The Theory of Money and Credit

The Theory of Money and Credit

Mises:  The Theory of Money and Credit
By Ludwig von Mises
Signalman Publishing 2009
300 pages.

In The Decline of the West, Oswald Spengler had much to say about the political aspects of money.  “Money does not pass, politically, from one hand to the other.  It does not turn itself into cards and wine.  It is turned into force, and its quantity determines the intensity of its working influence.  Through money, democracy becomes its own destroyer, after money has destroyed intellect.”

One suspects that Ludwig von Mises would agree with Spengler’s criticism of money when used as a political force instead of as a medium of exchange.  Von Mises’ book, written in German, was originally published in 1912.  While Spengler’s book was published in 1918, also in German.  Spengler was a historian; von Mises was an economist.  Which means von Mises’ view of money was theoretical and practical, not abstract as was Spengler’s.

Von Mises’ book is divided into four parts:  The Nature of Money; The Value of Money; Money and Banking; Monetary Reconstruction.  The latter section – the fourth part – was tacked on in 1952.

The first two parts of the book consider money from a philosophical/theoretical standpoint, whereas parts three and four are more utilitarian.

Part One examines the nature of money, including its functions, measuring its value, various types of money, money in the context of government, money as an economic good, and the enemies of money.  The material is presented in a highly technical manner, which means it is not an easy read.  However, it is well-worth the effort, because the information imparted is indispensable, laying a foundation for the second half of the book.

One of the most interesting chapters included in Part One is ‘The Enemies of Money.’  Von Mises names two enemies of money:  socialism, and money cranks.  Under socialism, “production and distribution are to be systematically regulated by a central body.”  According to von Mises such a system will not work, for it is self-contradicting, involving “a reduction in the purchasing power of money.”  Money cranks are people who want to get rid of money altogether.  These people believe money is the root of all evil.  Von Mises refers to these people as “confused” and states that “it is hardly worthwhile to devote even a moment to such fantastic suggestions.”

Part Two speaks of the value of money.  Von Mises starts off by saying, “The central element in the economic problem of money is the objective exchange value of money, popularly called its purchasing power.”  This portion of the book is a technical blueprint on the hows and whys of monetary valuation.  And it proves arduous for readers who do not have a basic understanding of theoretical valuation.  For von Mises thoroughly dissects the subject from every angle.

Part Three, which examines money and banking, is where things get a lot more interesting.  Primarily, because the material can be applied to the present economic crisis in the U.S.  Von Mises discusses the limits of credit extension by banks, stating that banks have never gone as far as they could in this area.  By reducing the rate of interest on loans banks can postpone a market collapse; but eventually a breaking point will be attained.  At that point, according to von Mises, implosion occurs.  And the attending circumstances are intensified and prolonged.

To all intents and purposes, von Mises appears to be describing the current ‘easy money’ environment in America.  Such prescience is scary.  Von Mises holds that interest rates should adjust naturally to market forces.  They should not be artificially depressed by outside interference.

Von Mises ends Part Three by talking about banking freedom, gold and the gold standard.  He states that when a central bank dictates the interest rate, as “superficial critics” believe is necessary and proper, “nothing could be more mistaken.”

Part Four is where von Mises reflects on the principles of sound money as compared to the present currency systems prevalent throughout most of the world.  “Thus the sound-money principle has two aspects.  It is affirmative in approving the market’s choice of a commonly used medium of exchange.  It is negative in obstructing the government’s propensity to meddle with the currency system.”  A few sentences later, he states bluntly, “Sound money mean[s] a metallic standard.”

Von Mises explains that governments got rid of the gold standard so they could introduce the idea of inflation into the system.  Why?  Because inflation allows the shift of wealth and income from some groups to others.  Therefore, fiat money was substituted for sound money.  His comment on this pinch hitter policy is succinct and to the point:  “The most remarkable thing about this allegedly new monetary policy, however, is its complete failure.”

A return to a gold standard is advocated by von Mises.  He notes, however, that such a reform infers a “radical change in economic philosophy.”  There are two choices available, writes von Mises.  “The utopia of a market economy, not paralyzed by government sabotage on the one hand, and the utopia of totalitarian all-round planning on the other hand.”  His concludes that if the first choice – a free market economy – is selected, it “implies the decision in favor of the gold standard.”

Many knowledgeable individuals believe this is the best book ever written on money and credit.  And they are probably right, for it has no peer, especially as concerns the Austrian school of economics.  The book does, though, have two minor flaws, both of which concern readability.  First, the book demands a certain degree of economic sophistication.  In other words, it is not for economic dilettantes.  Rather it is intended for intelligent readers, who understand economic theory.  Second, the translation is bent with age.  A more modern translation from the German to English would benefit readers.

