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3 minute text synopsis of a recent radio interview with Mike Maloney, author of the #1 bestseller Guide To Investing in Gold & Silver, and the Hidden Secrets of Money documentary series, CEO & Founder of GoldSilver.com, with Chris Waltzek from the GoldSeek Radio
Inflation and Deflation
Money vs. Currency
Never Tapering QE
US Dollar as World Reserve Currency
What People Should Do
Gold on the London Exchange
Hidden Secrets of Money
interview with GoldSeek Radio
November 15, 2013
All fiat currencies go to zero. That’s a fact.
There were some fiat currencies that were basically abandoned, but when that happened they also sitll went to pretty much infinity in the price for everything.
But not all of them end in hyperinflation.
We’ve tried this hundreds of times throughout history, where we expand the currency supply to stimulate growth, and what it does is distorts the economy, creates a wealth transfer, and ends up causing a lot of pain in the end.
It always ends in disaster.
There isn’t a single example in all of history of this working out.
When you create a new unit of currency it doesn’t contain any economic energy – it’s neutral.
When someone spends that new currency into circulation it draws purchasing power from all of the other sectors of the economy. It pushes one sector into a bubble while it’s causing prices to rise in others.
People confuse rising prices with gains. Rising prices are actually loss in purchasing power of the currency. So when an asset class rises very fast then that’s inflation.
Every dollar goes somewhere.
INFLATION AND DEFLATION
Every dollar goes somewhere. So whenever they create excess currency it inflates something. It’s just that there’s different waves and cycles, and currency takes the path of least resistance. Always.
It will inflate the stock market, or it inflates savings accounts, or retail prices, but whenever they create currency it does create inflation.
MONEY VS CURRENCY
One of the things that people don’t realize is that we do not use money. We use currency.
There is no country on the planet that currently uses money. They use currency.
Mike’s first episode of Hidden Secrets of Money is all about the difference between currency and money.
Currency has to be a medium of exchange, a unit of account, be portable, durable, divisible, and fungible.
Fungible means the units are all interchangeable. If I borrow a 20 from you then I can pay you back in a 10, a 5, and five 1s and you’re happy. That interchangeability is fungibility.
Money has to be all of those things plus a store of value.
People need to stop calling the stuff in their wallets money. We don’t have a money supply. We have a credit supply and a currency supply.
These definitions are extremely important.
Real money is the enemy of fiat currency. It can destroy a fiat currency and cause a fiat currency to go to zero.
Politicians always have to pass some kind of law if they want to get away with spending fiat currency, and being able to make promises that they can’t afford to keep without imposing the inflation tax on us – the stealth tax that the public doesn’t see.
They want to promise all these free goodies, but they aren’t really free. They have to pass some sort of laws to get rid of real money.
Fiat currency distorts the economy and causes bubbles, so for the investor who knows what’s going on, and the people who are good with playing with credit and so on it’s a benefit. They win at everybody else’s expense.
THE INFLATION TAX
Mike was interviewing Steve Forbes a few months ago, and one of the things that Steve brought up that Mike hadn’t thought of before was “Who made the Federal Reserve the fourth branch of government?”.
“Who allowed them the power to impose a target of 2 or 3% inflation?” In other words they are saying they are going to impose a 2 or 3% tax across the board for everybody in the United States. That’s a power that the government is only supposed to have.
Mike says that he keeps on harping on this – the public does not understand the scale of the emergency that is going on.
The FED did all these bail outs in 2008 but then they never stopped increasing the currency supply and doing “emergency measures”. They are right now creating $85 billion per month. That equals just over $1 trillion each year.
In 2008 the base currency supply (Mike does not call it the base money supply because it’s not money) was $0.8 trillion – it was less than a trillion.
Now they create $1 trillion every year.
In other words, it took over two hundred years to produce that first $0.8 trillion of the paper dollars in your wallet. Now they produce more than that every single year.
Its QE to infinity.
When Ben Bernanke came out and said that they weren’t going to taper that was the point where it was all over with. That was an admission that they can never taper.
If they can’t start to taper off of life support without crashing the stock market and the economy in four years into an economic expansion, then it’s just not possible.
In every four to five years we have a recession. So we’re due for a recession in 2014, or 2015 at the latest. What’s going to happen then?
Will Janet Yellen start producing half a trillion per month? A trillion per month? Who knows?
Basically the dollar is toast eventually.
One of the things that Mike shows in Episode 2 of Hidden Secrets of Money is that every thirty to forty years the world has an entirely different monetary system.
It didn’t affect the common person in the last transition but it will during this transition.
Before World War I we had full gold backing. Between the wars we had partial gold backing and partial debt backing of currencies.
