The Case for Gold Book Review

The Case for Gold by Ron Paul

The Case for Gold
By Ron Paul and Lewis Lehrman
The Ludwig von Mises Institute 2007
221 pages. $25.00

Originally published in 1982, The Case for Gold might well have been written in 2010. For the historical and economic realities facing the U.S. at the present time are almost identical to those of the 1980s. Economic prosperity and political freedom are at stake.

In his foreword to the book, Ron Paul says, “This report was written to demonstrate as clearly as possible the choices available to us: political (paper) money or commodity (real) money.”

He begins by discussing the present monetary crisis, which – remember – was the recession of the early 1980s. Paul examines Nixon’s decision to close “the gold window” in 1971. During the ten year period following that decision, retail prices “more than doubled.” Interest rates doubled, while business and personal bankruptcies more than doubled. Real wages went down and unemployment went from 5.5% to 8.9%. Paul’s conclusion is simple: “the Federal Reserve’s discretionary policy of the last several decades has been the cause of our inflation.” In other words, paper money has not only failed. It has failed splendidly.

In chapter two, Paul presents the history of money and banking in the U.S. prior to the 20th Century. He points out that “apart from medieval China, which invented both paper money and printing centuries before the West, the world had never seen government paper money until the colonial government of Massachusetts emitted a fiat paper issue in 1690.” Within a year, the new paper pound depreciated by more than 40%. By 1740, all the colonies – except for Virginia – did the same thing. They started printing paper money. In each instance, the result was identical. “Dramatic inflation, shortage of specie, massive depreciation.” Later, after learning the hard way, the colonies returned to specie, which “occasioned remarkably little dislocation, recession, or price inflation.”

This is precisely the point Paul is trying to make. Going back to hard money is relatively painless. All the previous imbalances are done away with and things return to a healthy normal. As Paul proceeds through his masterful history of money and banking, it becomes obvious that paper money doesn’t work. Fiat currency is inflationary and produces boom bust cycles with devastating regularity.

Chapter three picks up the natural chronology, providing a look at money and banking in the U.S. in the 20th Century. According to Paul, the bankers “had long chafed to cartellize the banking industry still further.” The National Banking System was good, but not good enough. The bankers wanted an even more centralized system. They got their druthers with the Panic of 1907. The Federal Reserve System came into being in 1913. And even though the U.S. was still formally under a gold standard, “the banking systems would now be pyramiding on the U.S. issue of paper money.” Reserve requirements for the banks were chopped in half under the Fed. This meant, as Paul says, “the Federal Reserve was designed from the very beginning to be an instrument for a uniform and coordinated inflation of bank money.”

And that’s exactly what happened. Between 1922 and 1928, bank credit doubled, which caused “speculative excess.” By 1928, the government became alarmed and tightened the money supply, which caused the Depression. Then in 1931, England went off the gold standard. A move that shook the international community. Shortly thereafter, FDR took America off the gold standard.

Paul points out that Bretton Woods, which was supposed to “restore the currency stability of the gold standard,” didn’t, because “it was designed to do so without gold.” In 1971, everything came to a head. Most of Europe let their currencies float, which caused an “unnatural economic imbalance.” Speculators “began betting against the dollar.” The dollar declined rapidly. And on August 15, 1971, Nixon declared “international bankruptcy.” According to Paul, “there were now absolutely no checks on the ability of the United States to inflate.”

In his conclusion to chapter three, Paul bluntly states, “our historical experience illustrates the overwhelmingly superior case for the gold standard as against any form of paper standard.”

‘The case for the gold standard’ is the topic of chapter five. Paul cites many economic reasons why the gold standard makes sense. They include low interest rates, which would accelerate “real economic growth;” increased savings; the revival of long-term financing; reduced federal deficits; full employment; price stability; and “enhanced international trade.”

Paul cites the common objections against a gold standard: there is not enough gold; the principal producers of gold (the Soviet Union and South Africa) would benefit inordinately; the gold standard causes panics and crashes; the gold standard causes inflation; and a gold standard encourages irresponsible speculation. He shoots each objection down in flames, quoting experts and providing hard numbers to do so. His case is persuasive.

In chapter six, Paul outlines the transition to monetary freedom. He gets right to the point in his first sentence. “Our present monetary system is failing.” Then he lists the specific reforms required to implement the transition. Monetary legislation, which includes legal tender laws, a definition of the dollar, new coinage, the removal of central banking, along with guidelines for auditing, inventory control, assaying, and the abrogation of confiscation.

