Thank you for an historical update at a point in time when historic precedent is being violated so
So, here is the current status. As I read the beginning of the newsletter, I know quickly how it is going to
end. It is going to end the same way that such newsletters ended in the 1980s.
I am to look for a "Safe Harbor".
But, I know from previous experience that I am supposed to "buy low" and "sell high".
Yet, somehow I know that the gentleman is going to encourage me to "buy high" and after what he is
selling "goes low" I doubt that I will be able to find him because he will have moved to an island with all of
my fiat currency that he received by selling me gold. At least that is what happened in the 1980s. This
time may be different.
Hmmm...he is telling me to trade in my fiat currency for gold and simultaneously he is in fact selling me
gold in exchange for my fiat currency. Something is wrong here.
My dollars are a "hot potato" and he is encouraging me to get rid of them to him before hyperinflation
sets in. Sounds like a barker at the carnival as they come through town. Those country hicks seem to
fall for it every time.
As another piece of information, I know that housing is in a period of deflating values.
Housing is physical.
Fiat money is "paper".
Gold is physical.
Diamonds are physical but can be manufactured these days. In fact, one of these days diamonds are
going to deflate just like cultured pearls did with respect to the original pearls.
1950: Which pearls are more valuable? The Jeweler says, "The ones with the least defects that appear
perfectly round." You ask him, "Will cultured pearls ever take over the market from "real" pearls?"
Jeweler says, "Absolutely NO. NEVER." But, you say, the cultured pearls have fewer defects than the
"real" pearls. Doesn't matter, the Jeweler says. The defects in "real" pearls will make them more
valuable. You walk away wondering how confusing the human adult world is to a 10-year-old mind.
2010: Which diamonds are more valuable? The Jeweler says, "The ones with the lease defects that
appear perfectly formed." You ask him, "Will cultured diamonds ever take over the market from "real"
(mined) diamonds. Jeweler says, "Absolutely NO. NEVER." "But", you say, "The cultured diamonds
have fewer defects than the 'real' diamonds." "Doesn't matter", the Jeweler says, "The defects in 'real'
diamonds will make them more valuable." You then mull that over and decide to ask him, "Do you have
any 'real' pearls, the kind that people dive for?" He says, "No, we don't carry them anymore." You walk
to the next store in the mall thinking to yourself, "Interesting world, one should be able to make money
simply by not accepting what 'everyone else knows'".
By the way, Bob, this is original material. I actually performed the experiments and got the results I
Markets always act in such a way that the majority is wrong.
Gold always goes down faster than it went up.
Gold cannot be rented out at a profit, real estate can. There used to be no houses for rent on my
street, now there are two.
I know that people like to buy near the peaks and sell at the bottom. Were I to start a newsletter, I would
sell people on what was going up, not that which was selling at a bargain.
Would I expect some subscribers to write to me and point out that I am selling what I am telling them to
buy? No. I wouldn't expect to get even one such letter.
Sounds like one should be purchasing real estate now that it is low and selling precious metals now that
they are high. Of course, precious metals might go higher. I sold my CSCO in early 2000 for only $66
and it peaked out at $82. Hmm...does this mean that I should have or could have known that it was
going higher and held on? But what if I held on when it went below $50? Should I have waited for a
bounce? Where should I sell my gold, were I to buy it? Should one wait for the hyperinflation to occur?
Who do I sell it to when everyone starts selling it at once? Do I place stop-loss orders? I have managed
to make money when other people's stop-loss orders are triggered in AGNC.
So when a gold newsletter writer predicted gold would keep going up in the 1980s, did he mention that
the floppy disc would come down in value even more than the dime in your pocket? Oh, you say, the
floppy may be worth more than a dime as a collector's item. But my question is, can it be sold to
someone who will use it as it was originally intended to be used? Homework: Name one such device that
went obsolete during the Roman times.
Candy's parents and their friends 'uncle whatever' got into reading the gold newsletters back then. I
don't know how much 'uncle whatever' lost. I do know that they couldn't afford to move out of the city to
the burbs. Their one son was living in his parent's basement.
When I worked and studied at the University of Illinois Circle Campus, there was a psychology professor
in our lab performing reinforcement studies on pigeons. He got into silver investing and had enough
success that his behavior was apparently "reinforced". He ended up losing more than $50,000, which
was a lot of money for him. Then he hired a lawyer to sue the exchange. Guess who won. The irony of
a psychologist testing the instincts in animals that cause them to gamble getting caught up in gambling
himself was worth noting. If he is still alive, he is identifying with Corzine, I suppose. Maybe he will write a
letter to Corzine suggesting that his trades would have been profitable had they not "stopped him out".