On the Read-O-Meter, which ranges from 1 star (flawed) to 5 stars (perfect), Mises:  The Theory of Money and Credit is valued at 5 stars for content and 4 stars for readability.

Tags: money and credit

Gold Trading Boot Camp Book Review

Gold Trading Boot Camp, any investor wanting to gain such insight requires the right tools to begin his apprenticeship; Weldon provides the tools.

Gold Trading Boot Camp:  How to Master the Basics and Become a Successful Commodities Investor

By Gregory T. Weldon
John Wiley and Sons 2007
348 pages.  $34.95

David Byrne was the front man for an alternative rock band called the Talking Heads.  A genius, Byrne had a knack for writing superlative lyrics.  Lyrics that made the listener stop and think.  For example:

“And you may ask yourself, Am I right … Am I wrong?”

Commodity investors all over the world ask themselves the same question every day.  And with good reason, for they’re risking their financial future on the answer to the question.

Gregory Weldon is the front man for Weldon Financial.  And like David Byrne he has a knack for writing.  Only Weldon doesn’t write lyrics.  He writes investment advice – how-to-stuff.  He wrote Gold Trading Boot Camp, which is a remarkable book.  It’s remarkable because it not only offers sound investment guidance, but does it in a very lively manner.  Reading Gold Trading Boot Camp is akin to reading history, comedy, memoir, and economics all rolled up into one splendid book.

Gold Trading Boot Camp is divided into eight parts.  Part One is entitled ‘Evolution of a Trader.’  In short, it’s about the author’s introduction to the world of commodity trading.  And like Daniel in the Lion’s Den, Weldon had to learn fast if he wanted to avoid being eaten alive.  There are many humorous anecdotes, which are fun to read.  But there’s also a point.  And the point is this:  “to relate how I formed, cultivated and evolved my methodology” of investing.

Part Two is about the ‘Macromonetary Era.’  As Weldon explains, “Gold is at the top of the pyramid.  The U.S. dollar gets the second spot, thanks to its still undisputed reign as King-Dollar.”  Weldon then states, “Someday things will change.”  This change will occur due to the economic Never Never Land the world is now living in.  When they do change, he believes there will be only two options.  “Facilitate a recession” and pay down the massive debt or “facilitate a reflation” by attempting to bail out the economy “with even cheaper liquidity.”  According to Weldon, when that day arrives, “the Emperor will be wearing no clothes.”  That’s the day you want to own gold.

In Part Three, Weldon takes a look inside the market.  Which means that as a trader he wants the big-picture.  He examines everything and explains to the reader how he does it.  The goal is to analyze “the macropuzzle,” and then “stack one clue on top of another clue.”  In the end, the accumulating clues allow the investor to identify “a market trend.”  Once a trend is distinguished, then the investor can “commit risk capital to that trend.”

‘Looking Inside the Market Technically’ is the title of Part Four.  Wherein, Weldon states, “It is critical to maintain a standard technical overlay, simply because the markets evolve.”  This standardizing technique works because the factor that does not change is “the human condition.”  And this unchanging factor allows for the identification of macrotrends.  Weldon discusses the tools he uses to identify trends:  charts, moving averages, oscillators, rate-of-change indicators, Fibonacci retracements, and volume.  Which all sounds like advanced rocket science, but Weldon describes how he does it and keeps it as simple as adding two plus two.  This section of the book is truly illuminating.

In Part Five, Weldon moves on to explain how he analyzes macroeconomic fundamentals.  This type of analysis is done from the bottom up, because “evidence of a potential shift in trend first” appears “at the bottom and evolves upward.”  And once again, it involves routine analysis of an ocean of data.  Which means that smart investing is nothing more or less than hard work.

Part Six is one of the most interesting sections of Gold Trading Boot Camp.  For it is here that Weldon explains how he takes the results of his analysis and identifies trends.  Weldon says, “That the majority of profits have come when markets are trending.”  In other words, if you want to make money – and who doesn’t? –  you need to know how to spot trends.  To that end, Weldon provides ‘trend identification techniques,’ which include momentum, timing, and trading the trend.  He presents his TIMID Matrix, which is a fascinating concept.  But, unfortunately, he does not share the algorithms he uses to calculate TIMID indicators.  His conclusion is that “right now, the market is going nowhere fast amid a lack of clarity in the macroscene.”

‘Defining and Managing Risk’ is the topic of Part Seven.  Weldon starts out by stating, “A discussion of risk analysis must begin at the top-down portfolio level.”  He then breaks risk analysis down into diversity, position leverage, trade risk, correlated risk, sector risk, and psychological risk.  Each of these constituents of risk is clearly explained.  Weldon’s goal in risk analysis is to avoid gambling.  By using a strategic approach composed of macro-analysis, psychology, technical overlays, and a risk management protocol, the odds are in his favor.  As Weldon says, “I trade and invest on a strategic basis.  I do not gamble.”

