The Collapse of the Dollar and How to Profit From It
By James Turk and John Rubino
Currency Books 2004
252 pages. $14.95
According to Greek legend, there once lived a young woman named Cassandra. She was the daughter of Priam and his wife Hecuba. Priam was the King of Troy. The god Apollo fell in love with Cassandra and gave her the gift of prophecy. Later, in a fit of jealous anger, Apollo regretted his gift. So he made the gift worthless by causing people to disbelieve Cassandra’s prophecies. Poor Cassandra! She correctly prophesied what the future held. But no one listened to her.
James Turk and John Rubino wrote The Collapse of the Dollar, in which they prophesy the demise of the U.S. dollar. It’s a prophecy of gloom and doom. Which immediately gives rise to the following question: if your forecast is so obvious, why can’t the government economists see the handwriting on the wall? In other words, are Turk and Rubino today’s version of Cassandra? Are they correct and no one is listening or are they paranoid street corner prophets wearing sandwich boards that predict the end of the world?
There are two ways to answer the preceding questions. The first is, do nothing, simply wait and see what happens. The second is to examine the information they provide in their book and see if it is reasonable. The latter method seems the most intelligent approach. For doing nothing implies an unhealthy and fatalistic philosophy.
In answer to the question about the perceptive abilities of government economists, Turk and Rubino point out that “as a group, political and intellectual leaders hardly ever recognize major turning points until after the fact.” For example, no one predicted the Crash of 1929. Likewise, when Nixon dismissed the gold standard in 1971, the pundits thought the price of gold would drop through the floor. It didn’t. In fact, gold went from $35 an ounce to $850 by 1980. No one predicted the dollar’s decline in the 1970s or the junk bond rupture of the late 1980s or the dot-com debacle of the 1990s.
More importantly, assert the authors “conventional economic and financial thought is operating under some dangerous misconceptions.” The four misconceptions are that debt doesn’t matter, that government can perceive problems and adjust, that the U.S. economy is not impacted by foreign markets, and that gold is an out-of-date concept which serves no useful function.
Having said all that, Turk and Rubino proceed to make their case for gold. Their case is composed of four parts.
Why the dollar will collapse.
Money then and now.
Why gold will soar.
Profiting from the dollar’s collapse.
In part one, the ever-growing problem of debt is discussed. Constant borrowing provides the illusion of prosperity. Only this type of prosperity is cosmetic. Underneath the make-up lie financial fissures, which keep getting wider and deeper. And, as the authors point out, more and more mascara is required to gloss things over. Which means the printing of more and more money. This, in turn, leads to unbalanced trade and a sagging dollar.
Part two gives a good explanation of what money is and explains how fiat currencies came into existence. According to Turk and Rubino, fiat currencies always fail in the end, because they manage to “both debase and inflate” money “simultaneously.”
The third section explains why gold will continue to become more and more attractive. The simple explanation revolves around the concept of supply and demand. In other words, more people and governments want gold. And there isn’t enough to satisfy the demand. For example, China is buying up as much gold as they can get their hands on, along with India. All these factors mean the price of gold will ascend at ever-accelerating rates.
The fourth and final part of the book centers on how to profit from the dollar’s collapse. Gold is the ‘how.’ But the ‘how’ involves strategy. For as the authors make very clear, “with physical gold (bullion coins, gold bars and digital gold) you’re storing wealth, avoiding risk, and maintaining liquidity.” Whereas with gold-based investments – mining stocks, derivatives, and rare coins – the investor may increase capital. “Investments, in other words, are for expanding but not necessarily storing wealth, and with their upside potential comes the risk of loss.”
Turk and Rubino outdo themselves in this section. Their explanations are stellar. They walk the reader through the process of analyzing mining stocks, clarify the issues, and provide sensible guidelines for building a portfolio of such investments. Then they go on to examine silver and other precious metals as potential investments. And in case you’re wondering, they view silver as an investment latent with profit possibilities.
In the final chapters, the authors evaluate other investment possibilities, such as stocks, bonds, and real estate. They give their recommendations, presenting multiple scenarios and the best way to “hedge” against them. For example, they believe U.S. Bonds are one of the worst possible places to invest. Why? Because “bondholders will thus be paid back in increasingly worthless dollars.” And they describe Foreign Bonds as “early winners, late losers.”
The Collapse of the Dollar makes a cogent case for investing in gold and silver. The information is organized and lucid. The authors do not make the mistake of ‘assuming’ the reader is conversant with economic concepts and financial terminology. Each and every concept and term is carefully defined in non-technical language. Which means it’s a book designed for professional investors and for beginners. Readers will have to decide for themselves whether or not the authors’ prophesies are correct or not. However, taken at face value, their thesis is rational, based on historical trends, wrapped in monetary logic, and very persuasive. It appears Cassandra has spoken. Now who will listen and act accordingly?
On the Read-O-Meter, which ranges from 1 star (bankrupt) to 5 stars (precious), The Collapse of the Dollar glitters with 5 gold stars.