Budget reforms, taxation reforms, and a restructured regulatory system would also be necessary. Paul touches on each one, hitting the high points. He also suggests a constitutional amendment “to reaffirm what the Constitution says.” After that, he outlines the effects of the transition process on six sectors of the economy. He admits “those companies that have been subsidized by the government will suffer most from a movement toward freedom.” After these initial birth pangs, “the transition to a gold system will bring increasing prosperity, real growth, lower unemployment, higher real wages, and greater capital investment.”

You can’t ask for more than that.

The Case for Gold is a tremendous book. Ron Paul’s case is so cohesive and so powerful that it is impossible to refute. Unfortunately, because the book is a combination of history and economics, most people will eschew it. Which is a shame. It should be mandatory reading for all members of Congress and all college students.

On the Read-O-Meter, which ranges from 1 star (deplorable) to 5 stars (triumphant), The Case for Gold receives 5 gold stars.

Tags: gold-investing

Precious Metals Investing for Dummies Review

Precious Metals Investing for Dummies

Precious Metals Investing for Dummies
By Paul Mladjenovic
Wiley Publishing 2008
319 pages.  $24.99

Years ago, Wiley Publishing came up with a great idea for a series of books.  They called their series of books “For Dummies.”  And each book provides fundamental knowledge about a popular topic.  The books are written by experts who get to skip all the hoity-toity language and “industrial jargon.”  In other words, the authors write solely to inform their readers.  Which means the books are easy to read and get right to the point.

Precious Metals Investing for Dummies is divided into five major parts:  breaking down precious metals; mining the landscape of metals; investing vehicles; investment strategies; and the part of tens.

Part one gives a brief history of precious metals.  The author discusses the track records of gold, silver and other precious metals.  Then he talks about bear markets and bull markets, and the circumstances that affected them in the recent past.  This is followed by an explanation of the differences between investing, trading, and speculating.  The author – Mladjenovic – obviously prefers speculating, but carefully cautions readers about the pitfalls of speculation.

The third chapter tells investors why they should consider including precious metals in their portfolios.  The primary reason is as an inflation hedge.  It’s a fairly safe place to put your money.  Chapter four informs readers of the various risks associated with investing in precious metals.  There are physical risks (storage), market risks, exchange risks, political risks, and fraud risks.  Mladjenovic points out that the risks may be minimized by means of knowledge, discipline, patience and diversification.  He also suggests no more than 10% of your money in “in any single vehicle.”  Nevertheless, risk is present in any investment, precious metals or any other type.

Part two discusses the supply and demand aspects of gold, silver and other precious metals.  In other words, the author talks about why investing in precious metals makes sense from a market standpoint.  There are a number of different ways to invest:  bullion, futures, stocks, mutual funds and ETFs.  Each method is presented and analyzed.

Uranium gets its own chapter, which is unique, because most guides don’t even touch on uranium.  From 1980 to 2000, uranium went down, down, down in price.  Then in 2000, it began an “impressive and uninterrupted climb to $138 per pound by the spring of 2007.”  Mladjenovic likes uranium because of “the imbalance between supply and demand.”  And he notes that the demand increases when the price of oil goes up.  In Mladjenovic’s opinion, the safest route for investors to get into uranium is “through ETFs,” of which there are two.  Both are excellent, according to the author.

The next chapter considers base metals as potential investments.  Copper, nickel, aluminum, zinc, lead and a host of others are discussed.  As far as base metals are concerned, Mladjenovic suggests mining stocks for most investors or – perhaps – options, because the investor can choose the level of aggressiveness.  He thinks futures are very risky due to their volatility.

Part three takes a look at investing vehicles, including physical ownership, paper assets, and numismatics.  The author prefers bullion for both gold and silver.  To that end, he provides a list of reputable bullion dealers.  And although he does not disapprove of numismatics and collectible coins, he admits these vehicles require “a good understanding of the coin market.”  Therefore, he advises sticking to those series “that have a large popular market since it will make” them easier to buy and sell.

Mining stocks are covered next.  Mladjenovic informs readers “that the behavior of a stock in the short-term is irrational.”  So investors need to be patient and “focused on the longer term.”  When choosing a mining stock, Mladjenovic, along with every other investment book, declares that the management of the mining company is of paramount importance.  And among mining stocks, the majors “are the safest bet.”

He then moves on to mutual funds and ETFs.  He sees both pros and cons to mutual funds.  But he “loves ETFs.”  He lists the pros and cons to ETFs, and the pros far outweigh the cons.  Yet he does state that “there is a unique risk with ETFs that specialize in the metal itself.”  Do they actually have the metal itself?

A lot of time and space is devoted to futures, including trading strategies:  going long, shorts and spreads.  If one is inclined to play the futures market in metals, he advises long-dated options (LEAPS), primarily because they give the investor more time to “work the market.” Options, too, are discussed in detail.  What options are is explained very well.  Mladjenovic advises buying puts on your own stocks to minimize the risk factor. And those who play options are told to be “patient.”

