By Mike Hewitt

“No legal tender law is ever needed to make men take good money; its only use is to make them take bad money.” (Stephen T. Byington)

The U.S. dollar has changed from being a paper certificate for a tangible asset to a fiat currency – a paper note declared legal tender. By looking at the history of American paper money one can clearly see the distinction.

The following image shows two one-dollar bills from different years (click to enlarge).

At a glance, the two bills appear similar, but look closely.

The wording on the first bill, a 1957 Silver Certificate, reads:

THIS CERTIFIES THAT THERE IS ON DEPOSIT IN THE TREASURY OF THE UNITED STATES OF AMERICA ONE DOLLAR IN SILVER PAYABLE TO THE BEARER ON DEMAND

This statement is completely missing on the second bill, a 2003 Federal Reserve Note.

The U.S. dollar is defined by the 1792 Coinage Act as being equivalent to 371.25 grains of pure silver. One troy ounce is equal to 480 troy grains. The market value for this amount of silver today is US$13.6125. So while they both read as being ONE DOLLAR, the second bill represents a devaluation of 93% in real terms from the 1957 bill!

These Silver Certificates began to disappear from circulation during the 1940s and 1950s because they were immediately shredded once redeemed for silver due to a diminishing store of silver bullion in the treasury vaults. Silver Certificates were officially abolished by Congress on June 4, 1963 and all redemption in silver ceased on June 24, 1968.

Up until the late-1920s, higher denominations of issued U.S. currency were gold certificates.

The bearer could redeem their dollars for “twenty-five and eight-tenths grains of gold nine-tenths fine,” as per the Gold Standard Act of 1900.

Constitutional Legality
There is some question as to the constitutional legality of the Federal Reserve Notes we use today.

“No state shall…make anything but gold and silver coin a tender in payment of debts.” (U.S. Constitution, Article I, Section 10)

The justification is done through a loophole whereby it is the Federal Reserve that produces the currency, not the individual States.1 The changing of the dollar from being a silver certificate to a Federal Reserve Note has enabled the production of additional money, that is, in the words of former Federal Reserve Chairman Alan Greenspan, without limit.2

Inflating the money supply causes a transfer of wealth from existing holders of money to the first recipients of the newly created money through the process of devaluation. It is, in essence, a form of theft.

“…the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” (Governor Ben S. Bernanke, Deflation: Making Sure “It” Doesn’t Happen Here)

What we today regard as U.S. legal tender notes are not legitimate dollar bills. There is no longer any paper currency or fixed concept of value known as a “dollar bill”. We carry and transact business with Federal Reserve Notes, and they merely represent the concept of a dollar bill.

Notes
1 The Federal Reserve was established through the Federal Reserve Act signed into law by President Woodrow Wilson a few hours after being passed by the Senate two days before Christmas on December 23, 1913.

2 “And in the case of a central bank of a fiat currency regime, such reserves can be created without limit.” Taken from a speech given by Alan Greenspan before the World Bank Conference on April 29, 1999.

About The Author

Mike Hewitt is the editor of DollarDaze.org, a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies. His website also provides a no-cost market data feed service with up-to-date quotes on currency exchange rates, commodity prices and major indices. Mike can be emailed at mikehewitt@hotmail.com.

Original Article Source:  http://dollardaze.org/blog/?post_id=00748

By Nick Barisheff
Sep 29 2009 2:40PM

http://www.bmginc.ca

“I’m not so much interested in the return on my money
as I am the return of my capital.” – Will Rogers

In this extraordinary environment, preserving your personal wealth becomes priority one. Before you make another major financial decision, it is imperative to understand the big picture by recognizing and understanding three critical issues. First, we are in a secular bear market for financial assets (stocks and bonds). Second, the consequences of the global bailouts will likely be highly inflationary. Third, we are at a pivotal point in the long-term investment cycle. Let’s examine each of these three keys in more detail.