He should sue the exchanges.
My conclusion is that I should not follow the current popular notion that gold is "safe". After all, the last
time it went up like this back in the '80s, it crashed again. How do I know that it won't do that again?
Especially because after we see deflation in computers, it seems that we are going to see deflation in
education, in engineering (by using those cheap computers to simulate experiments rather than perform
them) in energy, in materials, in medicine, in pharma (VRTX) and in manufacturing. When an
earthquake causes Los Angeles to "fall into the ocean", where will I get those items which are
manufactured there? Three D printing with inexpensive materials and inexpensive energy. Why will the
plastic for my 3D printer be inexpensive? Because we currently keep the price of oil high by incinerating
it. Yes, it is true. We take that precious "black gold" and burn it in our cars and our trains and our
airplanes. We burn it for heat on the east coast. We burn it for electricity as well as burning coal.
When we burn coal, we get the radioactive elements and the mercury in our fish. Why are we burning
physical substances to get energy? Ignorance. Just plain ignorance. Backward thinking and
ignorance. Do I support wind and solar and a government policy to drive up the price of petroleum? No,
I don't. Do I think that wind and solar will create "good paying jobs" for "middle-class" Americans? No I
What is the biggest threat to my life? People wanting to steal the food that I have horded in my
basement? People wanting to steal my gold coins that I have horded? When I manufacture all of the
energy that I need in my basement, what will the power company do with all of that copper wire they
have strung all over the place? When I can grow my own food in my own hot house with my own energy
supplying all of the sunlight that is needed, at that point in time, I can locate myself anywhere that the
earthquakes and volcanoes are least likely to cause me grief. Other people are not as likely to be my
enemy as mother nature. I don't need a mainframe computer like the old days. I have my locally situated
PC. I won't need a Main Central Power Station power source like the old days. The similar advance of
technology will have provided me with a locally situated power source. Most people don't see this trend
as clearly as I do. If you keep concentrating on Roman History rather than the fact that a transistor cost
half as much as it did two years ago, then you will be easily led in the wrong direction, IMHO.
Think of it this way. The Romans didn't have to live with facts such as "250 million photographs are
uploaded to FaceBook every day". The information that humans choose to store is doubling every year
in 2012, not so in 100 AD. Will the history book ever read "The library of Congress was burned down,
everything was lost". Not really. It might say that the physical books were lost, but the information will
have been backed up. Meanwhile the unfortunate Roman you speak of reads in his history book, " In
Alexandria in 48 BC Julius Caesar "accidentally" burned the library down when he set fire to his own
ships to frustrate Achillas' attempt to limit his ability to communicate by sea." There was no back up
copies of much of the literature in that library according to Plutarch. Not only is the library at Alexandria
not being burned down, it is doubling every year using hard disk drives.
Just when every last economist knows that inflation is coming, I am looking for deflation. Why? Because
technology is deflationary. When the deflation in energy comes, be prepared.
Hugo Chavez, Saudi Arabia, Iran, Iraq, Russia and US Pipelines. It is "obvious" to most people that
Canada is in good shape and is getting ready to make a pipeline to the west coast to ship their tar-
sands oil to China. By the time they have it complete, the forces of technology will have made their mark
on the desirability of oil. Schumpeter's creative destruction will have taken its toll. Intel's habit of eating
its own children will once again have made its mark.
But, you say, what am I going to put my money in? Hyperion out of the US is making small nuclear
fission power plants. The stock is not public. Leonardo from Italy/USA is making fusion reactors and a
Greek firm called Defkalion is making a Low Energy Nuclear Fusion Reactor named (confusingly)
Hyperion. None of these companies are public at this time. They won't be going public until after the
"news is out". By then, it will be too late. Which of the firms will dominate this new market? Rossi thinks
like this: "I will be the Scotch Brand cellophane tape and people will pay extra for my quality and 'Brand
Name'." "I will have my factory set up and will be producing in quantity while everyone else is debating
whether the technology works." He is setting up to mass produce his NiH thermal power plants.
Defkalion is working on commercializing their power plants, but is located in Greece, which may not be a
good location at this time (just a guess on my part). Certain aspects of the Defkalion reactor seem to be
superior. The start-up time, for example.