Part four of the book discusses investment strategies.  Strategy includes having a plan, deciding on a market, practicing with simulated trading, and choosing an outlook.  How to open an account with a broker is covered, along with “some considerations about CTAs” (commodity trading advisors).

The fifth and final part of the book is called ‘The Part of Tens.’  Mladjenovic gives 10 reminders about mining stocks, which are extremely logical and helpful.  Then he provides 10 rules for those investing in metals.  After that there are 10 rules for metal traders, and 10 ways to limit risk.  In each instance, the rules guide novice investors toward the ultimate goal – profit.

Precious Metals Investing for Dummies lives up to its title.  It provides rock-solid investment advice for individuals who would like to invest in precious metals, but are smart enough to realize they know nothing about it.  Mladjenovic is a wonderful writer and teacher.  And he isn’t afraid to display a sense of humor, which keeps the book fun.

On the Read-O-Meter, which ranges from 1 star (poor) to 5 stars (richly rewarding), Precious Metals Investing for Dummies receives 5 stars.

The Silver Pennies: An Investor’s Guide to U.S. Silver Stocks

The Silver Pennies: An Investor's Guide to U.S. silver stocks

The Silver Pennies:  An Investor’s Guide to U.S. Silver Stocks
By David Bond
The Silver Mining Journal 2005
123 pages.  $15.95

The Silver Pennies is a little book about a big, shiny subject – silver.  More to the point, it’s a book about the silver mining companies in Coeur d’Alene, Idaho.  During the 1990s there were as many as 130 mining companies registered in the area around Coeur d’Alene.  A few years later, only 30 companies remained.  And they weren’t doing much mining.  Because of depressed commodity prices, the others merged or vanished.

Then in 2003, the price of silver began to go up.  When that happened, mining picked up again in Coeur d’Alene.  The silver mines of Coeur d’Alene were ready for what David Bond – the author of the book – calls “the Silver Revolution.”

According to Bond, the Silver Revolution arrived because cell phones, medicines, water purifiers, microprocessors, automobiles, airplanes, rockets, and high-definition televisions don’t work without silver.  Which means silver is in demand.  And demand drives the price up.  For investors, this means opportunity.

After his brief explanation of the Silver Revolution, Bond moves on to “Geology and Mineral Deposits for Dummies.”  He furnishes a very basic and easy-to-understand lesson on geology.  The reader learns about Georgius Agricola, Leonardo da Vinci, and Nicholas Steno, all of who played a role in the evolution of the science of geology.  Bond does a remarkable job explaining the fundamentals of mining and mineral exploration.  Light is shed on some little known aspects of mining, many of which are revelatory.  For example, as a result of regulatory reforms, mining is “perhaps the cleanest resource business in the world.”  And as the author points out, evaluating the potential of mineral deposits is not only expensive but also time consuming.  “From the initial discovery, mining may begin in as little as 5 years, if all goes well.”  In some cases, “it can take up to 20 years or more until metals are produced.”

Essentially, the author provides one of the best primers on mining and mineral deposits available.  And it is all spelled out in just six pages.

The next section of the book is called “Evaluating a Silver Stock.”  Here, Bond discusses how silver companies are evaluated:  quantity of reserves, the number of ounces per share, the number of ounces divided by market cap, and leverage.  In Bond’s opinion, “comparing resources to reserves is an apples-and-oranges proposition.”  Another consideration in evaluating a silver company is how expensive is it “to extract silver from the muck at the mill?”  This question is answered by metallurgy.  Ore in the form of oxide or sulfide is easier to extract than more complex combinations of components.  And in mining, ‘easier’ is code for ‘a heck of a lot cheaper.’

As Bond points out, unless one has “advanced degrees in metallurgy, geology or geopolitics” it can be difficult to evaluate mining properties.  Thus, the average investor should rely on two factors:  location and management.  Regarding location, he believes the Coeur d’Alene Mining District fills the bill.  There is a large quantity of top-grade ore, which is accessible because of its shallow depth.  And as for management, Bond believes the simplest way to find out if the mine manager is any good is “to call them up and talk to them.”  And if possible, visit the mine and see what’s going on.  For Bond has no doubt that a good manager can take a mediocre mine and make it great.  Whereas a bad manager can cripple even a productive mine.