The final section of the book – ‘Putting It All Together’ – falls just a tad flat.  Primarily, because Weldon doesn’t put it all together.  He merely says, “If all the macro and technical factors are aligned, then the assumption of capital risk becomes an option, and a trade or investment is warranted.”  Instead, he should have pointed out that his macro-style of trading, while heavily reliant on technical data and its subsequent analysis, also relies on intuition in the best sense of the word.  And this intuition or insight can’t be taught.  It is the product of years of experience.  In other words, trading is a science as well as an art.

That being said, any investor wanting to gain such insight requires the right tools to begin his apprenticeship.  Weldon provides the tools in Gold Trading Boot Camp.  He tells you how you too can eventually become a Master of the Universe.  And he does so with enthusiasm, in an engaging and entertaining style.  And enthusiasm is a quality even rarer than gold.

On the Read-O-Meter, which ranges from 1 star (really bad) to 5 stars (really good), Gold Trading Boot Camp trades 5 stars.

Tags: gold trading, gold trading boot camp

Ruff’s Little Book of Big Fortunes in Gold & Silver Book Review

Ruff's Little Book of Big Fortunes in Gold & Silver

Ruff’s Little Book of Big Fortunes in Gold and Silver:  A Middle Class License to Print Money
By Howard Ruff
10 Finger Press 2006
122 pages.  $19.95

Ruff’s Little Book of Big Fortunes in Gold and Silver (RLB) is a rollicking roller-coaster of a book.  Like an amusement park, it’s entertaining and fun.  Employing another simile, it’s like going to a seminar where the keynote speakers are Tony Robbins, Zig Ziglar and John Hagee.  A combination of motivation, inspiration and religion.  When you’re done with it, you’ll feel electrified, empowered and galvanized – ready to go out, buy a ton of silver, and become a millionaire overnight.

You’ll feel that way because the author – Howard Ruff – is the consummate cheerleader.  He knows how to blow his own horn and energize others at the same time. Self-promoting is a word that certainly describes Howard Ruff.  Yet he pulls it off in such a way, with such style and panache, that you can’t help but like him.

In other words, RLB may not be the best book ever written about investing in gold and silver, but it’s the most sensational.

In his introduction, Ruff’s opening sentence sets the tone of the book.  “This book is deliberately designed not to be a weighty academic tome, but a small, inexpensive guide to help anyone get rich fast!”  Who can resist such an overture?

Chapter one explains why you should buy gold and silver right now.  Ruff gives what he calls the “Reader’s Digest” version of the history of money – short and sweet.  Then he states that the dollar is falling in value and that there is “a serious supply problem” as regards gold and silver.  Production and exploration cannot meet the demand.  And existing inventories are woefully inadequate.  All these factors mean “silver is the poor man’s gold.”

In chapter three, Ruff discusses the three basic uses for gold and silver:  1) Gold and silver coins as insurance.  2) Government holdings of gold and silver to prop up currency.  3) Gold and silver for investment purposes.  In the latter instance, “timing is critical.”  He goes on to declare that “the timing is right.”  So “just do it.”  Get out there and invest in gold and silver.

Proceeding to chapter 4, Ruff refers to himself as “a real Pollyanna, an optimist with guts.”  Unlike Wall Street, which downplays precious metals because of the lack of commissions, Ruff believes real investors aren’t afraid to go against the flow.  The psychological appeal of his non-conformist message is hard to shrug off.

As he explains in chapter 5, Ruff approves of ETFs, because they “mean a big increase in demand.”  He believes ETFs are good investments, as long as they “meet their legal obligations,” by which he means, buy the required amounts of silver.  That being said, he discourages futures contracts, because of inherent risks.  However, Ruff likes junk silver, silver rounds, silver mining stocks, and semi-numismatic coins.  He does not like silver bullion bars, because of the assay necessity before they can be sold.

A series of economic scenarios are briefly presented in chapter 7.  They run the gamut from worst case to best case.  Ruff’s conclusion?  “There is no best- or worst-case scenario in which I can conceive of gold and silver being losers.”  In fact, due to rising inflation and all that goes with it, he has no doubt gold and silver mining stocks will multiply by a factor of 5 or 10 times their current value.

‘The Classic Middle Class Investment” is the title of chapter 8.  According to Ruff, investing in metals is “as easy as pie, and requires no more knowledge than you will get in this book.”  Ruff’s preferred method for choosing a mining stock?  Go to his list of OK mining stocks.  “Put all of their names on a piece of paper, put them on the wall and throw ten darts at them.  Then invest in the holes.  You will have created your own personal mutual fund.”  For those who are still a little shy, he recommends his own newsletter or that of Jim Raby.

