind, when we put trillions of dollars into the banking system and that money sat in a former reserve, that money has to look for a return. It couldn't just sit in reserves and make a quarter to one percent in interest. So some of it went into the treasury markets and the bond markets. Other moneys have found their way back into the stock market, and we've seen a tremendous recovery in both the S&P, the Dow and NASDAQ, some 50 percent retractment.
But I think it's a little bit too soon to argue that the underlying fundamentals are there to support these prices. Are these moves a knee-jerk reaction to money-chasing, what was perceived as value on Wall Street? No doubt about it. But I don't think government-induced stimulus and bank bailouts and ongoing interventions from the government trying to strengthen the stock market, are going to have any long-term value.
We are not out of the woods by any stretch of the imagination on Wall Street. I can tell you personally, I have a very small portion of my money in equities right now because I think we're going to need at least a 10 to 15 percent correction from where we are now. Quite frankly, I think you could see the S&P retrace as much as 20 percent.
I think on a long-term basis, stocks look good, but not right now. And keep in mind, if you go back to September of 2001, and you look at where we are in October of 2009, there's virtually no change in the level of the Dow, so we've lost eight years. Yes, it did rally up to 14,000, but it came right back down to 6600 and currently is sitting near 10,000. But we have basically lost eight years, where your money has done absolutely nothing it you were in stocks.
We're in a cyclical bull market in stocks, not a secular bull market. I would argue we're in a secular bear market for stocks. If you look at stocks in terms of the price of gold, stocks are not a value today. And stocks have done nothing. From 2001 to today gold has tripled in value. It's maintained its buying power in terms of the dollar, yen and euro. Once again, Wall Street is Law Vegas brought to New York City. You have gambling going on. When I watch the commentators, they ask, "Where are you making your bets today?" I thought buying stocks was an investment. Shouldn't the question be, where are we making our investments today? And that's the problem with the stock market.
Years ago, the stock market was where people invested their money, in companies they thought had a good prospect of earning money, employing people, and strengthening the economy. That's not how people look at stocks today. They look at them as bets. They look as putting money into the market and how can they quickly double or triple their money.
I believe that Will Rogers once said, "I'm not so concerned about the return on my money right now as I am about the return of my money." And I think quite frankly, that the stock market is nothing more than a game of chance.
Yes, on a long term basis, if you look at certain companies with a long-term track record, they're probably good values, especially those stocks that pay a dividend. But to be speculating in these markets, especially given the government can intervene with any particular industry, I think is very ill-conceived thinking on behalf of investors.
When you allow the government to pick and choose winners and losers, you are playing a game you can't win in, and that's why I am cautioning my listeners and subscribers to our newsletter, have some stocks, but be very, very conservative. Look for dividend-paying stocks and be very careful.
5) Bad Politics vs. Good Economics
Savage: There's an old economic aziom that, 'bad money drives good money out of circulation.' And we can see that with the falling dollar driving investors to precious metals and foreign currencies. But how about bad politics...and bad debt...and bad leadership...are they driving good economic policy out of circulation?
CRS: Boy, I couldn't have asked you to ask me a more pertinent question. Sadly, it appears the answer is also yes, at least for now. Bad money has always driven smart investors into good money, sound money. As a matter of fact, there's an economic rule called Gresham's Law. And it says bad money forces out good money. In other words, when we started creating paper money, it actually forced the silver out of our coinage, the gold out of our coinage. And that's why we came off the gold standard in 1972 and just before that the silver standard in 1964.
Bad politics is driving up bad debt, which is also driving smart money into gold. As we continue to embrace this culture of indebtedness in America and the world, it's going to be a continued problem because you cannot create the massive amount of debt we are creating and consider that to be good economic policy. Keep in mind, good politics is horrible economics, and good economics is horrible politics. Good economic policy is to reduce spending, to cut taxes and to promote free markets. All of those steps will generate new jobs and will expand our economy.
You know, Alan Greenspan, our former Fed Chairman once said, "Bad loans are made in good times, and good loans are made in bad times." When times are tough, banks are going to make sure they are only lending to people who can pay them back. But when things are loosey goosey and laissez faire like they were in 2005, '06, and '07, banks were making loans to anybody who had a pulse.
And I think this is true when it comes to consumers. But when the government is in charge of issuing loans in bad times, odds are good they are setting off a chain reaction of unintended consequences that will further hurt the economy long term. Meanwhile they are saddling an already overburdened taxpayer with trillions and trillions of dollars of long-term debt. How much debt can we lay on future generations before they collapse under the weight of that debt?
