Are You Ready for the Golden Revival?
March 2, 2009 by Bob Livingston
Congress has passed a $787 billion spending bill aimed at—congressional Democrats said—stimulating the U.S. economy. But it won’t stimulate anything other than the green ink and paper industry. Because it is an excuse for the Federal Government to turn its money-printing presses on full speed and keep them running 24/7.
This type of stimulus package is doomed to fail. The French tried something similar in the 18th Century when John Law was retained to advise the government in economic policy. He advocated that money was credit and credit was determined by the needs of trade. Therefore, the money in existence is determined by the supply of credit in the economy rather than the imports of gold or in trade balances. So Law proposed the establishment of a state-chartered bank with the power to issue unbacked paper currency. Sound familiar?
Within four years France’s Banque Générale collapsed following a run on the bank, and France and the rest of Europe were plunged into a severe economic recession. The result of Law’s banking schemes so traumatized the French people that until recently the very word “banque” was anathema to the French financial community.
A similar experience hit Germany in the early part of the 20th Century. From 1918 to 1923, the Weimar Republic began printing money at a dizzying rate, setting off hyperinflation. Prices were rising so fast that workers receiving their pay would immediately run to the store to buy foodstuffs before prices climbed again. In trying to keep up with the falling currency rate, Reichsbank printed a 1,000-billion Mark note that was so worthless that when it was spent few bothered to collect the change. By 1923, with one dollar equal to one trillion Marks, the collapse of German currency was complete.
Fast forward to 2009 in the United States. Less than a year after the Fed authorized spending $850 billion to spur the economy the Congress is already doubling the spending. Where does the money come from? Thin air.
It is fiat money, based on nothing. And it dooms the country to an economic collapse.
There’s one way to prepare yourself, and you need to begin immediately. Buy gold, as its value is about to soar! How do we know? We use history as our guide.
At the peak of the bull market in the 1920s, the Dow Jones Industrial Average was more than 20 times higher than the price of gold. When the market crashed it bottomed out at about 36, roughly a 1-1 ratio with the price of one ounce of gold. The next boom came in 1966, and again the Dow was worth 20 times the price of one ounce of gold. When the bottom of the next recession hit the Dow was worth about 850 points and gold was about $850 per ounce.
Next came the bull market that began in 2003. The Dow peaked at 14,164.53 on Oct. 9, 2007. That month gold hit $750 per ounce, which was Dow-to-gold ratio of almost 19-1. Since then the Dow has lost almost half its value and gold is climbing. Look what gold can do as it approaches a 1-1 ratio.
Gold doesn’t even have to reach a 1-1 ratio to give spectacular returns. Consider, with gold at $940 and Dow at 7,000, the ratio is at 7-1. Even if the Dow contracts another 1,000 points, gold at 3-1 would more than double in price to $2,000.
It’s difficult to argue with history, but if you’re still afraid to go with gold you have an alternative. Buy stock in green ink.