KEY 1: WE HAVE ENTERED A SECULAR BEAR MARKET

In a secular (long-term) bear market, stocks plunge in value, single digit price/earnings ratios become the norm, and they can stay that way for decades. The secular bear we are experiencing now actually began when the stock markets crashed in 2000-2001, but few investors noticed because in 2003 the markets were artificially propped up by massive amounts of easy money from the US Federal Reserve under Chairman Alan Greenspan. This was not a new monetary policy. Greenspan’s response to every financial “crisis” he faced starting with the stock market crash of 1987 all the way through to and past 9/11 was to pour money into the system. The system was never allowed to self- correct, allowing a variety of asset bubbles to form.

During a secular bear market such as this one, stocks habitually move down or sideways. But there are occasional and sometimes violent bear market rallies to the upside that suck in naïve investors hopeful of a quick market turnaround. The most recent example is the spring/ summer 2009 rally in which the S&P TSX, the Dow and the S&P 500 has risen between 48 and 56 percent from their March lows. Since we are just in the early to middle stages of this secular bear market for stocks, investors still have time to rebalance their portfolios into negatively correlated assets. That means selling stocks and bonds (which will decline when interest rates rise) and buying an asset class that will thrive in this uncertain market: precious metals

Cash may seem to be a safe haven but it won’t protect against rising inflation. Bonds did well in 2008 because interest rates were slashed to zero. But rates have nowhere to go but up, which means adding or keeping bonds in your portfolio is likely to produce a negative return. It is important to note that bonds no longer provide true diversification protection because stocks and bonds have become positively correlated, meaning they generally move in the same direction.

Buy and Hold Doesn’t Work In A Secular Bear Market

Following traditional bull market mantras such as ‘Buy-and-Hold’ and ‘Stay the Course’ is a recipe for disaster in a secular bear market. Because secular trends last for years, they also take years to break. The most recent examples are the1966-1982 bear market in equities which, on an inflation-adjusted basis, investors lost nearly two thirds of their value during this period. As Warren Buffett points out “During these 17 years, the stock market went exactly nowhere.”

During this current bear market, the DOW has been negative over the past ten years, the MSCI World Index is only marginally positive, yet precious metals have soared over 200 percent (Figure 1). If inflation is taken into account the stock indices would be in significant negative territory, while volatility has been extreme: many of the stocks that formed the DOW in 1999 are no longer even in existence. One more fact: if you are counting on stock dividends to help you get through this downturn, consider this: at the time of writing, companies are cutting dividends at the fastest and deepest pace in at least 50 years.

KEY 2: MASSIVE BAILOUTS WILL TRIGGER MASSIVE INFLATION

As Merrill Lynch economist David Rosenberg wryly points out, “the new growth engine for the economy is government spending.” We are in the early stages of a global government spending spree of unprecedented proportions which, coupled with zero percent interest and extraordinary money supply growth, will be hugely inflationary. Financial assets will continue to lose purchasing power in this kind of environment, but gold and precious metals will hold theirs because they are a proven hedge against an investor’s two worst enemies — inflation and economic turmoil.

In recent years, the US money supply has been growing at an alarming rate. In 2008, despite a slowdown in lending and credit, money supply still grew dramatically with M3 (the broadest measure of money supply) increasing at about 11 percent, as Figure 2 shows. In 2009 the money supply is still growing at approximately 9 percent on an annualized basis. Over the long term, M3 increases have been the best leading indicators of future increases in the price of goods and services.

Most people think of inflation as a rise in the price of goods and services but in actuality price rises are the effect, not the cause, of inflation. As famed economist Milton Friedman pointed out many years ago, “inflation is always and everywhere the result of an increase in the money supply”.

Precious metals are the only currency to own when central bank printing presses are debasing global currencies at unprecedented rates. Because they are a proven store of value, precious metals are likely to be the only asset class that will preserve the purchasing power of your savings as we enter into a prolonged period of ‘–flation’: deflation, stagflation or inflation (one of the latter two being much more likely).

KEY 3: RIDE THE INVESTMENT CYCLE

A buy and hold strategy might work if it weren’t for the existence of cycles that drive bull and bear markets. A good way to understand the investment cycle is to look at what is called the Dow:Gold ratio. The Dow:Gold ratio (Figure 3) calculates the number of ounces of physical gold bullion it would take to ‘purchase’ one share of the Dow Jones during any given time period. When the ratio rises, as it did in the 1920s, 1960s and 1990s, it tells us that portfolios should be overweight stocks. When the ratio slumps, as it did in the 1970s and today, it tells us that portfolios should be overweight precious metals bullion.