The ultimate solution to bad politics is to hold our elected officials' feet to the fire in the next election. That's why in my column and in my radio interviews, as we get closer to the November 2010 election, I'm publishing lists of congressmen and senators who voted for the TARP when 71 percent of Americans said, "We don't want the TARP." I'm going to publish a list of the senators and congressmen that voted for the $787 billion dollar pork-laden stimulus package. Once again, 70 percent of the American people said no, and yet those rascals coted for it anyway.
The best way to promote good economics is to understand how our money system works, which john Adams summed up so nicely 200 years ago; "All the perplexities, confusion, and distress in America arise not from defects of the Constitution, not from want or honor or virtue, so much is from the downright ignorance of the nature of coin, credit, and circulation." I would argue our federal government has taken advantage of the ignorance of the people. We don't understand how the system works, we get confused by it. The confusion creates paralysis and we do nothing.
Remember, good politics usually relies on bad economics. This administration is primarily politically motivated, make no doubt about that. They will fight the war of political correctness. That's why Mr. Obama can't make a decision to send troops or not send troops to Afghanistan. He has to weigh the politics. He looks at unemployment; he has to weigh the politics. I would argue that this administration needs to get their eyes off politics and get their eyes on leadership to be able to make the difficult decision to get this country back on track. And priority number one has to be the security of the United States of America, that means supporting our troops in Afghanistan, and number two, focusing every bit of attention and energy in the White House on the economy in America to create jobs that are good paying, long lasting jobs. And we don't do that by trade sanctions or tariffs or increased taxes. Just the opposite.
We do it by reducing taxes, by opening up markets for our goods overseas. If the world wants to sell us products, terrific, but we need to open up their markets for them to purchase our items.
America's legacy as a nation is that of being producers and savers, but in recent generations we've morphed into a nation of borrowers, spenders and consumers. We need to reverse that trend and get back to producing things. Seventy-two percent of our economy is based on consumption right now. We need to turn that around. The most we should have in our GDP for consumption is 50 percent. The other 50 percent should be production. That's how you balance trade deficits. That's how you bring in line the imbalances we have with our foreign trading partners, and that's how you make a level playing field going forward.
6) Nuclear Iran a Geopolitical Threat to Israel, U.S.
Savage: Topping the list of external threats to the U.S. and Israel in 2010 is Iran's nuclear ambitions. It this just saberrattling and tough sanctions talk or do you think we are destined for a showdown? And how will this effect oil prices and the financial markets?
CRS: It's a very good question as to whether Israel is gong to respond to Iran's nuclear ambitions. I suspect sooner or later, they will have no choice. But we've got to keep in mind the restraint we've seen practiced on behalf of Israel towards Iran, has to do with the fact that Iran has thousands of missiles pointed at Israel, not to count the threat of Hezbollah and Islamic jihad and all the other terrorists who would end up retaliating against Israel if they attack Iran. But I don't think that can last forever and I think Israel has taken that into consideration. So I have no doubt if Israel has a clear indication Iran has or is real close to receiving the potential of delivering a nuclear device, then yes, they're going to be given no choice but to attack.
I think the affect on oil prices worldwide will be devastating. You can expect at least $250 barrel oil and it's going to throw the financial markets in a horrific turmoil because not just the price, but the availability will come into question. Clearly a war with Iran will shut the Strait of Hormuz down, where 25 percent of the world's oil flows through daily. If that oil doesn't flow to different parts of the world, America, we have a strategic stockpile, but many countries don't. And nations like Japan and others will find themselves out of energy, literally overnight.
So I think the possibility for a showdown is real. I think once Israel figures how to take care of the retaliation that's surely to come in the event of an attack. The devastation to the financial markets will be nothing short of horrific in my opinion.
7) Four-Digit Gold: The New Normal?
Savage: Craig, I see gold prices have held above the $1,000 an ounce level in the third quarter of 2009. Does this represent the new "normal" in response to out of control government spending?
CRS: Yes, I think it does mean a new normal, if you will, because out of control government spending has caused the dollar to precipitously drop in value, and now we're seeing that squeeze out in higher gold prices. And of course, just today, gold hit an all-time high of over $1,043. There are secret meetings being held on behalf of the Saudis, the Russians, and the Chinese, talking about, over the next years, actually abandoning the US dollar.