The next section of the book provides profiles of the active silver mining companies in the Coeur d’Alene Mining District.  Beginning with Alice Consolidated Mines and ending with Vindicator Silver-Lead Mining Company, Bond provides a snapshot of each company’s management, authorized shares, shares outstanding, market cap, and properties, along with a comment about the company’s pros and cons.  Included are bar graphs indicating each property’s 5-year price fluctuations and production volume.  Any investor interested in Pacific Northwest mining properties will find this information extremely helpful.

Bond also provides a list of Canadian Silver Penny mining companies.  He says these companies “offer exciting opportunities for enterprising investors.”  Those listed comprise “his favorites.”  He doesn’t go into any detail on these companies, but does provide their website addresses.  And he suggests contacting your broker for more information.

The final section of the book is an alphabetical listing of inactive mining companies in the Coeur d’Alene Mining District.  Anyone wanting to learn more about these inactive properties will find this list a handy reference tool.  Each company is listed according to its old name, its new name, its symbol, its reverse split stock ratio, and the date it became inactive.  This information is valuable because as the price of silver goes up, inactive mines are often revived.

Admittedly, The Silver Pennies has a narrow focus – the mines of the Coeur d’Alene Mining District.  This means the book will appeal to a specific group of investors, those interested in American silver mines located in the Pacific Northwest.  For those people, the book is a necessity.  For others, The Silver Pennies furnishes a compact and succinct handbook on the subject of silver mining.

On the Read-O-Meter, which ranges from 1 star (shoddy) to 5 stars (excellent), The Silver Pennies shines its way to 4 stars.

Tags: silver mining companies, silver stocks

The Case Against the Fed Book Review

The Case Against the Fed

The Case Against the Fed
By Murray N. Rothbard
Ludwig von Mises Institute  2007
158 pages.

In The Decline of the West, Oswald Spengler wrote, “With money-traffic there appears between producer and consumer, as though between two separate worlds, the third party, the middleman, whose thought is dominated a priori by the business side of life.  He elevates mediation to a monopoly and thereafter to economic primacy, and forces the other two to be ‘in form’ in his interest …  He who commands this mode of thinking is the master of money.”

And no, Spengler was not referring to the Fed.  But he very well could have been, for the Fed certainly fits the definition of a monopolistic middleman, who is the master of money.  Which is the subject of Murray Rothbard’s book – The Case Against the Fed.

Like many books, The Case Against the Fed starts out with an introduction.  But that’s where the similarity ends.  For Rothbard’s introduction is a real humdinger.  He gets right to his thesis, which is that the Fed is super-secretive, accountable to no one, has no budget, and is subject to no audit.  And whenever anyone broaches changing this situation, the “standard reply of the Fed and its partisans is that any such measures, however marginal, would encroach on the Fed’s ‘independence from politics,’ which is invoked as a kind of self-evident absolute.”

In other words, only by means of absolute power and no accountability can the Fed wage its holy war “against inflation.”   According to the Fed’s line of reasoning, the public is responsible for inflating the money supply.  Which means the Fed is all that stands between the public and the temptation of inflation.  In Rothbard’s opinion, “this mythology is the very reverse of the truth.”

Rothbard’s analysis and explanation of the real truth is wonderfully wrought.  “If,” says Rothbard, “chronic inflation is caused by the continuing creation of new money, and if [the Central Banking System] is the sole monopoly source and creator of all money, who then is responsible for the blight of inflation?”  The answer of course is “the Fed itself.”

This fact, according to Rothbard, explains why the Fed requires secrecy.  “If the public knew what was going on,” it would know that the Fed is “itself the heart and cause of the problem.”

After this blistering opening, Rothbard moves on to discuss how money and banking developed.  This discussion segues naturally into the ‘optimum amount of money.’  And as Rothbard demonstrates, “any quantity of money in society is ‘optimal.’”  Increasing the supply of money in a society is unnecessary and not beneficial.  Any increase that occurs is purely and simply inflation, which, in Rothbard’s opinion, is tantamount to counterfeiting.

Counterfeiting increases the money supply, which simultaneously pushes up the cost of goods and services and decreases the buying power of money.  The other thing counterfeiting does – and this is an important point – is put more money into the “hands of the counterfeiters.”  In other words, the people printing the counterfeit money get richer.

Rothbard points out that historically, there “have been two kinds of legalized counterfeiting.”  The first is government printed paper money.  The second is “fractional-reserve banking.”  And Rothbard’s explanation of fractional-reserve banking is one of the best around.  For it is simple and clear, eschewing technical jargon and convoluted models.

From there, Rothbard moves on to Central Banking, providing a brief history of how and where the concept came from.  Modern Central Banking came into existence with the Peel Act of 1844, which gave the Bank of England an “absolute monopoly on the issue of all bank notes in England.”  Rothbard illustrates how the Central Bank increases its reserves and those of its cartel members – by buying assets which are paid for by money pulled out of the air.  This fiat money expands many times, making all the banks rich.

