Editor’s note: The following is a guest commentary from one of WND’s sponsors, Kevin DeMeritt, president of Lear Financial. If you would like to learn more about investing in precious metals, take advantage of the free information Lear Financial is making available to WND readers.
The entire concept of paper currency was born when people tired of toting around things of actual value – heavy, clumsy bars of gold or silver, for example – in favor of a convenient “receipt.”
At first, this paper receipt was fully redeemable in the gold and silver it represented, as is consistent with the very definition of the word “receipt.”
But, as time went on, the receipt itself became confused with money. There were fewer actual redemptions in precious metals, and economies were able to function entirely on the “good faith” of the receipt. It didn’t take long, however, before the receipt – or currency – got further and further away from its precious metal backing. It was in 1934, for instance, when the dollar stopped stating that it was “redeemable in gold.”
Now, in 2002, the transformation is nearly complete. It’s estimated that, at best, there’s a mere 1 percent of gold backing the trillions of dollars here and abroad. In days past, this really wasn’t much of an issue. The United States was the recognized economic powerhouse in the world, and the dollar was the unquestioned symbol of this power, honored in virtually every corner of the planet.
But, sadly, our nation’s prestige has withered over recent years. Like many of the third world countries we continue to bail out, America is now a debtor nation. And not by some modest technical definition. Debt now constitutes a whopping 60 percent of our Gross Domestic Product, or some $5 trillion dollars. It’s nearly enough to qualify America for a credit rating downgrade, as has happened to the formerly strong economies of Japan and Brazil. And there are beginning to be serious consequences.
Foreign investors are starting to crowd the exits. With no detectable measures being taken to reduce our debt and with our once-glorious stock market now foundering on the rocks, foreign investors perceive that America isn’t the only game in town. Which is a pretty scary thing.
It’s estimated by economist Kurt Richenbacher that foreigners have approximately $9 trillion in dollar-denominated assets. So, if these investors continue to exercise their right to invest elsewhere, into investments that aren’t dollar-denominated, the ensuing flood of dollars could mean a 20 percent or more reduction in the value of the greenback by this time next year. Clearly, the aura is off the dollar.
And now that the aura is off, nothing is preventing the dollar from being coldly evaluated on its own merits, such as they are. Unlike the euro, which is backed by 15 percent gold, the dollar can boast no such credential. When it’s all boiled down, just to compete with the euro on the basis of gold backing alone, the dollar would have to depreciate by an unthinkable 90 percent. And that’s assuming the dollar actually has that 1 percent gold backing. Some reports claim that 80 percent of the 280 million ounces of gold is no longer even here in the country!
What we’re seeing here is the concept of money gone full circle. Having endured a shrinking dollar for the better part of the 20th Century, American citizens are now about to suffer the final insult: their purchasing power watered down a further 20 percent or more by the trillions of dollars foreigners are now handing us back. So, now that these “receipts” have betrayed our trust, the more astute of us are returning to the things of actual value that the receipts represented, meaning gold.
The way the situation is shaping up, gold is going to be in monstrous demand over the coming years. Governments are going to want it to inspire confidence in their currencies. Banks are going to want it to bail out of their horrendous derivative positions. Citizens are going to want it to maintain their shrinking purchasing power. And investors are going to want it because its price will absolutely skyrocket. Meanwhile, South Africa, the world’s largest gold producer, has announced that its output has dipped to its lowest level since 1954, reflecting the fact that gold mining production the world-over is nearing an all-time low.
Get the picture? If you do, it’s time you traded some of those “receipts” of yours back into the precious metals they used to be redeemable in. But you need to do it now. That sound you hear is the sound of foreign investors selling off their dollar-denominated investments. So, for the time being at least, it’s smarter to put some real value back into your portfolio, instead of into the paper that merely represents it.
With more than 20 years of industry experience, Kevin DeMeritt is president of Lear Financial, one of today’s fastest growing and most successful precious metals investment firms.