In the past talks about abandoning the dollar really didn't go very far. But now, when you have the United Nations Conference on Trade and Development talking about it, the G-7, the G-20 talking about it, and not that Australia raised interest rates, one of the first G-20 countries to do so after this recent downtrend in the market, it's clear gold prices are going substantially higher. So you bet we have a new normal, Michael, and until our government stops spending money, until they balance these budgets, you can expect lower dollar values and higher gold prices.
8) 2010 Gold Projections
Savage: You've written that 2010 represents the halfway point of a major financial shift that began in 2001. I see you have collected over 80 economic experts that are all calling for gold prices to set new records in the years to come. You say we'll look back on $1,000 gold as "cheap" because prices need to reach $2,200 just to set a new inflation-adjusted high. So where do you think prices will end up next time we sit down together at the end of 2010?
CRS: I said at the beginning of 2009 on CNBC Financial Television that we'd see gold somewhere around $1250 by the end of calender year 2009 and I'm still very comfortable with that. I think 2010, $1,600 to $1,800 is a very, very comfortable price. You could see spikes of gold well over $2,000 an ounce.
The latest I see coming out of Bank of America and Merrill Lynch saying gold prices will hit $1,500 an ounce in 2011, when oil prices move back above $100 a barrel, is very, very optimistic. I think prices on gold closer to $2,000 and oil closer to $150 or $200 a barrel is quite a bit more realistic.
Don't get me wrong. I'd love to see some pull backs on gold below a thousand dollars an ounce, which would give many of the people who didn't get involved in the market the opportunity to get back in. But I think any breaks we see anywhere near the thousand dollar level will be met with tremendous buying on behalf of the Chinese.
The Chinese have made it clear they still want to buy hundreds, and that's hundreds of tons of gold. They estimates somewhere around 1,800 tons of gold they still wish to convert US dollar into as part of their long-term holding strategy as these currency fluctuations change and more talk emerges of the United States dollar losing its reserve currency status of the world. So I'd like to see gold below a thousand dollars an ounce, but I wouldn't hold my breath expecting to see that happen.
I think the world has finally awakened to the fact that the ultimate currency is gold. And while I know people will say it's a barbaric relic of days past, that you can't really use gold for anything, well I would argue you can't use pieces of paper called stock certificates for anything either. At least gold is real; you can physically hold it in your hand. It meets all the criteria for money, it's portable, it's divisible, it has a store value, and it's scarce.
I guess the thing I like about gold more than any other aspect that gold represents; it is an asset that is not simultaneously a liability. In other words, if you own stock in IBM say, a share of IBM stock, it's your asset, but it's IBM's liability. So the quality of your asset is determined by the performance of the person with the subsequent liability to it. Same thing with a treasury bill or a bank deposit. Yes, it's your asset, but it's the banks liability.
So if a bank goes out of business and you don't get your deposit and of course, in the case of bank deposits you're protected by FDIC insurance. But the point is, there's something about gold I think the world is now returning to. You physically hold it in your hand. You are the possessor of it; you are the caretaker of it. You don't have to hand over the control to somebody else.
And that's why I think you're going to see more and more people return to gold as a real form of wealth. You have to keep in mind that this recent run up in gold from $256 back in the late 90's all the way to $1070 and beyond now, has been a long-term process, and yet we have seen very few Americans, when you think about it in real numbers, come into the gold market. You've seen very few foreign players.
Now of course, with the Chinese coming in, we are starting to see Europe increasing their gold purchasing, for years, you have to remember, the central banks were selling gold. Now everybody's buying gold. And so that's why I believe we have only seen the beginning stages of a very strong move in gold.
I know many people are predicting $6,000 gold and beyond, and while I'm not comfortable in making those type of predictions because I can't base it on data, it wouldn't shock me to see it happening. And that's why I think gold, as it has for 6,000 years, will always represent a store of value. It will always protect you against inflation, it's always liquid, it's always portable. And that's why I think the prospects for gold going forward and incredible.
Quite frankly, derivatives, mutual funds, hedge funds and all these new fangled inventions we have in modern day finance, are falling by the wayside, and the good old fashioned, long-term solid assets, like gold, are coming back into fashion.
That's why I know we've had a tremendous drop in real estate, but I'm still very positive on real estate, because on a long-term basis, real estate represents something real. You can stand on that piece of property, you can live on it, you can grow food on it. It's something of true substance.