As the reader makes his way through Rothbard’s explanation, he is torn between admiration and shock.  On the one hand, such audacity has to be admired.  What a simple and effective way to get rich – by making something (money) out of nothing.  On the other hand, it is shocking that such trickery is condoned.

Rothbard then proceeds to relate how the Central Bank concept came into being in America.  The primary factor – says Rothbard – was Wall Street bankers, who became disgruntled with the National Banking System.  Essentially, the National Banking System “was not centralized enough.”  Which meant that the money supply “couldn’t be increased fast enough to suit the banks.”

The Morgan and Rockefeller groups began manipulating the situation politically, and – eventually – the Federal Reserve System came into being “at the plush Jekyll Island retreat.”  The year was 1911.  In 1913, the Federal Reserve Act was passed.  The big bankers got their way.  They had a “lender of last resort,” which was code for a Sugar Daddy who would allow them to inflate the money supply.  In effect, the Morgan banking group was now running the monetary system of the U.S.  Later, as a result of the New Deal, the Rockefellers took over, according to Rothbard.

In the final section of The Case Against the Fed, Rothbard describes how the Federal Reserve System methodically pyramids “credits and deposits on top of their initial burst of reserves.”  And anyone who bothers to read Rothbard’s lucid explanation is forced to conclude that the Fed does as it pleases.  And what it pleases to do is inflate the money supply.

Rothbard’s answer to the whole fiasco is simple:  “return to gold and to abolish the Federal Reserve, and to do so at one stroke.”  All that is lacking is the will to do so.

The Case Against the Fed makes a cogent and irrefutable argument for the dissolution of the Federal Reserve System.  Rothbard’s writing style is contemporary and easy-to-digest.  His mastery of the subject matter is obvious.  His illustrations are logical and rational.  His recommendations are sensible.  One can only hope his words do not fall upon deaf ears.

On the Read-O-Meter, which ranges from 1 star (deficient) to 5 stars (gifted), The Case Against the Fed makes a case for 5 stars.

Tags: case against the fed, fed

Rich Dad’s Prophecy: Why the Biggest Stock Market Crash is Still Coming

Rich Dad's Prophecy

Rich Dad’s Prophecy:  Why the Biggest Stock Market Crash is Still Coming…and How You Can Prepare Yourself and Profit from It!
By Robert T. Kiyosaki
Business Plus 2004
286 pages.  $15.99

Robert T. Kiyosaki cranks out books like a well-oiled machine.  At a guess, there are probably ten to fifteen books in his Rich Dad series.  And in most of them, Kiyosaki performs at least a few small feats of financial prophecy.  Rich Dad’s Prophecy is – as the title indicates – all about prophecy.  Kiyosaki puts on his mantle and turns it loose.

In a nutshell, his prophecy is that around 2016 the bottom is going to fall out of the stock market.  When it does, the crash will be heard around the world.

Rich Dad’s Prophecy is divided into two major sections.  Section one, which is called ‘Is the Fairy Tale Over?,’ explains why Kiyosaki predicts the coming stock market crash.  Section two, which he calls ‘Building the Ark,’ sets forth a way to survive the crash predicted in section one.  In other words, section two is a survival manual for the financial end of the world.

Kiyosaki starts out by saying, “This is not a gloom and doom book.  It is really a gloom and boom book.”  Translation:  bad days are ahead, but they can turn out to be the best days ever if you plan ahead.

According to Kiyosaki, a law passed in 1974 will provoke the stock market crash of 2016.  He calls it “the law that changed the world.”  It’s called ERISA, which stands for Employer Retirement Income Security Act.  Supposedly, the act was passed to protect the retirement accounts of employees.  In reality, Kiyosaki declares that ERISA transferred the expense of retirement “from the employer to the employee.”  Because of this transfer, Kiyosaki predicts that those employees who religiously put money in their retirement accounts (401k) will – when the crash occurs – do the wrong thing.  They will panic and sell, sell, sell.  Why?  Because “they will react as most untrained investors react.”

In the next chapter, Kiyosaki asks the question, “Are you ready to face the real world?”  In the real world, getting a good job and saving for retirement will not provide enough money for “at least 80 percent” of baby-boomers to retire on.  In the real world, the government cannot afford to provide financial and medical support for over 150 million people.

Kiyosaki believes that the nightmare is already beginning.  Since March of 2000, the stock market has deflated.  He believes the market will rebound, then go bust, then rebound, then go bust.  Eventually, the stock market will not be able to rebound.  It will crash.  The reason this cycle will occur is financial assumptions.  Too many workers assume their retirement plans, along with Social Security, will be enough to live on during retirement.