Both companies tell us that they are combining H2 with Nickel but won't reveal the catalyst that they are
using. "Everyone" who has read the literature now knows that it works and that is only finding out the
catalyst and the surface treatment of the nickel. The nickel should be made in fine particles, perhaps 5
nanometers in size. At that size, the nickel appears black. There are more than 200 labs x experiments
showing that various forms of cold fusion can take place without the temperatures of a Tokamak reactor
such as what is being attempted in France at present. Literally tens of billions of dollars have been
invested by governments into Hot Nuclear Fusion. The fellow who most vociferously attacked Pons and
Flieshmann was the fellow who helped develop the Hydrogen bomb. His whole life and science is
dedicated to Hot Fusion and making a peaceful contribution with it. An MIT grad wrote his thesis proving
that the Tokamak won't work. He cannot get a job in physics so he has switched to biology. Apparently
humans are more often political than scientific.
Side note: FACT: One can produce Helium by setting off sparks in the presence of Heavy Water (D2O).
Given that, why is the presence of Deuterium in sea water only 0.6%? It occurs to me that perhaps the
water in the atmosphere as lightning strikes combines any two D molecules that are close to each other
and the lightning. They would become Helium. Over time, this would reasonably cause the
concentration of D to head below 1% as observed. Given so few D2 atom pairs, (0.006^2) it is now rare
that two are joined by lightning. How would this explain that Tritium (one electron, two neutrons and one
proton) is very much rarer? Think about it. That water in the atmosphere that would have one T, would
most likely be paired with one H and the requisite O. With the T so close to the H, it is much easier to
form Helium by combining T with H. Much easier than finding two D close together. These curious facts
add to the theory of fusion that is being proposed actually is more common than we have been
picturing. Next time you watch a lightning storm, picture that fusion is taking place out there. Feeding
D2 into a continuous spark to produce excess energy is not a terribly attractive means for producing
energy. By the time you concentrate the D2, you have spent most of the energy that you wished to
acquire. It is especially unattractive when compared to Nickel plus Hydrogen. Nothing special in the
latter reactor, nothing rare to gather. Probably simply fine granules of Nickel, Palladium and pressurized
Hydrogen gas. Defkalion ignites their reaction with a six-second electrical signal and a small "explosion"
to get their unit started. Leonardo's unit takes 1 hour to start. It occurs to me that one should be able
to start a small section of one unit and once it is going, have it start the rest of that unit and the other
units. Not sure I my idea will work. Mitch is coming over tonight and we will discuss it.
Is this situation comparable to Roman times? Did they have Evi and Siri on their smartphones? Could
they ask questions of their "Pocket AdvisorBot"? Did they live in a time when technology happened so
fast that one can remember when the Library of congress was only 6 TeraBytes and information was not
yet doubling every year. Remember the 1/4" tape recorder and the 8-track cassette recorder and the
Philips cassette recorder? Remember the 78 RPM records, the 45 RPM records and the 33 RPM
records? Remember the floppy disc? Where did it go? The thumb drive has 4 gigabytes and the floppy
was only 1.44 Megabytes. Okay 2.88 Megabytes on the new double density just before it went obsolete.
Did the Romans live in a time when such items came crashing down to worthlessness? Think about it.
The dime in my pocket has no silver. Yet that dime is worth more than the floppy disc.
The fellow writing the newsletter leaves out these "inconvenient facts". Since you don't acquire
"gadgets" and technological marvels at the pace that I do, it is easier for you to neglect seeing what the
newsletter leaves out. Your worldview tends to be 1960 plus your computer and perhaps fuel injection
in your decade old car.
Yesterday I went over to the Walgreens in Lincolnshire and parked my Volt at their charging station. I
swiped my ChargePoint RFID card over the unit and it delivered 3.44 KWh of energy to my Volt while I
went for a walk down to the DesPlaines River Trail and back. As I walked away from the Volt, a man
stopped me and asked how long it took to charge my car. The 220 VAC station takes maybe 4.5 hours
and 120 VAC maybe 9 hours. Businesses who have 440 VAC can charge a Nissan Leaf to 80% in half
an hour. I told him that I had not added any gasoline to the car since I purchased it November 7, last
year. Would a Roman be impressed by such technology? Would you be able to describe disruptive
technology to a Roman of 100 AD? The Japanese need rare earths to make electric motors. Perhaps
they will need Palladium to manufacture the LENR energy units to power the cars. When energy is
cheap, won't people prefer precious metals for LENR reactors and Rare Earths for their motors in their
LENR powered cars to owning gold? I find absolutely no mention of gold in any of my books on LENR.