I've always believed, and I'm sure this is because of my personal beliefs, in the Bible we see four forms of wealth: gold, silver, land, and cattle. Those were true forms of wealth. I didn't see bank deposits, and CDs and treasury bills and derivatives and all these other things in the Bible. And that's why I truly believe something that has true value is something you can physically hold in your hand.
9) Time for a Personal Gold Standard?
Savage: For nearly a decade we've told Americans that gold is the only real currency that maintains a store of value over time. Over that time frame the gold price has tripled. I'm sure many listeners now kick themselves for not listening, but I have to ask, is it ever too late to start putting yourself on a personal gold standard?
CRS: Well Michael, once again, you were absolutely right when you told people that, because that's exactly what's happened. Our dollar has continued to lose buying power, gold has tripled in price since you told people to start buying gold clear back in 2001, and you're not going to see that change. I think right now we as Americans need to put ourselves back on the gold standard. The government and the Federal Reserve are not going to do that.
The government loves having the ability to create money out of thin air. We don't have that luxury as citizens of the country. And quite frankly, neither do local governments. They have to balance their budgets. We have a federal government that doesn't believe in balanced budgets. That being said, people need to get on their own gold standard, but they need to understand the problem. That's why I wrote a report entitled "The Incredible Shrinking Dollar and How to Fight Back."
Michael, you being an educated man, know the power of knowledge, that it's important to be educated on the issues. Once you have knowledge, then you have the power to be able to take the appropriate steps to protect your family, your life savings and so on and so forth.
Michael, thank you for once again talking about a critical issue that affects every single American. We're talking about our retirements, our college accounts for our children and the way we pay our bills. Our very way of life could potentially be under attack right now. We either have to lower our standard of living or increase the world's standard of living.
Six Steps of wealth preservation, Chinese- Style
By David M. Bradshaw, Editor, Real Money Perspectives
"Dig the well before you are thirsty." - Ancient Chinese Proverb
2009 was the Chinese "Year of the Ox" which ended up being the Year of the Bull as China's Shanghai stock index surged over 60%. 2010 is the "Year of the Tiger", said to be lucky, lively and engaging. Another attribute of the Tiger is his incredible bravery and willingness to engage in battle or exhibit courage.
China is now the world's bank of last resort and gold has become their asset of first choice. Why? For many reasons. This collection of recent Real Money Perspective news stories paints a dearer picture of what China, the #1 dollar holder in the world, is doing to protect their wealth from a further dollar decline and rapid rise in the cost of living. If you have the bulk of your wealth denominated in dollars, take heed.
1) BUY PHYSICAL GOLD NOW:
China bets on bullion: "China is expected to keep buying gold to diversify its vast foreign reserves after it recently revealed it had been secretively buying bullion. Hou Huimin of the China Gold Association, forecast that China's gold reserves could rise in the long term to as much as 5,000 tons," reports London Financial Times.
China's building gold reserves - now over 1,000 tons: "A Chinese official has confirmed that the country has quietly built up its gold reserves by 75% since 2003. It is not the world's fifth biggest holder of gold with more than 1,000 tons held," reports Mineweb. GATA.org reports that China is in the process of buying 4,000 tons of gold.
2) MAINTAIN STRONG BALANCE SHEET:
"Western analysts fail to recognize that the Chinese banking system is now the strongest in the world. Beijing now has almost $2 trillion in cash on hand and hardly any foreign debt. There is no doubt in my mind that China is going to turn back to the upside, before the U.S.," reports Money & Markets.
Is China trying to buy out the Americas? “While the US is floundering economically, China is muscling its way in to American businesses via joint ventures and worldwide claims to natural resources. China is pushing toward a new Reserve Currency, moving the world away from a dollar-centric economy,” says Swiss America CEO Craig R. Smith.
3) OWN NATURAL RESOURCES:
"China has been negotiating deals to double a development fund in Venezuela to $12 billion, lend Ecuador at least $1 billion to build a hydroelectric plant, provide Argentina with access to more than $10 billion in Chinese currency and lend Brazil's national oil company $10 billion. The deals largely focus on China locking in natural resources like oil for years to come. This is how the balance of power shifts quietly during times of crisis", reports NY Times.
Gold demand set to rise and chine: "Gold remains the safest way to secure savings. Even amid the equity market crash, gold has given more than 28% returns in the recent period, which makes it the best investment option", according to World Gold Council vice-president K. Shivaram, reports Hindu.