At the end of chapter six, Kiyosaki summarizes the three reasons the crash of 2016 will take place.  First, “there will be a market sell-off caused by baby-boomers converting to cash.”  And this sell-off will occur because people do not understand or trust their financial assets.  “Most people today do not naturally feel secure with mutual funds and stocks.”  They want and trust cash.

The second reason is “the cost of living and medical costs will go up.”  People need money to live on, so they will sell their mutual funds.  And the third reason is “the number of fools will increase.”  People will make bad decisions in how they handle their money.

Kiyosaki moves on to chapter eight, where he says that ERISA and the “coming giant crash are really only the symptoms of a much deeper problem.”  Put simply, the problem behind the problem is “we now have too many people who have come to expect the government to solve their problems.”

According to Kiyosaki, all the aforementioned factors are coming together to form “the perfect storm.”  The warning signs of the coming storm can be seen in the rising costs of medical care, increased terrorism, Japan’s precarious financial condition, the rise of China as the world’s largest economy, the aging of the world’s population, the obsolescence of Wall Street, and the failure of Big Corporations.

Having stated his prophecy of doom, Kiyosaki proceeds to his second major theme – how to build an ark.  And he immediately warns “if you plan on building a big rich ark for retirement, you may have to let go of many of the traditional middle-class values.”

The first step in building an ark is to develop “your own financial statement.”  This will allow you to determine whether your present investments/assets provide cash flow or should be labeled as “fool’s gold.”  In other words, “is your money working for you?”  The second step involves examining your “level of thought when it comes to money.”  In effect, this is your fear factor.  Kiyosaki recommends analyzing your thoughts.  “Are they based on fact or fear?”  The implication is that most ‘thought levels’ about money are based on fear.  Once the fear is exposed, a new sense of freedom takes place.

The next step toward building an ark is to get rid of your excuses.  Once you rid yourself of excuses, you can commit time to building your ark.  This involves investing in business, real estate and/or stocks.  Make a list of pros and cons.  Decide which avenue suits your personality and preferences.  Then build it, using a team of professional advisors.  However, be the captain of the ship.  Don’t let your advisors make the final decision.

Kiyosaki’s final word of advice for building your ark is to “invest in yourself.”  This includes education, health, recreation, etc.

Whether or not Kiyosaki’s prophecy of a gigantic crash in 2016 is true or not, most of the advice he gives in Rich Dad’s Prophecy appears to be sound.  And although he doesn’t provide specific investment advice, he does provide a plan of action.  Which is probably what most people need.  Essentially, then, Rich Dad’s Prophecy is a motivational book.  It’s designed to get people thinking about their financial future.  And after they think about it, Kyosaki gives them a push in the right direction.

On the Read-O-Meter, which ranges from 1 star (not worth your time or money) to 5 stars (not to be missed), Rich Dad’s Prophecy anticipates 4 stars.

Rich Dad’s Conspiracy of the Rich: The 8 New Rules of Money

Rich Dad's Conspiracy of the Rich: The 8 New Rules of Money

Rich Dad’s Conspiracy of the Rich:  The 8 New Rules of Money
By Robert T. Kiyosaki
Business Plus 2009
257 pages.  $12.99

Robert Anton Wilson, in his book Everything Is Under Control, reported that “a random telephone survey of 800 American adults in September 1996 found that 74 percent – virtually three out of four citizens – believe that the U.S. government regularly engages in conspiratorial and clandestine operations.”

Robert Kiyosaki – the author of Rich Dad’s Conspiracy of the Rich – agrees with the 74 percent surveyed in 1996.  As Kiyosaki writes in his book:  “So has there been a conspiracy?  I believe so, in a way.”  He goes on to explain why he believes so, citing the lack of financial education in the school systems, the Federal Reserve Act, and Nixon’s 1971 dismissal of the gold standard.  And most interestingly, Kiyosaki believes that 401(k) retirement vehicles placed the retirement money of average people in the hands of Wall Street.

The first chapter of the book is entitled ‘Can Obama Save the World?’  Kiyosaki’s answer is no.  And apparently, Obama doesn’t want to even if he could.  For he appointed Summers and Geithner, both of who played a part in repealing the Glass Steagall Act.  In other words, it’s the same old same old.  Nothing has changed.  Which means that the average person needs to understand how taxes, debt, inflation, and retirement affect them.  Kiyosaki sums up the chapter by stating that once one understands the new rules of money, then one can “opt out of the conspiracy of the rich.”