Chapter 10 is simply glorious!  It begins like this.  “Now it’s time for Ruffonomics 101.”  Ruffonomics 101 is a very short lesson in supply and demand.  And according to Ruffonomics, gold will soon rise to $2000 and silver to “over $100.”

The next chapter – chapter 11 – likens mining stocks to “a license to print money.”  The reason for this is “because they are uniquely leveraged in relation to pure bullion.”  Ruff is so self-confident that he goes on to make specific recommendations.  The following mutual funds make his hit parade:  ASA LTD, Central Fund of Canada, American Century Global, Tocqueville Gold, US Global Investors, and Fidelity Select Gold.

The silver mining companies he touts are Hecla, Pan American Silver, Silver Wheaton, Silver Standard, Coeur D’Alene Mines, and several others, which are not mentioned.  You can access the others, if you subscribe to The Ruff Times.

Closing out chapter 11, Ruff reminds his readers that “the safest course of action will be to buy gold and silver coins and take them home.”

Ruff makes an amazing suggestion in chapter 12, which is entitled ‘Income in a Gold Bull Market.’  He writes, “Here is an oddball idea that flies in the face of conventional wisdom.”  The idea is to liquidate about 8% of your gold or silver coins or mutual funds over the course of the year.  This will provide you with income.  The rationale behind the oddball idea is that – due to the bull market in metals – your capital will keep growing at a faster rate than your withdrawal.  And the only tax you’ll have to pay is the capital gains tax.

This oddball idea assumes, of course, that the ‘middle-class investor’ has half-a-million dollars or more invested in precious coins.

The book continues for three more chapters.  And each one is more entertaining than the last one.  Which is what makes RLB such fun to read.  It is not a subtle book, nor does it make any pretense to being analytical.  It’s very, very basic and brushes any latent risk for investors aside with debonair insouciance.  But despite all its outlandish declarations, its blatant self-promotion, and its kitschy excess, it’s not a bad book.  In fact, Howard Ruff just might turn out to be the prophet Pollyanna after all.

On the Read-O-Meter, which ranges from 1 star (bad) to 5 stars (wonderful), Ruff’s Little Book of Big Fortunes in Gold & Silver earns 3 and a half stars.

Tags: ruff's little book

Rich Dad’s Guide to Investing in Gold & Silver Book Review

Guide to Investing in Gold and Silver is a strong book

Rich Dad’s Guide to Investing in Gold & Silver:  Protect Your Financial Future
By Michael Maloney
Hachette Book Group 2008
206 pages.  $16.99

Michael Maloney’s book – Guide to Investing in Gold & Silver – unfolds in four distinct parts.  The four parts are:  Yesterday; Today; Tomorrow; and How to Invest in Precious Metals.

The section entitled Yesterday, as one would expect, covers the history of “economic cycles, paper currency, and their effect on gold and silver.”  Maloney differentiates between currency, money and fiat currency.  He provides easy-to-understand definitions of each term, along with simple explanations of inflation and deflation, which, are misunderstood by many laymen in today’s world.

From there, he moves on to historical examples of money being replaced by currency.  In each example, the outcome was the same – economic calamity.  And as he points out, the parallels between his historical examples and America of the 21^st century are much the same.  Maloney traces the immediate problem to the creation of the Federal Reserve Bank.  And he ends the section with a striking exegesis of the dot.com implosion of the late 1990s.  “The frenzied speculation sucked in so much capital that it eventually became a pyramid scheme, requiring an ever increasing mountain of currency to maintain its upward trajectory.”

The subject of Part 2 is Today.  In it, Maloney examines America’s current economic situation.  He begins by saying “Since the end of the Bretton Woods system in the 1970s, the dollar has been a dirty, double-dealing, back-stabbing liar, and it still is today.”  He goes on to show how and why this assertion is true.  A series of graphs are provided in support of his contention.  Maloney also bluntly states that the CPI (consumer price index) is a lie.  In reality, according to Maloney, the CPI’s rise has been meteoric.  This factor, along with the U.S. trade deficit and China’s “neutralizing the dollar,” has created the perfect economic storm, in Maloney’s opinion.

The way to survive – and even profit from – this storm is through gold and silver investments.  Maloney presents three possible economic scenarios.  His conclusion is simple:  “There is no possible scenario in which gold and silver do not rise.”  Yet in the next breath, he states his belief that both gold and silver are being manipulated.  By manipulation, he means Central Banks and derivative markets are creating “phantom supplies.”