The last three major stock market bubbles ended with the Dow:Gold ratio above 18:1, while the last two major bear markets (1932 and 1980) ended with the ratio near 1:1 At the height of the equities bull market in 1999, the Dow:Gold ratio peaked at over 40:1. But now the current ratio is below 10:1 and falling. It is certainly not too late to increase your allocation to gold and precious metals.

Precious metals preserve wealth

Precious metals have successfully preserved wealth for thousands of years because, unlike stocks and bonds and paper currencies, they are not someone else’s promise of performance and they are not someone else’s liability. Massive credit expansion has put US debt at over $11 trillion, but if the $60 trillion in unfunded pension liabilities and Medicare obligations that the US owes its citizens, actual debt is approaching a staggering 500 percent of GDP.

America’s spiralling debt crisis is leading many experts to consider the previously unthinkable: that the US might become the next Argentina, which famously defaulted on its debt ten years ago. To learn more about the debt crisis, visit www.ChrisMartenson.com. Dr. Martenson has created a superbly researched video called the “Crash Course” which explains in layman’s terms how massive debt is destroying investors’ wealth.

Precious metals are a safe haven

In 2008, stocks lost 30-70 percent of their value, while gold increased about 5 percent in US dollars. But equally significant, in a year of record-setting volatility, gold’s volatility was reassuringly low. At its lowest point, gold was only down 14 percent and at its highest it was up 21 percent. Both Goldman Sachs and UBS see the price of gold rising, and UBS expects investment demand for gold to pull the price of silver and platinum up along with it. Citigroup is calling for gold to rise above $2,000.

Precious metals protect against depreciating dollars

Since gold and precious metals are priced and traded in US dollars, they surge in value when the US dollar declines. As trillions in new money is printed, the dollar and other currencies will fall precipitously relative to gold. In an environment where the dollar is already weak and other currencies are weaker, investors seeking to preserve and grow their wealth must understand the impact of declining currencies on their portfolios.

Figure 4 shows the Canadian and US dollars have lost approximately 84 percent of their purchasing power since 1970. The world’s other currencies have fared no better. Not coincidentally, 1971 was the year the link to the gold standard was cut. Only gold, along with its two precious metals brethren – silver and platinum – will hold their value in periods of severe deflation and inflation.

Physical bullion versus proxies

Few investors are aware of all the precious metals investment options available to them. Some precious metals investments such as futures contracts and options are better suited for speculation and a higher tolerance for risk. But certificates, pooled accounts, ETFs and mining stocks also have higher risk. Only physical, bullion stored on a fully allocated, insured basis can guarantee peace of mind because it gives the investor exclusive title to the safest and lowest risk precious metals investment of all.

For absolute security, physical bullion should always be stored in allocated and insured form. If not, investors take the risk that their bullion may be lent out without their knowledge or consent or may not be there at all. Today, buying and storing physical, allocated bullion has never been simpler. You can privately and securely purchase bars of gold, silver and platinum in large bar sizes and have them insured and stored for you at a registered LBMA vault without ever breaking the Chain of Integrity. Visit www.bmgbullionbars.com to learn more or read our BMG Special Reports on how to invest in precious metals at: www.investinpreciousmetals.ca and www.goldmyths.com

It’s time to preserve your portfolio’s purchasing power

A minimum 10 percent allocation in precious metals is considered adequate in a bull market, but a much larger allocation of 20 percent or more is suggested for protection in a secular bear market. If you have not already done so, now is the time to rethink your investment strategy and preserve your hard-earned wealth. Physical bullion will keep its value regardless of whether the economy is headed for inflation, deflation or hyperinflation.