Then from 1944 to 1971 we had the Bretton Woods system where other countries held US dollars in reserve and then the US dollar was convertible into gold. Only foreign Central Banks could convert those dollars into gold through the New York FED.
Then Nixon closed the gold window in 1971, and in doing so he unwittingly began an experiment that has been proven hundreds and hundreds of times in history to not work. It’s always a 100% failure.
Nixon put the entire world on fiat currencies simultaneously because they were all pegged to gold through the US dollar. When he severed that tie with the US dollar and gold, he severed the tie with all world currencies and gold.
So we began this experiment that throughout history has a 100% failure rate.
The FED is now out of ammunition. What they’re doing isn’t working. So when we start to go into a recession (and we really never got out of the last one), when things start getting worse, they’re going to triple what doesn’t work, and then they’re going to quadruple what doesn’t work.
The FED is going to keep on saying that since it didn’t work we need to do more of it.
US DOLLAR AS WORLD RESERVE CURRENCY
2008 was basically the transition to the next monetary system.
Mike’s series Hidden Secrets of Money shows all of the nails in the coffin for the US dollar standard.
There are a whole bunch of fortunate accidents for the United States that put them on the global dollar standard, where the US is the world reserve currency.
The US didn’t have any wars on their soil, and during World War I and World War II countries paid the US in gold. At the end of World War II the US had 2/3 of all the world’s gold and 3/4 of all the world’s monetary gold (Central Bank gold).
The US became a super power because of what went on financially behind the scenes of these wars.
It wasn’t the war itself that made the US a super power. It was the fact that we had these key accidents happen that gave them the right to impose a tax on the rest of the world since 1944.
If the rest of the world has to hold dollars and half of the US dollars exist outside of the United States, then when they create a new dollar it dilutes the dollar supply. And when they do some deficit spending with that dollar then it gets its purchasing power by robbing it from all the other dollars in existence – including the ones that reside outside the United States.
That’s a stealth tax that the world couldn’t see. But they’re all waking up to it.
If you watch Episode 3 Dollar Crisis to Golden Opportunity you’ll see all of these nails in the coffin.
When Nixon put us on the dollar standard in 1971 it was the calm before the storm.
Saddam Hussein started selling oil for Euros.
The nails are coming more and more quickly. There was something happening at least once a month, and now once a week, where another country is turning its back on the US dollar, and not wanting to use the US dollar in international trade.
That means that some day they don’t have a use for all those dollars outside the United States, and they will start coming home to the US.
We’ve already had a picture of what happens.
In the late 1980s when Japan was coming over here and buying up downtown Las Angeles, and the Rockefeller Center, it caused huge inflation. All of the premium highrises doubled in price very, very quickly.
That is going to be happening again.
Except this time it’s going to be China coming over here and getting rid of their trillions of US dollars that they’ve had in reserve.
WHAT PEOPLE SHOULD DO
Mike believes that the first step anyone should do before taking action is to get educated. Know what you’re doing before you do it.
Listen to more of the episodes of Gold Seek Radio, listen and watch everything you can find that it similar.
Hidden Secrets of Money is a very in depth series shot in sixteen countries, with animations done by their two full-time animators that animate complex information.
The most recent episode 4 “The Biggest Scam in the History of Mankind” shows how the monetary system works. That it’s just a giant Ponzi scheme.
It’s the very first time that people can actually see the whole thing and how the monetary system itself, just having dollars in existence, steals wealth from the working class and transfers it to the financial sector.
It went to a million views in three weeks.
Get educated first. The next step is to buy physical coins and bars, either in your possession or held at a third-party depository. Mike does not like banks and safety deposit boxes. They were closed the week of 9/11 and if you had gold you couldn’t get to it.
You could have gotten your gold and silver if you had it at Brinks, which is an independent depository and not tied to banking regulations. Brinks calls themselves “UPS with Guns”. They’re an armoured car service with a depository and will store precious metals. Mike opens accounts for customers with Brinks.
That is a very liquid way of storing your own gold and silver.
The third way is stocks. They give you leverage. But you take your gambling money and use it for mining stocks and so on.
With an ETF you have a share in a trust that is a custodian for some gold. You don’t own the gold. You don’t own the silver. You own a share in a trust and you are an unsecured creditor. So you are the last in line if something happens to that company.
So if something happens then “Good Luck”.
Also, with an ETF you can short them. If someone is short that means there are more owner for each ounce than there are ounces.
When somebody borrows in ounces into the market then somebody else buys it. Then they owe that ounce back to the original owner. It means somebody else also thinks they own that same ounce.
Before you get involved read their prospectus and the Securities and Exchange’s 10K filings. Read it with a suspicious eye – thinking “How can these people cheat me?”. You’ll discover some clauses that make it okay for them to not have the gold and silver that they claim they have.