Yours truly – the reviewer – stopped to think about that.  If true, what is to prevent these entities from continuing to do so?  For this would seem to suggest that the price of gold and silver never accurately reflect their true worth.  And that one’s return on investment is, at best, a mirage.

Maloney continues, saying, “All this paper silver that has been sold has depressed the price of silver even further.”  To Maloney, this means it’s time to buy silver, because it is so cheap.  And it won’t be that way for long.  Under these circumstances, Maloney declares “silver really is a precious metal.”

It’s a good inference, but it might not be good enough.  For if the market is indeed being manipulated, it hints at uncertainty for those not doing the manipulating.  And uncertainty hurts more than ignorance.  Perhaps the reviewer merely failed to understand.  In which case, an expanded explanation would help.

Tomorrow is the topic of Part 3.  Here, Maloney speaks of market and economic cycles.  He believes we are entering a cycle in which hard assets are the smart play.  During this cycle, investments that were overvalued will become undervalued.  Gold and silver will go up, while stocks, bonds and real estate – all of which are overvalued – will go down.  To Maloney, the handwriting is on the wall.  “You now have a very rare chance to become very wealthy very quickly by simply taking advantage of economic cycles and the wealth transfer they create.”

The fourth part of Guide to Investing in Gold & Silver – How to Invest in Precious Metals – is a veritable fountain of helpful information for investors.  Maloney begins by telling investors what not to do.  He counsels against ETFs (exchange traded funds).  For he feels they are “good vehicles for trading,” but “unsound” for investing.  He also frowns on gold and silver ‘pool accounts’ and ‘certificate programs,’ because they don’t “go out and buy real money (gold or silver) and store it for you.”

Maloney advises against ‘leverage.’  Simply put, it is too risky.  Leverage is for professionals only.  And gold and silver purchased on margin is “a double-edged sword.”  If the stock falls, you will find yourself being sliced and diced in a Ronco Chop-O-Matic.  As far as numismatics is concerned, he suggests “If you’re going to buy numismatics, you should do it as a hobby.”  In other words, they are not a good investment vehicle.

He then proceeds to reporting requirements.  Essentially, his advice is this:  don’t get fancy.  Follow the rules and after you sell “get proper tax advice.”

Developing a gold and silver investment plan is next up.  It should be noted that Maloney’s plan revolves around physical ownership of gold and silver.  Investors are going to buy it and store it.  His “preference for both gold and silver is U.S. Eagles.”  Not only are they recognizable, but there are no reporting requirements when you sell.  To Maloney, a strong portfolio consists of 50 to 70 percent physical assets, 20 to 40 percent metal stocks, 5 to 10 percent energy stocks and other commodities, and 5 percent cash.

Guide to Investing in Gold & Silver is a strong book.  Maloney’s style of writing is amicable and his information is organized in an appealing manner.  The only blemish is the book’s singular scope.  It’s a brief for owning physical gold and silver.  To that end, it’s not about ‘investing’ in gold and silver, which implies mining stocks and other similar vehicles.  Instead, it would be more accurate to say it’s about ‘protecting’ one’s wealth by seeking sanctuary in precious metals.

Which means the primary thrust of the book is to be discovered in its subtitle:  Protect Your Financial Future.

On the Read-O-Meter, which ranges from 1 star (not very good) to 5 stars (superior), Guide to Investing in Gold & Silver harbors 4 stars.

Tags: guide to gold and silver, richdad, robert kiyosaki

What Has Government Done to Our Money? Book Review

What Has Government Done to Our Money? This is a powerful and remarkable book.

What Has Government Done to Our Money? and The Case for a 100 Percent Gold Dollar
By Murray N. Rothbard
Ludwig von Mises Institute  2005
190 pages.

Murray Rothbard was the distinguished professor of economics at the University of Nevada, and dean of the Austrian School.  He authored 17 books, including the one under review here – What Has Government Done to Our Money?  Essentially, the book explains what money is and describes how money has changed.  Money changed because governments and banks abandoned the gold standard.  Fiat currency emerged, and with it a whole bunch of problems.

What Has Government Done to Our Money? is a remarkable book.  For it takes a complicated subject, boils it down, and dispenses the vital ingredients in a crystal clear manner.  The text is smooth as cashmere, not herky-jerky like most highbrow books where you have no idea what you just read and really don’t care either.  Rothbard’s book hooks you immediately and then reels you in with a deft touch.

The book is has two primary parts.  The first part relates the history of money and what government has done to it.  This part includes ‘Money in a Free Society,’ ‘Government Meddling With Money,” and ‘The Monetary Breakdown of the West.”  In the second part, Rothbard presents his case for a 100 Percent Gold Dollar.