For the first time in history, the central banks have an unlimited ability to print as much money as they need. Precious metals are the only currency that will survive intact in this environment, because while governments can print infinite amounts of money, they cannot “print” more precious metals. More and more investors and institutions are turning to precious metals, because this secular bear market is expected to last for many years, eating away at investors’ hopes and dreams and portfolios along the way. Don’t let your portfolio be one of them. Now is the time to make an investment in your future, because the future is precious metals bullion

Nick Barisheff
President, Bullion Management Group Inc.
September, 2009

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Nick Barisheff is President and CEO of Bullion Management Group Inc., a bullion investment company that provides investors with a cost-effective, convenient way to purchase and store physical bullion. Widely recognized in North America as a bullion expert, Barisheff is an author, speaker and financial commentator on bullion and current market trends. For more information on Bullion Management Group Inc., BMG BullionFund and BMG BullionBars visit: www.bmginc.ca.

A report suggests that the Chinese government is pushing the general public into buying gold and silver bullion, which could have a dramatic effect on the markets.

Author: Lawrence Williams

We are indebted again to Paul Mylchreest’s  Thunder Road Report  for news that will bring big smiles to gold and silver investors everywhere.  Apparently China is pushing the idea of buying gold and silver for investment purposes to the general population in the way that Western television sells soap powder.  If 1.3 billion Chinese citizens start buying gold and silver, even in tiny quantities, imagine what that will do to the market!

The report notes that China’s Central Television, the main state-owned television company, has run a news programme letting the public know how easy it is to buy precious metals as an investment.  On silver investment the announcer is quoted as saying ” China has introduced its first ever investment opportunity for silver bullion. The bars are available in 500g, 1kg, 2kg and 5kg with a purity of 99.9%. Figures show that gold was fifty times more expensive than silver in 2007, but now that figure has reached over seventy times. Analysts say that silver has been undervalued in recent years. They add that the metal is the right investment for individual investors and could be a good way to cash in.”

What appears to have happened in China is a total relaxation of strictures on holding precious metals by the individual with the government pushing gold and silver as an investment option, seemingly at every opportunity.  This is a far cry from the situation only a few years ago where the distribution of gold and silver was strictly controlled.  Now, the Thunder Road Report notes that every bank will sell gold and silver bullion bars in four different sizes to individuals and gold related investments are said to be soaring in popularity.

Around a year ago, Leyshon Resources managing director, Paul Atherley, in an investor presentation in London – and no doubt delivered elsewhere in the world too – commented that some employees at the company’s gold mining project in northern China would, on pay day, go to the local bank and buy a small gold bar as an investment and wealth protector.  To an extent we put this down at the time to mining company hype – but this seems to be exactly the same phenomenon noted by Thunder Road.  The Chinese are being converted from being the lowest per capita gold consumers in the world to a nation of small precious metals investors.  Now, by next year, Chinese consumption of gold is likely to exceed that of India, which has been for years the world’s biggest gold market.  And one suspects that the potential for gold purchasing by individuals is only in its earliest stages.  As more and more Chinese move into the cities and individual wealth grows, this trend is only likely to accelerate.

Paul ends the piece on Chinese gold and silver potential with the following comment: “Simply put, the Chinese government is trying to trigger a national gold craze…and it’s working. The Chinese public now has gold trading platforms on steroids…. …Also, for the first time in history, Chinese investors can even trade gold abroad (in London) with the swipe of a ‘Lucky Gold’ card. I can’t even get Bank of America to open a foreign currency account.”

This may be an overstatement of the case from a precious metals bull – or it may not!  Certainly if China is indeed pushing the public to buy gold then there may well be a hidden agenda here.  It’s unlikely they are doing it and will suddenly pull the rug out from under millions of investors.  A cynic (or a raging gold bull) would suggest that this will precede a move to switch a good proportion of the country’s reserves into gold which would have a huge effect on the global gold price and could prove disastrous for the dollar.  Maybe it’s not in China’s interests to drive the dollar down too much until it has managed to divest itself of the huge dollar overhang (see the article on Chinese Sovereign Wealth Funds we published yesterday – Chinese sovereign wealth fund dumping dollars for strategic investments like gold ).  The country may well already be, of course, surreptitiously building its gold reserves without reporting the build-up.