From there, Kiyosaki moves on to explain how we got where we are.  He points the finger at the Federal Reserve Bank, which inflates the money supply, which destroys the value of savings and retirement plans.  And he makes it very clear that the rules of money changed dramatically when the U.S. went off the gold standard in 1971.  For up until that time, “technically, prior to 1971, the U.S. dollar was a derivative of gold.  After 1971, the U.S. dollar became a derivative of debt.”

Kiyosaki proceeds to discuss what he calls ‘The Invisible Bank Robbery.’  He says “since money is invisible, a derivative of debt, bank robberies by bankers have become invisible.”  Two ways these invisible robberies occur are:  fractional reserve banking, which is nothing more than banks lending money they don’t have; and deposit insurance, which “protects the bankers – not savers.”  Then he asks a very pertinent question:  “why should an insurance company like AIG receive bailout money in the first place?  Isn’t bailout money reserved for banks?”  His answer is gloriously simple:  “because it owed the biggest banks in the world a lot of money and didn’t have the cash to pay up.”

After allocating the first half of his book to talking about the conspiracy, Kiyosaki utilizes the second half of the book describing how to fight back.  And although he acknowledges that the Fed is the culprit, he does not advocate abolishing it.  For as he asks, “What would replace it?  How much chaos would that cause?  And how long would that take?”  Instead, Kiyosaki advocates using the new rules of money to one’s advantage.

He lists five new rules at the beginning of the second part of the book.  They are as follows:  money is knowledge; learn how to use debt; learn to control cash flow; prepare for bad times and you will only know good times; and the need for speed.  The latter rule – the need for speed – is an eye-opener.  In other words, it should be read, memorized and implemented by everyone.

In chapter seven, Kiyosaki explains why 90 percent of people are average.  “They follow average advice.”  Essentially, they follow “fairy tales of money.”  The name of the game, according to Kiyosaki, is “cash flow.”  People need to reposition themselves so they are playing the game and not just “pawns in the game.”  He provides a great illustration – cell phones.  “Every time you use your cell phone, cash flows from your wallet to the wallets of the cell phone businesses.”

To drive his point home, Kiyosaki sets out the attitudes and words of three different types of people, the poor, the middle class, and the rich.  The focus has to be on cash flow, not on capital gains.  And he explains that the cash flow techniques used by most average people do not work well because they are based on capital gains.  In effect, what he is saying is if you can’t beat them (the conspirators), then join them.  And he tells you how to do it.

Sophisticated investors – those focusing on cash flow – invest in four basic areas:

1. Businesses that provide passive cash flow.
2. Income-producing real estate.
3. Paper assets – stocks, bonds, savings, annuities, insurance and mutual funds.
4. Commodities – gold, silver, oil, platinum, etc.

According to Kiyosaki, the secret of success is sell.  “In simple terms, if you can’t sell ‘tickets’ (derivatives of you), you have to sell your labor.”  And in Kiyosaki’s opinion, the ultimate definition of “sell” is building a business and then taking it public.  By selling more than you buy, you can eventually become rich.

Kiyosaki then states that he thinks the present financial crisis will only get worse, not better.  Which mean that investing in businesses, real estate (using other people’s money), paper assets (using option strategies), and commodities is the only way to take advantage of the situation.

To take advantage, average people must become conversant in the language of finance, according to Kiyosaki.  “Words have the power to make us rich – or poor.”  And in his summary to the book, he reminds his readers that “knowledge is the new money.”

Rich Dad’s Conspiracy of the Rich is a fantastic read!  It falls a little short in the area of practical application, i.e., exactly how to invest for cash flow.  But where it excels is in pointing out the ‘thinking mistakes’ most people acquire and try to follow, and in motivating the reader to alter the way he thinks.  Which, in turn, provides a ray of hope.  Because let’s face it, unless a miracle occurs, the Fed is not going to be abolished.  A gold standard is not going to be re-established.  And until that miracle takes place, people need to have a fighting chance.

On the Read-O-Meter, which ranges from 1 star (boring) to 5 stars (stimulating), Rich Dad’s Conspiracy of the Rich forges 5 stars.

The Dollar Meltdown: Surviving the Impending Currency Crisis

The Dollar Meltdown: Surviving the Impending Currency Crisis

The Dollar Meltdown:  Surviving the Impending Currency Crisis with Gold, Oil, and Other Unconventional Investments
By Charles Goyette
Portfolio 2009
248 pages.  $27.95

The Dollar Meltdown is definitely a gloom and doom book.  Fortunately, the author’s style of writing and enthusiasm for his subject – how to avoid the doom – keep the book from being depressing.  Charles Goyette – the author – simply tells it like it is.  And what it is, is a sad state of affairs.  Goyette’s presentation is composed of four parts:  where we are; how we got here; what happens next; and what to do.