According to Rothbard, money became problematic way back in 1913, which was when America adopted the Federal Reserve System – a Central Bank.  As Rothbard points out, “A Central Bank attains its commanding position from its governmentally granted monopoly of the note issue.”  From that point on the definition of money began to change.

The first ‘money’ issued by the Fed in 1914 stated:

This Note Is Receivable By All National and Member Banks and Federal Reserve Banks and for all Taxes, Customs, and Other Public Dues.  It Is Redeemable in Gold on Demand At the Treasurey Department of the United States in the City of Washington, District of Columbia or in Gold or Lawful Money At Andy Federal Reserve Bank.

By 1950 this was revised to

This Note Is Legal Tender for All Debts, Public and Private, and Is Redeemable in Lawful Money At the United States Treasury, or At Any Federal Reserve Bank.

The Constitution, remember, demands that “lawful money” be made only of silver or gold.  So although the 1950 revision was vague, it still met the legal definition imposed by the Constitution.  The Fed’s paper could be redeemed for gold or silver on demand.

Then in 1963, the wording was changed again.  This time it read:

This Note Is Legal Tender for All Debts, Public and Private.

This statement meant the money could not be exchanged for gold or silver or – for that matter – anything else.  In effect, this money was money only because the Fed said it was.

Fiat currency became the new star of the show.  To Rothbard, the Fed is nothing more than a massive counterfeiting operation that forces Americans to pay ever-growing interest on money that continues to be worth less and less.  In Rothbard’s opinion, the only way to stop this vicious cycle is “by the return to a free market commodity money such as gold, and by removing government totally from the monetary scene.”

Rothbard sums up by stating “that gold, that scarce and valuable market-produced metal, has always been, and will continue to be, by far the best money for human society.”  Having said it, he turns his attention to the 100 Percent Gold Dollar.

Rothbard does not advocate a return to the pre-1933 gold standard.  Why?  Because “it seems clear to me that the gold standard of the 1920s was so vitiated as to be ready to collapse.  A return to such a gold standard … would only pave the way for another collapse.”  Instead, Rothbard advocates a 100 Percent Gold standard.  Such a system, he argues, would end “fractional-reserve” banking, which is “simply fraud.”  In addition, it would bring inflation to a screeching halt and force governments to balance their budgets.

One of the big objections to 100 percent gold is that the money supply would be insufficient.  In short, there wouldn’t be enough money to go around.  Rothbard counters this objection by directing attention to the “great monetary lesson of classical economics:  that the supply of money essentially does not matter.”  In other words, Rothbard is saying that money is a medium of exchange.  Which means the purchasing power of the available money supply will adjust accordingly.  Each monetary unit will be worth more.

Rothbard goes on to state bluntly “this is the only system compatible with the fullest preservation of the rights of property.  It is the only system that assures the end of inflation and, with it, of the business cycle.  He admits that his recommendation is “radical,” especially in today’s world.  Yet he insists that such a measure is in keeping with the great traditions of Jefferson and Jackson, both of who “were fully devoted to capitalism and the free market.”

Adopting a 100 percent gold dollar would be painful, concedes Rothbard.  He perceives two ways to go about it.  “Force a deflation of the supply of dollars down to the currently valued gold stock” or “raise the price of gold.”  Whichever route is selected, Rothbard believes it must be done.  Not to do so is “to abandon human reason.”

This is a powerful book.  Its message is powerfully argued.  Much historical and logical evidence is presented.  Yet one has to wonder if anyone is listening.

On the Read-O-Meter, which ranges from 1 star (meager) to 5 stars, What Has Government Done to Our Money? commands 5 100-percent gold stars.

Tags: Gold Dollar, Gold Standard

The ABCs of Gold Investing Book Review

ABC's of Gold Investing: How to Protect and Build Your Wealth With Gold

The ABCs of Gold Investing: How to Protect and Build Your Wealth With Gold
By Michael J. Kosares
Addicus Books 2005
175 pages. $14.95

The first step on the road of communicating in a given language is learning the alphabet. Letters in the alphabet represent sounds. Combining the sounds appropriately results in the formation of words. Words convey meaning. A series of words form a sentence. And a sentence allows for complex expression. Or as Oswald Spengler put it so eloquently, “It is by means of names and numbers that the human understanding obtains power over the world.”

In other words, knowing the ABCs is important.

Michael Kosares has carried this concept over into his book The ABCs of Gold Investing, in which he considers and explains the rudiments of investing in precious metals. As he states in his introduction, his book provides “a basic who, what, when, where, why, and how of private gold ownership.”