If the Chinese are indeed beginning to buy gold and silver as the quoted report suggests then this has to be a strong signal that prices are going to rise, and perhaps rise dramatically, in the relatively near future.  We await comment from other China watchers for confirmation of the gold and silver buying spree, but with global gold production at best flat and probably in decline, even a small increase in Chinese buying could have a substantial impact on gold and silver prices.

Silver Dollar Coin Values

By Jeff Clark, Editor, Casey’s Gold & Resource Report

“There’s no reason to invest in gold,” said the finance editor of a major newspaper interviewing me. “If gold goes up because of inflation, then so does everything else, so why buy it? It’s not really a good investment.”

She was serious. Yes, she is a finance writer. And yes, it’s a newspaper you’ve heard of.

I was so dumbfounded that I must have sounded like an infant struggling to form its first words when I attempted to counter this inane line of thinking. Tell me you’re a deflationist, tell me the Fed will rescue us, tell me foreigners will keep buying our debt – but don’t tell me that gold serves no purpose!

I tried to point out the exploding monetary base, the soaring debt, the failing economy – but it was readily apparent her mind was made up. The interview was over and she hung up.

It may sound vengeful, but I’m tempted to keep a list of people whom I could remind someday of their negative comments about gold. I’d put “Betsy” at the top. I probably would chicken out in the end, but right now it’s a wonderful reminder of why we’re not in a bull market mania yet. Besides, I think the odds are stacked in my favor that she’ll someday be buying insanely inflated gold stocks from me. I’ll have to thank her then.

But I can address Betsy’s misunderstanding now, because part of what she said is correct: gold is not an investment. Gold’s primary purpose is to preserve your purchasing power. Whether it be roaring inflation, or dollar debasement, or economic upheaval, or out-of-control government spending, it has been the absolute best form of protection throughout the history of mankind. And I can prove it.

Let’s trace what an ounce of gold or silver – true money – has been able to purchase at various periods in history, and how it compares to today.

1979: Gold’s average price that year was $306.68. This bought an average-priced full size bed.

30 years later, $950 would still buy you a full size bed.

1963: A gallon of gasoline in America sold for 31 cents. This meant that 3 silver dimes could buy a gallon of gasoline. The total weight of silver in 3 silver dimes is .217 of an ounce.

Today, 3 silver dimes would buy a gallon of gasoline anywhere in the U.S.

600 AD: In the Middle East, a chicken at the time of Mohammad would cost a family one silver Dirham (3 grams).

Today, 1,400 years later, a chicken in the Middle East would still cost a family one silver Dirham.

Time of Christ: Under the Roman Empire, an ounce of gold purchased a Roman citizen his toga (suit), a leather belt, and a pair of sandals.

Today, one ounce of gold will still buy a man a suit, a leather belt, and a pair of shoes.

400 BC: Some scholars report that during the reign of King Nebuchadnezzar, an ounce of gold bought 350 loaves of bread.

Today, an ounce of gold still buys about 350 loaves ($950 divided by 350 = $2.73/loaf).

1000 BC: King Solomon was known to have purchased many horses for his army. Historical records show he bought them in Egypt for 150 shekels of silver each. 150 shekels was about 55 troy ounces of silver.

Today, you can still buy a riding horse for 55 troy ounces of silver ($800).

Betsy, gold has characteristics no other matter on earth has…

Gold cannot be…

Printed (ask a miner how long it takes to find it and dig it up)

Counterfeited (you can try, but a scale will catch it every time)

eflated or inflated (it can’t be reproduced)

Gold cannot be destroyed by…

Fire (it takes 1945.4 degrees F to melt it)

Water (won’t rust or tarnish)

Time (a gold coin remains recognizable after a thousand years)

Gold doesn’t need…

Feeding (like cattle)

Fertilizer (like corn)

Maintenance (like printing presses)

Gold has no…

Time limit (most gold mined is still in existence)

Counterparty risk (remember Bear Stearns?)

Shelf life (it never expires)

Gold as metal is…

Malleable (spreads instead of crushes)

Ductile (stretches without breaking)

Beautiful (just ask an Indian bride)

Gold as money is…

Liquid (easily convertible to cash)

Portable (you can hold $50,000 in one hand)

Private (no mandatory reporting here)

Gold is internationally accepted, lasts for thousands of years, and best of all, they aren’t making any more of it.

