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Wednesday, November 24, 2010

The Dollar Meltdown: Surviving the Impending Currency Crisis with Gold, Oil, and Other Unconventional Investments

Imagine an ice cube on an asphalt roadway in the mid-summer heat, quickly melting away to nothing. That’s a good way of thinking about what government policy has been doing to the value of our money. In The Dollar Meltdown, investment adviser and former radio talk-show host Charles Goyette explains why the dollar is melting away and offers sound advice for people who prefer that their wealth avoid the fate of that ice cube.

Goyette begins by noting that while the federal government has been going through money like a drunken sailor for decades, the last ten years have been simply devastating. In 2004 Congress had to raise the government’s debt ceiling to over $8 trillion. The increase in federal debt just in the first three years of the Bush II presidency was two and a half times greater than the total debt the government had accumulated from 1776 to 1980. Gold, which Goyette calls the canary in the coal mine, rose to $442 per ounce with that increase. Of course, the politicians could not restrain their appetite for spending and in 2006 Congress once again had to raise the debt ceiling (not much of a ceiling!) to $9 trillion. Gold had risen to $554 by then.

That was not a mere coincidence. Gold’s price is a referendum on the expected trend of fiat money—the dollar. Gold has been over $1,200 lately, indicating that confidence in the value of the dollar keeps falling. Goyette shows that there are good reasons why people are losing confidence. When the stock market plunged and financial markets hit the panic button in September 2008, President Bush asked his advisers, “How did we get here?” Goyette provides an explanation that even an airhead politician should be able to understand.

Our political and media elites, confused and desperate over the economic debacle, advanced the notion that the culprit was “deregulation.” Goyette gives that self-serving falsehood the back of his hand, showing that the problem was rooted in massive government intervention in the economy, with meddling in the housing market most prominent. He has a great talent for colorful analogies, writing, “Like pirates whose fake lighthouses drew hapless ships to plunder, political pirates distort otherwise self-regulating economic activity with laws and regulations aimed at winning favor among specific beneficiaries.” Politicians—and Goyette correctly holds both major parties to be equally guilty—make off with the booty of campaign support, special interest groups enjoy the subsidies and other favors bestowed by the politicians, and the rest of us suffer the harm.

Bad as the “official” federal debt is, Goyette informs the reader that the situation is actually much worse. The government would need to set aside over $99 trillion to cover just the anticipated shortfall in its spending plans—that’s over and above the current taxes (including Social Security “contributions”) the government collects. Paying for all the megastate’s promises is, Goyette accurately says, “insurmountable.”

But of course the politicians will try, and the time-honored method for governments to pay excessive debts is through inflation. Goyette knows his monetary history and observes that monarchs have resorted to monetary debasement, such as making coins from cheap metals and printing up vast amounts of irredeemable paper money, for more than 2,000 years. Inflation, he instructs the reader, means that the supply of money gets inflated, leading to generally rising prices. Knavish government officials may say that the causes of inflation are mysterious—Goyette quotes some astounding nonsense spoken by one of Jimmy Carter’s top economists on how inflation is somehow “society’s” fault—but misleading ordinary people while looting their wealth is one of the things governments are best at.

Another excellent feature of The Dollar Meltdown is the way it disabuses readers of the foolish notion that the government does all its spending and inflating for the good of the people. Consider this sentence: “Ultimately the survival of the government and the governing classes (at least in the reckoning of those in charge) trumps the resilience of the economy and the well-being of the people.” Devastatingly accurate. The State’s depredations against us will continue as long as most citizens continue believing that the State acts to serve them. Goyette tells them that it’s a gigantic lie.

If you want a good, easy-to-read explanation of gold, fractional-reserve banking, the Federal Reserve, and the nasty side-effects of the politicization of money, this book is excellent. And if you already understand all that and desire good advice on how to protect your wealth when the government means to expropriate people to the fullest, it provides that, too.

  • George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.