The ABCs of Gold Investing is arranged alphabetically. For example, A is for Asset Preservation. B is for Bullion Coins. C is for Choosing a Gold Firm, etc. And although the arrangement is a little different compared to most books, it is very effective. Which means it makes for a pleasant reading experience. An experience that sidesteps the wasteland of another-boring-investment-book and enters the wonderland of learning-can-be-fun-and-profitable.

Each letter illustrates an aspect of investing in gold.

In A is for Asset Preservation, Kosares gives some chilling economic statistics that show just how gooey America’s financial predicament is. In 1970, federal debt was $436 billion. That number metastasized to $7 trillion by the end of 2003. And during the same time frame foreign debt went from “a mere $12.4 million” to “a dizzying $1.5 trillion.” And if that isn’t enough to alarm you, Kosares directs your attention to two other boogeymen: since 1970, there’s been a 490% increase in the consumer price index and taxes have increased “1.5 times faster than income.” After reviewing the status quo, Kosares’ conclusion is simple. “Gold affords humanity precisely what it needs from time to time – the protection of wealth against the most threatening circumstances, not the least of which is the destruction of a nation’s money by its own government.”

The letter H is for The History of Gold since 1971. Gold’s history reflects more than just highs and lows on a price chart. For gold is “a political metal,” according to Kosares. Which is quite a statement, because it indicates that global economics involve a lot more than simple supply and demand. Politics complicate the mix. What is interesting is that despite its price fluctuations, gold’s trend is relentless. Although erratic at times, the trend is always upward.

According to Kosares, I is for The Inflation-Deflation Debate. On the one hand, the deflationists maintain that the present debt levels will end in default. When that happens, banks will fail, triggering an economic crash. Which means the price of gold will skyrocket. On the other hand, the inflationists say that the government will have no choice. Rather than letting the boat capsize, the government will frantically begin bailing. Which means monetizing the debt by printing more and more paper money. The end result will be inflation followed by hyperinflation. Gold will skyrocket. In other words, both scenarios bode well for gold. As Kosares points out, “Yet to the gold investor, the inflation-deflation debate is purely academic.” Gold is a sure-fire hedge no matter what occurs.

Kosares makes an important distinction between gold and silver in K is for Kindred Metal – Silver. He states silver and gold are “two quite different metals and are used by portfolio planners for two entirely different purposes.” Gold’s primary function is to preserve wealth, while its secondary function is as a commodity. Whereas silver is just the opposite. Silver is a commodity first and a preservative second. Therefore, silver should be played like a commodity. “It should be held for its profit potential and at some point converted back into cash or gold.” Kosares’ advice to investors is to add silver to their portfolio after they have established a “strong gold position.”

In Kosares’ alphabet, the letter M is for Myths and Realities about Gold. And for beginning investors, this is a weighty section, because the author dispels some of the old wives’ tales about gold. One of the fables discussed is “gold is a barbarous relic of past monetary systems, irrelevant in today’s fast-moving, computerized markets.” Kosares dispels this myth by quoting Paul Volcker, who stated “that central banking as we know it today is, in fact, largely an invention of the past hundred years or so …” In other words, gold has been around for thousands of years. And has always had “universal value for both individual investors and nation-states.”

The ABCs of Gold Investing concludes with the letter X – the XYZs of Gold Investing: Closing Thoughts. Kosares sums his book up nicely by setting forth two basic reasons for investing in gold. The first reason is the lack of a gold standard. This means paper currency is issued willy-nilly. The result is paper currency that resembles Monopoly money – there’s a lot of it but it’s not worth much. To protect their assets, investors should enforce their own gold standard and buy gold. The second reason is one of supply and demand. International demand for gold far outstrips mining production. Which means the price of gold – ultimately – has no where to go but up.

In the end, gold is the antidote.

The ABCs of Gold Investing is a worthwhile read. For it introduces investors to the fundamentals of owning gold. Kosares presents his material in an organized and fluid manner. Which means his text flows smoothly and is comprehensible. And it is obvious to the reader that Kosares has no doubt what he is writing is correct. To that end, he puts his heart and soul and his accumulated experience into his book. You can’t ask for more than that from anyone.

On the Read-O-Meter, which ranges from 1 star (deplorable) to 5 stars (outstanding), The ABCs of Gold Investing catalogs 5 stars. This book is highly recommended.

Tags: gold-investing, the ABC's of Gold Investing

Junior Mining Investor Book Review

Junior Mining Investor, it's not for the uninformed or faint-of-heart

Junior Mining Investor: 14 Natural Resource Experts Show You How to Invest Profitably in Emerging Gold, Silver, Platinum, Base Metals, and Uranium Mining and Exploration Stocks
By Kevin Corcoran
Corcoran Publishing 2007
202 pages. $22.95

The term ‘junior’ comes from the Latin word juvenior, meaning ‘young.’ And as used in the title of Kevin Corcoran’s book – Junior Mining Investor – it refers to “exploration and developmental mining companies.” These ‘junior’ companies are smaller than the so-called mining majors. The stocks of these junior companies are “too small and lack the trading volume big funds need to invest in. As a result, investors and speculators can get in and out without much difficulty and before the ‘general’ public catches on.”

