Betting Against the Fed

  • Never in human history has “fake” money like the fiat U.S. dollar survived…
  • It’s tempting to think the Fed can keep up the game forever…
  • But the evidence suggests the dollar’s days are numbered…
  • Which means you need to protect the wealth you build from inflation by buying gold.

Dear Reader,

For more than a decade I traveled the world looking for gold and silver mines. It was an incredible education, working with Frank Crerie to take these mines public. 

I remember looking at the side of a hill in the Peruvian Andes at a line of holes, small gold mines, and following a gold vein in that hill. My mining geologist told me those tiny holes produced gold for the Incas, long before Francisco Pizarro arrived from Spain, killing their leaders and then stealing their gold.

One of our most successful mines was an old silver deposit in a remote part of southern Argentina. Our group took that mine public on the Toronto Stock Exchange when silver was less than $3 an ounce. We did very well once silver broke $7 per ounce. 

Today, silver bounces at around $15 an ounce. Too bad we sold at $7!

Our biggest acquisition was an old mine in China. We got the Chinese mine for “nothing down.” The agreement was that the Chinese government would give us the mine if we would raise money by taking the company public on the Toronto Stock Exchange, which we did. 

The good news is that we found a massive deposit. Millions of ounces, “proven.” For about a year, we knew we were billionaires. Our Chinese goldmine had a Spanish portmanteau: Mundoro Mining, or a world of gold.

Then one day, a government official notified us that the Chinese government was not going to renew our business license. Today, that mine is in the hands of friends of the Chinese elites, who are billionaires.

The lasting impression left by my years of searching for gold was just how lasting it’s value has been throughout history.

From the time of the Incas, when the Spanish stole that treasure… to our era when the Chinese stole mine. Humans have always valued God’s money. And they will continue to. 

But at the same time, we’ve lost our way by putting to much faith in fiat money. 

Why do we trust people we don’t even know? Why do we believe the elites just because they write the words “In God We Trust” on our fake money?

In fact, we have every reason not to.

Look at this chart below: 

Gold vs Fake Money

Now, look at the chart of what happens to fake money, when our leaders print more fake money.

Why Savers Are Losers

The bad news is, never in human history has fake money survived. 

Which means, the odds are that all of today’s paper money will return to its true value: zero.

Savers Are Losers

Many people believe it’s smart to save money. The problem is that today, “money” is no longer money. Today, people are saving counterfeit dollars, money that can be created at the speed of light.

In 1971 President Nixon took the U.S. dollar off the gold standard, and money became debt. The primary reason why prices have risen since 1971 is simply because the United States now has the power to print money to pay its bills.

Today, savers are the biggest losers. Since 1971, the U.S. dollar has lost 95% of its value when compared to gold. It will not take another 40 years to lose its remaining 5%.

Remember, in 1971, gold was $35 an ounce. Today, it’s $1,830 an ounce. That’s a massive loss of purchasing power for the dollar. The problem grows worse as the U.S. national debt escalates into trillions of dollars and the U.S. continues to print more “counterfeit” money.

As the Federal Reserve Bank and central banks throughout the world print trillions of dollars at high speed, every printed dollar means higher taxes and more inflation. Despite this fact, millions of people continue to believe saving money is smart. It used to be smart when money was money.

The biggest market in the world is the bond market. 

“Bond” is another word for “savings.” There are many different types of bonds for different types of savers. There are U.S. Treasury bonds, corporate bonds, municipal bonds, and junk bonds.

For years, it was assumed that U.S. government bonds and government municipal bonds were safe. Then the financial crisis of 2007 began. As many of you know, the crisis was caused by mortgage bonds such as mortgage-backed securities, a type of derivative asset. Millions of these mortgage bonds were made up of subprime mortgages, which were loans to subprime or high-risk borrowers. 

You may recall that some of those borrowers had no income and no job. Yet, they were buying homes they could never pay for.

The Wall Street bankers took these subprime loans and packaged them into bonds, magically got this subprime bond labeled as prime, and sold them to institutions, banks, governments, and individual investors. 

To me, this is fraud. But that is the banking system.

Once the subprime borrower could no longer pay the interest on their mortgages, these bonds began blowing up all over the world. 

Interestingly, it was Warren Buffett’s firm, Moody’s, that blessed these subprime mortgages as AAA prime debt, the highest rating for bonds. 

Today, many people blame the big banks, such as Goldman Sachs and J. P. Morgan, for the crisis. Yet if anyone should be blamed for this crisis, it should be Warren Buffet. He is a smart man, and he knew what he was doing. Moody’s was blessing rotting dog meat as Grade A prime beef. That is criminal.

Is China the Biggest Loser of All? 

China could be the biggest loser of all. China holds a trillion dollars in U.S. bonds. Every time the U.S. government devalues the dollar by printing more money and issuing more bonds, the value of China’s trillion-dollar investment in the United States goes down. If China stops buying U.S. government bonds, the world economy will stop and crash.

Millions of retirees are just like China. Retirees in need of a steady income after retirement believed government bonds were safe. Today, as governments, big and small, go bust and inflation rises, retirees are finding out that savers who saved money in bonds are losers.

Bet on Gold and Silver

As the dollar declines in value, I’m betting on gold and silver instead of dollars.

Take the example of the German Weimar-government marks that became utterly worthless just before World War II. As one story goes, an elderly woman was pushing a wheelbarrow full of marks to buy a loaf of bread. When she turned her back, someone stole the wheelbarrow and left the pile of worthless money all over the street.

That’s why most money today is known as “fiat” money, money that cannot be converted to something tangible like gold or silver. The money is only good as long as people have confidence in the government backing it.

Today, much of the global economy is based on debt and confidence. As long as we all keep holding hands and no one breaks ranks, everything will be fine. 

By the way, the word “fine” is my acronym for “Feeling Insecure, Neurotic, and Emotional.”

Don’t get left holding the bag. 

Play it smart,

Robert Kiyosaki

Hard Assets Alliance was created as a cooperative of investment professionals who believe there's a better way to invest in precious metals. This is a guest perspective on the markets from one of these partners; we hope you enjoy it.