Table of Contents
To my wife, Ali, who makes everything she encounters better, including me; and to my sons Michael and Steven, who believe in Liberty.
SECTION I
WHERE WE ARE
CHAPTER ONE
The Day Jim in Scottsdale Figured It All Outand How the Treasury Secretary Saved Him from the Stock Market Crash!
It didnt have to be that specific day. It could have been weeks or months earlier or later. But something broke through for Jim on an ordinary day in the summer of 2008. I know because he called me on the air to let me know.
Jim in Scottsdale, good morning, I said, punching up line four on my morning talk show in Phoenix.
Charles, I have been listening to you talk about the government debt and the U.S. dollar for a couple of years now. At first when you talked about what you call the Washington Partythe mess the Republicans and Democrats have gotten us intoit used to make me mad. Because I thought my party was different and it was the other guys who were to blame. Anyway, I just wanted you to know I sold all my stock yesterday. Im buying gold.
Jim, youve had a breakthrough, I said. What finally got to you?
Well, your reports on the real estate market got my attention, he said. I can see some of the things you were talking about in my own neighborhood.
Foreclosure rates are rising, I said, and were just getting started.
Yeah, that got me thinking, he continued. But it was the story you told about the treasury secretary in China that did it. Now Im convinced. These people are out of their minds! So I sold $100,000 worth of stock. I want out of the stock market. And out of the dollar. Period. And Im going to start buying gold!
Jim in Scottsdale sure got the point of the story. It was about John W. Snow, the prior Bush secretary of the United States Treasury, in China a few years ago, instructing the Chinese to save less and borrow more! Americans saved nothing; the Chinese are among the biggest savers in the world. I told the story because it explained the philosophy responsible for turning Americas economy upside down. And Snows bizarro-world advice to the Chinese could be traced directly to the current chairman of the Federal Reserve System. So I brought it up and wondered aloud at the secretarys confusion. Chinas economy had been growing like crazy; ours not so much. Their economic strength was waxing; ours was waning. We, some of the worlds richest people, had to borrow from them, some of the worlds poorest, to keep our federal beast fed. And Mr. Snow thought the Chinese needed to take a lesson from us?
Theyre just heeding the advice of that ancient Chinese sage Ben Franklin, I said. Its difficult to translate from the original Chinese, but it goes something like this: A penny saved is a penny earned!
But Mr. Snow had been listening to a different Ben, a Princeton economist named Ben Bernanke, who served as chairman of Bushs Council of Economic Advisers when he offered up his they save too much theory. This Ben, now the chairman of the Federal Reserve, and the rest of the Washington wizards know better than Ben Franklin. They would have the Chinese spend their way to prosperity. His advice for the Chinese is bad enough for them, but what about for us? Just who does Secretary Snow and Chairman Bernanke think will fund Americas debt if the Chinese dont?
Were about to find out.
And so on a day in early June 2008, when the Dow closed at about 12,300, Jim sold his stock. It wasnt at the top when the Dow was at 14,000. It wasnt at even at 13,000 where it had been the month before. But Jim could see that ideas have consequences and that there were some pretty peculiar notions about money and wealth going around in Washington. Those ideas have already determined the fate of the U.S. dollar. Its not going to be pretty and Jim decided not to be victimized by the dollar meltdown.
The New York Times reported that Secretary Snow thought to lecture the Chinese during his visit on better methods of analyzing credit risk and a greater willingness to make loans based on objective judgments of risks and opportunities. Perhaps the secretarys attention should not have wandered so far from home, because it would soon become apparent that credit risks more properly his concern were screaming to be analyzed. Saving nothing and spending more than we earned was about to get America in deep trouble. The mortgage bubble was growing. And even as Snow spoke, the dollar was beginning a thirty-three-month move that burned away 25 percent of its value against the euro and foreshadowed the meltdown to come.
Jim in Scottsdale didnt have to wake up to trouble ahead for the U.S. economy on that particular day. Often a good look at the metastasizing U.S. debt moves people to action. For example, Jim could have been paying attention a few years earlier when Congress raised the governments debt ceiling to $8.18 trillion. This is the way the event was reported in
The Washington Post on November 19, 2004:
With last nights passage of the debt ceiling increase, the governments borrowing limit has climbed by $2.23 trillion since President Bush took office: by $450 billion in 2002, by a record $984 billion in 2003 and by $800 billion this year. Just the increase in the debt ceiling over the past three years is nearly 2 times the entire federal debt accumulated between 1776 and 1980. (Emphasis added.)
Gold was $442 that day. Or Jim could have gotten the message sixteen months later. On March 16, 2006, the U.S. Senate voted to raise the debt ceiling again, this time to $9 trillion. Gold was $554.
But picking some other day that Jim might have started buying gold misses the point. Gold has a long way to go just to again equal its highs of a generation ago. In inflation-adjusted terms the current price would have to reach $2,500 an ounce or more! But at some point peoples primary concern will be How many ounces of gold do I have? rather than What is the dollar value of my gold?
In deciding to act, Jim dodged the stock market train wreck. Nine months later the Dow was down about 45 percent from Jims exit point; the Standard & Poors 500 index had fallen by 50 percent. If he hadnt gotten out, Jims losses, depending on when he bought his stocks, would probably have been enormous. In the meantime, Jim has also gotten out of an irredeemable paper currency that has lost 96 percent of its purchasing power under the Federal Reserve Systems mismanagement. He has established a position in the worlds longest lasting form of money. And he has done so at a time when the conditions that will drive the dollar lower and gold much higher are accelerating, as you will discover in this book.
The future of the dollar has already been determined. It doesnt depend on whether Democrats or Republicans are in charge. About the same time that Jim realized the dollar was in big trouble, I agreed on the air with Senate majority leader Harry Reid that the fiscally reckless Republicans did need to be thrown out of office. But I also said that with his bunch in charge it would still be spend, Spend, SPEND! He ducked the issue. Said something about everybody in Washington needing to work together to get things done.
Get things done? Havent these people done enough?
In the months after the election of President Obama, Americans were losing jobs at the rate of 22,000 a day; from January 2007 through the first quarter of 2009, theyd lost 5.1 million jobs; 13.7 million Americans were out of work and 32.2 million Americans were on food stamps.