Getting in and getting out, while making a profit is what Junior Mining Investor is all about.

Junior Mining Investor is not a cohesive text written by a single author. Rather it is a series of interrelated articles, which were written by 14 different mining-industry experts. Some of the experts write newsletters, others are hedge-fund managers, geologists, and stock analysts. Which means the reader is provided with a good overview of various topics directly related to mining investments.

And as Corcoran states in his introduction, junior mining stocks “are very volatile and with the opportunity to make outsized returns, comes the real possibility of losing some or all of your investment. For this reason, this sector should only be approached with speculative funds – not money you can’t afford to lose.”

In other words, although Junior Mining Investor targets individuals who want to enter the arena of investing in mining stocks, it is not meant for those who are new to the world of investing.

The first chapter, entitled ‘So You Think You Can Speculate,’ gets right to the point. Written by Dr. Russell McDougal, it spells out the realities of speculative investing. Speculative investing requires the right kind of temperament – one that loves risk – along with discipline, and knowledge. McDougal likens it to “chess, bridge and golf. It is an acquired skill and it can be a vocation or an avocation.”

Chapters 2 and 3, provide basic information for selecting silver and gold mining stocks. While on the contrary, chapter 4 gets down to the nitty-gritty. It was written by Kenneth Gerbino, who sets out ‘12 Guidelines for Buying Gold Mining Stocks.’ Gerbino gives common sense rules for winnowing through all the data available on mining stocks. His guidelines will aid investors in narrowing down their list of prospective stocks.

In chapter 6, Kevin Bambrough and Jean Francois Tardif offer ten tips for picking a uranium stock. And although the chapter is short, it is succinct. For example, in their first tip, the authors state that “one of the best indicators of a project’s potential success could be past ownership.” And they give a brief but important explanation of how infrastructure impacts a prospective uranium mine’s value. Which makes this chapter a ‘must read’ for potential investors.

Adrian Day wrote chapter 7, in which he discusses how to minimize risk in gold stocks. He presents two interesting ‘case studies.’ One for Altius and the other for Virginia Mines. Both studies provide a template for investors to apply to other mining stocks. By following Day’s prescription, investors can determine the pros and cons of other properties, and thus make informed decisions.

In chapter 8, Dr. Russell McDougal starts off by asking a pertinent question: “does the perfect resource exploration company actually exist?” His answer is, yes. He then goes on to talk about the three stages of resource explorers: start ups, exploration progress, and discovery. This information makes it possible for investors “to tap into the next nano-cap companies that will present a risk/reward ration that is difficult … to pass up.”

‘How Much Is That’ is the title of Chapter 9. Written by Brian Fagan, it presents – in great detail – how to translate the terms and numbers “used to describe mineral projects into a dollar value and equivalent stock price.” Patience and determination are necessary to work through the article, because it is quite technical. However, serious investors will find this information worthwhile.

One of the most interesting articles in Junior Mining Investor is chapter 15, wherein Dr. Richard S. Appel discusses what to look for in a mining company’s management team. Stock analysts always advise looking for companies with strong management, but no one ever explains precisely what that means. As Dr. Appel points out, “the single most important factor that can make or break even the best company is its ability to raise working capital.” There are two other vital factors, too. And Dr. Appel clarifies what they are. This is a great chapter!

The subsequent chapters discuss such varied topics as platinum investments, market capitalization, warrants, leveraging silver stocks, learning from mistakes, and mining ETFs. And each chapter – some short and some long – furnishes excellent information for investors. Admittedly, the chapters jump willy-nilly from subject to subject, but for the most part Kevin Corcoran has done an admirable job of maintaining the book’s integrity. Junior Mining Investor veers off course only occasionally. And even then, the side-trips are useful, adding to the reader’s store of knowledge. Knowledge will be beneficial in the future.

After reading Junior Mining Investor, it becomes clear that successful investing in mining properties demands not only money and a willingness to take a risk, but also tremendous study and erudition. It is not for the uninformed or faint-of-heart. Corcoran’s book goes a long way toward taking up the slack. For it provides factual and utilitarian material that any investor needs.

On the Rate-O-Meter, which ranges from 1 star (superficial) to 5 stars (pertinent), Junior Mining Investor qualifies for 4 stars.

Tags: junior mining, junior mining investor, silver mining companies, silver mining investments, silver stocks