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Fool's Gold

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Message Michael Fox

A few months ago, I wrote about what I call the Weimar Dollar (the dollar as nearly worthless currency).  I elaborated on this by defining the peculiar economic combination of depression, inflation, and global famine occurring simultaneously.  The theory is becoming reality under the reckless stewardship of Fed chairman Ben Bernanke and Treasury Secretary Henry Paulson.  In an excellent column on the state of the dollar, Brother, Can you Spare $10,000, economist Peter Schiff writes that

 “…Bernanke blames the [Great] Depression on the Fed not printing enough money. Had the Fed done precisely what Bernanke now thinks they should have, the Great Depression would have been much worse. Had the Fed tried to re-inflate the stock market bubble or keep it from bursting in the first place, it's the dollar that would have collapsed, and Depression-era America would have looked liked Weimar Republic Germany. As bad as the Great Depression was, hyperinflation would have made it even worse.The good news is that there is still time to alter course and steer clear of both hyper-inflation and depression. The bad news is that if we remain on our current course that is precisely where we will end up.”

Unfortunately, it is the latter scenario playing out with Bernanke and Paulson in charge.  Thus far, their answer to everything has been precisely the wrong one: printing more money.  Whether it’s the “incentive” giveaway of $600 per taxpayer, or the securing of under-collateralized junk “securities”, or the bailout of Bear Stearns, every month they are printing more – and increasingly less valuable – money.  Mr. Schiff expresses some doubts about the New Deal programs of the 1930s, based on the idea that we can’t afford them today.  I would suggest that we can’t afford them because of our ridiculous expenditures in the black hole that is the military-industrial complex.


A pointless war rages on, costing another few hundred billion dollars a year, no end in sight and recently estimated at $3 trillion and counting – more funny money, because it”s entirely funded by extra-budgetary supplementals.  Ostensibly, this war funding is coming from treasury notes sold to foreign countries, but the loans have to be repaid, and it seems that the idea is to make the dollar so valueless that paying back a few trillion won’t be a problem (if a loaf of bread costs a million dollars, those bonds will be easy to pay back, no?)


So what can you do to hedge against this?  Precious metals, especially platinum and gold. But remember, if anyone thinks saving coins qualifies, they don’t (unless they’re very old).

 Valueless Money

Today’s dollar coins have been around for several years, though they’re not widely used, due to the fact that vending machine operators have generally been slow to transition to them.   Silly thing, really, since nary a coin laundry in the country takes less than a dollar for a load, so everyone is still spilling dozens of quarters to do their wash.  Those quarters, of course, are made of nickel-plated copper (not a micron of silver since 1965).  Pennies, it seems, are the most valuable coin in circulation, as they are still solid copper, and each one contains 4¢ worth of copper at the present value.  And these “Golden dollars”?  Fools Gold! While they look like gold, of course they aren’t – not a drop.  They’re made of an alloy of 88.5% copper, 6% Zinc, 3.5% Manganese, and 2% Nickel.  Worthless coins representing a nearly worthless currency, a currency that is being made less valuable by the day by the very entity that issues it.


Passing the gas stations on the way home, I noticed one number jumping out at me from every corner: $3.999 for self-serve Supreme – at Chevron, at Exxon, at Shell, at BP – every one of them is ready to make the next leap, but they’ve log-jammed in the steady upward price adjustments – just 1/1000 of a dollar under the landmark we all knew was coming.   But it’s only April, and the real gutting usually comes in June, and then I realized that they’re aiming for $5 by summer.  Let me remind you that 91-octane gasoline was $1.17 when Bush was inaugurated.  It has gone up – thus far – by 250% in these 7 years.  That is the hyperinflation.   


Has your income gone up by 35% each year?  Of course not.  Still, hundreds of consumer products cost a fraction of what they once cost.  Cashmere sweaters for $60!  Laptop computers for $400!  How?  Because you or someone like you may not even have your job anymore.  If you’re not employed, nothing is affordable, even at declining prices.  And with fewer products made here, that is the story for more and more workers.  That’s the depression.  


So never mind what the Fed prints or the Mint coins.  Focus on the real stuff.  Silver, gold, platinum, these commodities may fluctuate, but they have maintained an overall upward trajectory beside both the dollar and the euro.  And you will need the real metal [bullion] coins – not the worthless alloys – when all this plays out. 

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Michael Fox is a writer and economist based in Los Angeles. He has been a corporate controller, professor, and small business entrepreneur. After a life-altering accident, he spent five years learning more about medicine and the healthcare (more...)
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