Now, Betsy, are you sure there’s no reason to buy gold?

—————————————————————————

As the editors at Casey Research have been saying over and over again: Buy Gold, buy silver, buy sound gold-related investments. Our current favorite has been gaining so steadily – even in times when the Dow and S&P were tanking – that we call it “48 Karat Gold.” Click here to learn more.

Silver Dollar Coin Values

www.dailyreckoning.com

I try not to think about silver, because when I do, my head ends up whirling around at the sheer compelling nature of the fundamentals, and I always come to the conclusions that whirling makes me dizzy and that I need to buy more silver right away because silver is going to start exploding in price over the next few years, it could happen soon enough to do me some good, especially considering the sorry state of all alternative investments right now and the sorry state of just about everything right now, and by the fact that I am slashing the kids’ allowances to zero, freeing up some of the cash I will need!

But sometimes something comes along that makes me think about silver, such as David Morgan of the silver-investor.com site reporting that “during the past ten years, silver’s use in industry has gone from roughly 35% of the entire annual production in silver, to greater than 50%. Not only that, but it is the fastest growing area of the silver market.”

So how much silver was mined? Well, the commoditynewscenter.com notes that “According to the US Geological Survey, about 672m ounces of silver was mined in 2008. And with an average silver price of $14.94 per ounce, if all mined silver was sold at spot, the entire supply chain would generate revenues of only about $10 billion.”

It is statistics like these, coupled with the dismal fact of the virtual elimination of above-ground stocks of silver as the myriads of electronic devices produced over the decades consumed it all, that makes me look at the world with suspicious distrust, my eyes narrowed to slits and my hand inching under my jacket to the shoulder holster in case I have to blast my way out as I realize – to my dismay – that the creatures of this planet are so stupid that they can look at this silver thing, and yet not start buying silver right away! Weird! More than weird!

Even when I politely yell at them, “Hey! You are Really, Really Stupid (RRS) if you are not buying silver, and I hope your children are not as stupid as you, although they are every bit as ugly as you, ya morons!” they still don’t buy silver! Again, weird!

Addison Wiggin of Agora Financial’s 5 Minute Forecast does not actually come out and say, “It’s weird!” or that I am, for once, making sense or how he can’t understand why everyone hates me, but he does say that “there are only 22 pure silver mines around the world. For 15 years straight, they’ve fallen short of meeting total silver demand.” Wow!

In fact, “in the last two years alone, they were off by nearly 76 million ounces”!

And since this is after decades of dis-hoarding of strategic stockpiles, the result is that “Today, most of the U.S. silver stockpile is gone,” and whereas “the world once had about 2.2 billion ounces of silver above ground,” now there are “only about 300 million ounces. In other words, total world silver supply has plummeted by over 86% just in the last few years…while silver demand has gone UP!”

I know you won’t listen to me, since you never have, and all I ever hear is how you are sick of hearing me tell you to buy silver and gold, for one reason, protection against the inexorable predations of a ravenous, sick government, and secondly to make money with silver since the supply/demand imbalance is (as we professional economists term it) So Preposterously Out Of Whack (SPOOW), and you are always asking, “If you’re so smart, how come you are just a lonely, pathetic little man who locks himself in the closet under the stairs because he is so scared of everything?”

Well, I am tired of screaming my lungs out in rebuttal, so maybe you will listen to Addison Wiggin, who is a bigshot at Agora Publishing and has his own newsletter, whose own statistics scream, even if he doesn’t, “Whee! This investing stuff is easy!”

The MOGAMBO GURU, for The Daily Reckoning
by Richard Daughty

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Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning , and other fine publications.

BUY GOLD & SILVER COINS

by Fayyaz Alimohamed

I began writing the Acamar Journal in 2004, warning that debt levels in the US were at record levels and unsustainable. Much of what has happened was predicted in previous issues of the Journal.

I warned of a financial crisis and a coming recession in November 2006, well before the financial crisis first began in July 2007. In June 2008, I highlighted an RBS report which warned that a stock market crash would occur by September, which it duly did. You can view these issues at www.acamaronline.com.