4) REDUCE PAPER HOLDINGS:
"China's recent call to replace the US dollar with a new global currency is gaining traction within the international community. A reserve currency system based on an IMF unit instead of the US dollar could be phased in within a year", said Joseph Stiglitz, a Columbia University economics professor who heads a United Nations expert panel, reports China Daily.
"There's a time to be in stocks and there's a time to be in gold. This is a time to be in gold. We're only really at the beginnings of this massive collapse of the debt structure. Much as the central banks are trying to feed money into the system, the collapse basically takes money out faster than they can put it in. In this kind of environment, the only thing that has ever made sense is gold," says Ian Gordon, a Vancouver- based investment adviser and market historian to Globe & Mail.
5) INFLATION PREPARATION:
Fed Historian sees 1970s-Style Inflation: "Fed Chairman Ben Bernanke is siding with John Maynard Keynes against Milton Friedman by flooding the financial system with money. If history is any guide, the effort will end in tears. Inflation will get higher than it was in the 1970s," says Fed historian and professor of political economy at Carnegie Mellon University Allan Meltzer.
"Zimbabwe's rate of inflation touched a sixteen-digit number in 2009 before the currency because worthless, despite introduction of bigger notes, including a ten trillion dollar bill. Zimbabwe will now be using foreign currencies for its transactions... until the new government rebuilds the economy," reports RTT News.
6) GLOBAL CURRENCY PROTECTION
G20 moves the world a step closer to a global currency: "SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century. There is now a world currency in waiting. In effect, the G20 leaders have activated the IMF's power to create money and begin a global 'quantitative easing'. In doing so, they are putting a de facto world currency into play," reports Evans Pritchard Ambrose at London Telegraph.
"China called for reform of the global currency system, dominated by the dollar, which it said is the root cause of the global financial crisis. A flawed international monetary system is the institutional root cause of the crisis and a major defect in the current international economic governance structure", Chinese Vice Finance Master Li Yong told the spring IMF/World Bank Development Committee meeting in Washington, reports AFP.
Americans must not trace for double-digit inflation as a result of a global divestment of dollar holdings fueled by new trillions in unbridled U.S. government spending and Fed bailouts. The Chinese are buying businesses, natural resources and gold to protect their future buying power and preserve wealth from the rising cost of living. American dollar holders should consider a similar strategy.
Meanwhile, a few pundits claim that $1,000/oz. gold represents a major price peak and prices could fall dramatically. In reality, gold is nowhere near a peak after adjusting for three decades of inflation. For example, in 1980 gold prices hit $850/oz. and oil hit $36 a barrel. Today oil prices are near $80 a barrel, a 120% increase, while gold is up a mere 20% from its nominal peak. Bottom Line: Gold offers investors value, safety, liquidity and growth potential despite rising inflation and broken government promises!
1. 300 years combined experience in U.S. gold & silver coins.
2. Serviced over 650,000 inquiries in 28 years of business.
3. Serviced over 45,000 clients in 28 years of business.
4. No unresolved complaints with any agency.
5. U.S. Coin Industry Affiliations:
*American Numismatic Association (ANA) - Life Members
* Industry Council for Tangible Assets (ICTA) - Member
* Numismatic Guaranty Corp (NGC) - Dealer
*Professional Coin Grading Services (PCGS) - Dealer
* Canadian Numismatic Assoc. (CNA)
* National Silver Dollar Roundtable (NSDR)
* World Proof Numismatic Assoc. (WPNA)
* Certified Acceptance Corporation (CAC)
6. About Craig R. Smith - President, Swiss America
Craig R. Smith is president and CEO of Swiss America Trading Corporation, an investment firm specializing in United States gold and silver coins. Smith founded the company in 1982 out of a bedroom in his home with $50.00. It has since grown into one of the largest and most respected firms in the industry. An expert in tangible assets, he is an author, commentator and frequent radio and television guest because he instantly engages audiences with his common-sense analysis of economic trends. He writes a weekly column for Worldnetdaily.com and publishes Real Money Perspectives newsletter.
DISCLAIMER: 1. Swiss America Trading Corporation, its principals and representatives, in no way guarantee a profit or guarantee against a loss on any coin purchased. 2. Significant price swings in a short period of time and possible. 3. The degree of liquidity for certified coins will vary according to the general market conditions and the particular coin involved. 4. Swiss America and its representatives are not certified to provide tax, legal, insurance or investment advice. You are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. You should consult an accountant, attorney or tax professional regarding your specific legal or tax situation.