GOLD ON THE LONDON EXCHANGE
Mike is only interested in the very long term trends. He isn’t a gold bug. He’s not attached to gold and silver in any way.
He just believes that gold and silver are in a cycle, and that when they are doing an accounting of the fiat currency supply (which has happened twice in the United States so far – 1934 and the 1970s), then gold will rise to account for the expansion of the fiat currency supply.
It’s happening again.
During these periods things like the DOW Gold Ratio, where you take the points on the Dow Jones Industrial Average, and you divide it by the price of gold, you get how many ounces of gold each share of the DOW is.
If you do a one hundred year long term chart on this then there are times of tremendous over valuation of paper assets and under valuation of gold.
It’s the same thing if you take a look at real estate compared to gold and silver.
Mike does not care what the price of gold or silver goes to. He care about how much it is going to buy.
If there’s deflation and the DOW goes down to 3,000 and gold peaks at $6,000 per ounce, then half an ounce of gold will buy one share of the DOW. If we go into big inflation and the DOW goes to 30,000 and gold goes to $60,000 per ounce, then it means that half an ounce will buy one share of the DOW.
If we go into hyperinflation and the DOW goes to 30 trillion and gold goes to $60 trillion it means half an ounce of gold will buy one share of the DOW.
The price is inconsequential. Mike’s looking at how much stuff it will purchase.
When you look at real estate and stocks it hasn’t completed the cycle yet. We are currently in the area of 12 or so – it takes 12 ounces of gold to buy 1 share of the DOW.
In 1932 it only took 2 ounces of gold. In 1980 it only took 1.
In 2000 – 2001 we were experiencing the biggest under valuation of gold in history. It was the lowest value that gold has ever had in 5,000 years.
You have to look at the fact that before ’71 the vast majority of currencies on the planet
were somehow connected to gold. They were connected to gold or gold was our money.
There maybe have been one or two at any given time that went off at any given time but they eventually imploded.
So only the past forty years or so, since 1971, the world has done this experiment where no nation on the planet uses gold as money.
So no gold demand in 2000, and gold had gone into a bubble in 1980, and entered a brutal bear market. By mid 1990s investors just started giving up on gold.
By the year 2000 nobody wanted gold.
Mike discovered gold in 2002 and started buying and telling everybody about it. They would say that gold is the worst investment but Mike was buying at $315. It had been going down for twenty years at that time.
Gold is not done with this cycle. This pullback that we have been in in the last couple of years is simply the equivalent of the 1975 pullback in gold.
It went from just under $200/ounce to $100/ounce from Jan. 1975 to Sept. 1976. It was a big pull back then.
Right now it’s just a cyclical bear market within a secular bull market.
Mike was saying that this would happen inside this bull market for years. The pullback in 2008 wasn’t the pull back he was talking about because there was too much demand.
A cyclical bear has to have everyone giving up on that asset class.
You’re seeing negative sentiment in gold right now.
Mike believes it could go down some more, and that if it hasn’t put in the bottoms yet then it will very soon and then it’s off to the races. But it may have already put in the bottoms.
In Mike’s book he covered deflation, inflation, things going pretty much as they are, hyperinflation, and then Mike’s favourite scenario – a rollercoaster mixture.
Mike said there would be a threat of deflation to which the FED would overreact and do a big helicopter drop – which they did in 2008 with the bail out QEs.
He said this would cause a reflation which we saw with the stock markets and real estate. Then he said there would be a real deflation – a contraction of the money supply.
Take a look at what is going on with the credit aggregates right now. Look at John William’s Shadowstats that he compiles.
Take a look at those measurements of the currency supply, then realize that base money is currency, and you get a component and see what’s happening in the credit portion. You have to deduct base currency.
If you do then you find there is a huge collapse in credit going on right now. So we are seeing a deflation.
Ben Bernanke has been almost exactly offsetting that collapse with the creation of base currency.
HIDDEN SECRETS OF MONEY
Mike encourages people to watch this series. It’s an entertaining approach to economics and monetary history.
There is something huge out there waiting for us in the future – the greatest wealth transfer in the history of mankind.
For most people it is going to be a tragedy. But for the people who are smart, learn about this, and take action, it’s going to be the best thing that ever happened to them.
If it’s the greatest wealth transfer in the history of mankind it means it’s the greatest opportunity in the history of mankind.
So, take this disaster and turn it around and make it the best thing that ever happened to you.
Coins and Crowns
words and music Elaine Diane Taylor
© 2011 and ©2013 Intelligentsia Media Inc. All rights reserved.
from the album Coins and Crowns
Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
from the album Coins and Crowns