Now that the crisis has happened, what next?

Since this recession has been compared to the Great Depression of the 1930s, let’s see what happened to the stock markets then. The Dow Jones peaked in Sept 1929 and then fell 48% by November.

It then rose 50% in a bear market rally off that November bottom. The rally lasted till April 1930.

The rally generated expectations that the worst was over. President Herbert Hoover told a group that had come to ask for a stimulative public works program in June 1930, “Gentlemen you have come sixty days too late. The Depression is over.”

He was wrong. By June 1932, the Dow Jones had lost 89% of its value from the 1929 peak and the Depression lasted until 1939 when World War II began.

I cite this example to show how the current rally is generating similar expectations. There is talk of “green shoots” suggesting that the economy will resume growth in the last quarter of 2009 or early 2010. The banks have passed the stress tests conducted by the government, though I think the results are not credible.

The US has now committed to over $ 13 trillion in bailout packages, consumer stimulus, AIG, Freddie Mac and Fannie Mae guarantees, TARP and other programs. These are funds that the US Government will have to borrow to try to solve the crisis.

Here’s my problem with this. The crisis was caused by excessive debt and leverage. The solution cannot be far more debt. That’s like giving a drug addict more drugs to cure him. It won’t work, and it will make the eventual problem worse.

The current US deficit is estimated at $ 1.75 trillion, which is almost four times larger than the record $ 485 billion from last year.

My question is: who will fund this?

China has spent the last 20 years accumulating massive foreign exchange reserves due to its massive trade surpluses. But it has only accumulated $ 1.9 trillion over three decades.

Even with oil around $ 60, there are not enough Petro-Dollars available to write this kind of a cheque.

And here’s the real shocker:

The head of the Federal Reserve Bank Of Dallas, Robert Fisher, gave a speech in May 2008 (Storms on the Horizon) in which he said that the US government’s unfunded liabilities are now $ 99.2 trillion (for future Social Security and Medicare obligations). This is in addition to the Federal debt of over $ 11 trillion.

With 111.6 million households in 2006, each household’s share of this future debt is $ 888,750. For each family!

Total credit market debt (combined government, corporate and personal debt) is now an all-time record of over 350% of GDP, as of Q4 2008. This does not account for growing federal and state government debt this year nor does it take the unfunded liabilities into account.

The reality is that the US is essentially insolvent.

This brings us to Bernie Madoff. The former chairman of Nasdaq ran a $ 50 billion Ponzi scheme. For years he pretended to earn impressive returns for his investors; the reality was he didn’t invest anything, he just took money from new investors to pay old investors and lived very well off the difference.

The US government is running a similar investment plan through its issue of new US Treasuries.

The US will never, ever repay its debt. It can’t, the numbers are too large. Each year, it rolls over the principal and interest by issuing new bonds, with the debt growing ever larger.

The Fed announced last month that it will begin to “monetise” US debt, which means it will buy US Treasuries and Agency debt, ostensibly to keep interest rates down.

Here’s one of the major reasons why:

The Chinese have virtually stopped buying US Debt, have warned the US to ensure that it protects the value of the approximately $ 800 billion it already holds in US debt and have proposed that the US dollar be replaced as the world’s reserve currency.

This monetisation strategy, formally known as Quantitative Easing, has engendered sharp criticism from China’s People’s Central Bank. In a quarterly report, it says “A policy mistake made by some major central bank may bring inflation risks to the whole world. As more and more economies are adopting unconventional monetary policies, such as quantitative easing (QE), major currencies’ devaluation risks may rise.” It warns of its concerns of a bond crisis due to this policy approach.

Japan is a major holder of US bonds. And Japan’s opposition party has announced that if it comes to power it will not buy US bonds if they are denominated in US$, only in Yen!

My concern is that the Fed’s actions seems to indicate the last stages of a Ponzi scheme going bad, when there are no longer enough new buyers and the desperate con man has to improvise to keep the scheme going.