Under the heading of ‘where we are,’ Goyette points out that “the future of the dollar has already been determined.”  For all intents and purposes, the dollar is dead.  It has lost “96 percent of its purchasing power under the Federal Reserve System’s mismanagement.”  Along with a valueless dollar, Goyette makes it abundantly clear where we are:

From January 2007 to 2009, 5.1 million jobs were lost; 13.7 million people were out of work and 32.2 million people were on welfare (food stamps).  Retirement plans are all but worthless.  $9.7 trillion was spent on bailouts.  An astonishing number of homes – 19 million – stand vacant.  U.S. debt is approximately $12 trillion. 

Goyette then proceeds to discuss the great bailout, which he equates to robbing Peter to “subsidize a few hundred banking Pauls.”  The result is massive debt.  He quotes David Walker, the former comptroller general of the United States, who said, “The system is broken.”  In a nutshell, Walker’s statement pretty much sums up where we are.

The second section of the book talks about ‘how we got here.’  Goyettes begins by showing how gold came to “serve as money.”  Nations whose economies are based on precious metals are healthy.  Those that aren’t, fail.  During the Civil War, America first forsook gold and silver.  However, by 1879, the country went back to the gold standard.  Then in 1934, private ownership of gold was abolished.  And in 1971, Nixon chose to go off the gold standard.  At that point, inflation took over.

Goyette provides historical examples of what happens when governments choose paper money over the gold standard.  He cites China, the Roman Empire, the French Revolution, Germany, and Zimbabwe, where the annual inflation rate “hit 231 million percent in the summer of 2008.” 

According to Goyette, the Federal Reserve System is leading America down the same path as Zimbabwe.  “Inflation in the U.S. is a result of the Federal Reserve turning government money into debt.”  The result is bad investments.  “People and businesses make decisions n ways they otherwise would not.”  In other words, legitimate investments are replaced by speculation, which is the same thing as gambling.  Roll the dice and hope you get lucky.  Which means that long-term planning – savings – is cast aside. 

In ‘what happens next,’ Goyette predicts that repudiation of debt is looming on the horizon.  The forerunner of repudiation is deflation, which, according to Goyette, is what is taking place in real estate values.  And the only way governments can fight deflation is by printing money.  This leads to “stagflation,” which is “a period of economic stagnation accompanied by inflation.”  Somewhere in this scenario, “cash is trash.”  Which is when “the crack-up boom” occurs.  If and when the crack-up does happen, runaway inflation is the result.  And runaway inflation cannot be contained.

Goyette then discusses the precarious position of King Dollar.  As he points out, China is the largest foreign holder of Treasury debt.  China was also “the largest foreign holder of Fannie and Freddie debt.”  When the federal government guaranteed those holdings, they compounded the problem.  The only way those guarantees can be effected is by borrowing “more money from … places like China and Japan.” 

Since approximately half of U.S. currency is held outside the U.S., if the holders of those dollars begin dumping them, the U.S. would have a very serious problem.  The dollar would topple like Humpty Dumpty. 

All the aforementioned factors have resulted in what Goyette calls “a command economy.”  He defines a command economy as one that “orders the affairs of a nation by coercion.”  The government “set prices, controls and directs resources, and oversees production and consumption.”  According to Goyette, a command economy leads to poverty.  Prosperity, on the other hand, is the offspring of free market economies.  

Goyette believes the situation will inevitably lead to wage and price controls and then rationing. 

The fourth and final section of the book is ‘what to do.’  Goyette says “there is opportunity in every crisis.”  To that end, he offers four categories of investment recommendations.  The first recommendation is real money, which means gold and silver.  Goyettes suggests putting 25% of your portfolio in “physical gold and silver that you take in your possession.”  And you should deal with “a precious metals broker because of their capabilities.” 

His second investment recommendation is oil, specifically the United States Oil Fund.  Others are mentioned, but his “core recommendation” is the USO.  The third recommendation is “real things,” by which he means agriculture and natural resources.  ETFs and/or ETNs are his preferred methods of making such investments.  And he mentions a number of funds by name.

Goyette’s final recommendation is bonds, which is a little startling until you read through his reasoning.  Then it makes sense.  His core recommendation is Rydex Inverse Government Long Bond Strategy Fund.

Whether or not investors agree with Goyette’s recommendations, The Dollar Meltdown is a productive read.  The author presents his analysis of the present economic situation in grand style, using historical analogies, quotes, and entertaining anecdotes.  Plus, what he has to say makes a lot of sense.

On the Read-O-Meter, which ranges from 1 star (pretty bad) to 5 stars (pretty darn good), The Dollar Meltdown thaws 5 stars.

Tags: the dollar crisis