And another bubble appears to be OTC derivatives. These unregulated contracts were recently valued at $ 684 trillion, which is an unfathomably high number compared to global assets. Derivatives are what Warren Buffett once called “weapons of mass destruction” but he indulged in derivative contracts anyway, leading to Berkshire Hathaway’s recent 96% profit drop.

And if this US Treasury or derivatives markets blow up, then the global economy will be decimated as these are the mother of all bubbles.

Fayyaz Alimohamed

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Fayyaz Alimohamed has been the Chief Financial Officer of an insurance company in Vancouver and the Director of Investments for a large investment and operating group in Dubai.

Silver Dollar Coin Values

The American Eagle Silver Dollar, first released November 24, 1986, is the official Silver Bullion Coin of the USA. The coin is ‘struck’ in the 1 troy ounce denomination and contains one troy ounce of pure silver (99.9%). Its nominal face value is one US dollar.Since release, the American Eagle coin has risen in popularity as a collectible and for investment purposes. The coin’s design is considered by many as outstandingly beautiful. The obverse (front) face of the coin features Adolph A. Weinman’s Walking Liberty motif. The reverse face features the heraldic eagle designed by John Mercanti.

As an investment item, the American Silver Eagle is approved in the United States for funding Individual Retirement Account investments.

Asture financial advisors would offer the recommendation to allocate a percentage of one’s cash resources into the presious bullion and coin asset group. Especially at this time of global market uncertainity. This advice is considered a prudent strategy. By adopting a ‘buy n hold’ mindframe, the long-terms benefits will be welcomed.

In short, the pure bullion and coin asset class acts as ‘stored value’ investment. For example, the valuse of fiat currencies will fluctuate over time, however, the volatility in the precious metal market is less apparent over time.

When the time is right to begin your incremental acquisition of items within the pure bullion and coin asset group, then the internet is an ideal location for search and buy. There are many online platforms for buying and for that matter selling gold and silver bullion and coins. This can be both fun and financial rewarding.

Gold Silver Coin Auctions

by Howard Katz

You have probably been taught that the responsible way to handle your economic affairs was to work hard, be thrifty and invest safely. This is what the old timers did, and it worked for them. When they reached 65, they were able to retire

However, the old timers lived in a country on the gold standard. They went to work at age 16, saved 15% of their income each year and put it in the local savings bank at 5% interest per year.  Let us do a little 8th grade math.

Assume an average wage of 30 oz. of gold per year. Saving 15% of that means saving 4½ oz. per year.  At the end of a 49-year working lifetime, you have saved 220½ oz. of gold.

Now listen closely because what happens next is so astonishing that it was called a miracle: the miracle of compound interest. When you lend money at interest, in the first year you get the agreed upon rate. If you lend $100 at 5%, you get $5.00.  It is in the second year, that the miracle starts. In the second year, you don’t merely get another $5.00.  In the second year, you are not lending $100; rather you are lending $105, and at 5% this produces an interest of $5.25.; so at the end of the 2nd year you have $110.25.  This is interesting.  Not only is your capital growing; it is growing at an increasing rate.

Now to calculate what 5% interest does to your capital over a 49-year working life span is a long, difficult problem in 8th grade math. But I was a bad boy one day and had to stay after school, and so I calculated what 5% interest does to capital over a 49-year period. The answer, to cut to the point, is that it multiplies it by 4.25.  So, the man who saves 220½ oz. of gold will, after 49 years at interest at 5%, have 220.5 x 4.25 = 937 oz. of gold.  That is, you saved 220½, but you have 937. This so impressed the people of the 19th century that they called it the miracle of compound interest.

So here you are at age 65 with 937 ounces of gold in the savings bank.  You can stop working, continue to draw interest on your capital, and you will receive 5% x 937 oz. = just shy of 48 oz. of gold per year.  In other words, you can stop working and receive 50% greater salary than you did when you worked.

This was a wonderful system.  It no longer exists, but it is very important if you want to know what to do with your wealth today and how to survive in the modern economic climate.  To read the full article, click here…

Silver Dollar Coin Values

Search through eBay style auctions on silver coins…also gold, rare, ancient coins as well.

http://silverdollarcoinvalues.com/silver-dollar-coins/buy-silver-coins.html/

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