Palladium is mentioned all of the time.
On Wed, Feb 1, 2012 at 8:38 AM, Bob Russell <email@example.com> wrote:
Here's a compelling description of the 'fiat currencies', i.e., paper,
in history. Our country seems well on its way to its date in history
for an eventual collapse in the value of the dollar.
Hey! Have a great day! ...:)
----- Forwarded Message -----
From: Uncommon Wisdom <firstname.lastname@example.org>
Sent: Wednesday, February 1, 2012 8:32 AM
Subject: Fiat Currency Failure! In Gold We Trust - Here's Why
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Wednesday, February 1, 2012
Fiat Currency Failure! In Gold We Trust — Here's Why
by Kevin Kerr
No matter where you live or travel — America, Europe, Asia, South America, China, etc. — you use fiat
currency, at least in one form or another.
Paper money (whose value is dependent on governments and not tied to any fixed standard such as
gold) is just a fact of life.
Our wealth and financial health are determined by the amount of money in our investments, bank
accounts and other holdings. But the influence goes beyond a government's regulations, laws or other
That is, they are subject to the daily fluctuations and whims of the currency markets. And lately, those
fluctuations have been volatile ... to say the least.
We'll talk about how to best protect yourself from the unavoidable dangers of fiat money in just a
moment. But first, let's take a look at just what happens when paper money goes up in smoke (and why
Graveyard of Currencies
You might have become very nervous watching your personal holdings evaporate as the underlying fiat
currency — whether it's the euro, U.S. dollar, yen, pound, franc or most others — loses value.
Around the globe, investors are scrambling to move their hard-earned wealth into a safe harbor that will
provide them with real, tangible assets. It's a simple fact that fiat currencies have proved to be relatively
short-lived, and this tends to make them a very poor investment, by historical standards.
A study you might find intriguing was done on 775 fiat currencies by DollarDaze.org. In this study, it
determined that: "There is no historical precedence for a fiat currency that has succeeded in holding its
The study showed that 20% failed through hyperinflation, 21% were destroyed by war, 12% destroyed
by independence, 24% were monetarily reformed, and 23% are still in circulation and approaching one
of the other outcomes.
Zehn milliarden was the 'mark' of hyperinflation.
Not a pretty picture at all.
In fact, the report showed that the average life expectancy for a fiat currency is 27 years, while the
shortest lifespan was about one month.
History Repeats Itself, Repeatedly
One of many historical examples we can look at is from an empire that thrived ... one that grew to
incredible wealth and prosperity. Then corruption, greed, arrogance and, above all, currency
devaluation caused its eventual fall. (No, I'm not talking about the U.S. dollar — not yet, anyway!)
I am, of course, talking about Rome, where the denarius was the currency of choice. And while Rome
didn't actually have paper money, it's still one of the best examples of the debasement of a currency
The denarius was the coinage of the time (at the beginning of the first century A.D.), and it was
essentially pure silver.
Around 54 A.D., Emperor Nero was in charge, and the coins were reduced to approximately 94% silver.
Fast-forward to around 100 A.D., and the silver content was down to just 85%.
The devaluation pattern continued after Nero, because each emperor liked the idea of devaluing the
currency in order to pay the bills and increase his own wealth. This appealed to them more than actually
paying those bills.
Burning German Weimar Republic marks for heat was the best way to get value for them!
So the ugly pattern continued and, in 244 A.D., Emperor Philip the Arab had the silver content dropped
to 0.05%. Around the time of Rome's collapse, the denarius contained only 0.02% silver. The coinage
was virtually worthless and basically nobody accepted it as a store of value or trusted medium of
The story of Rome is far from unique. We have lists of fiat currencies that today are simply a bad
memory. One of the most stunning examples is the German Weimar Republic mark.
Inflation got so bad during this period in Germany that citizens were using stacks of mark notes to heat
The tale is in the tape if we look at the historical timeline of exchange rates for the German Weimar mark
to one U.S. dollar.
April 1919: 12 marks
November 1921: 263 marks
January 1923: 17,000 marks
August 1923: 4.621 million marks
October 1923: 25.26 billion marks
December 1923: 4.2 trillion marks
Given the underwhelming track record of fiat currencies, it's clear that, on a long-enough timeline, the
survival rate of all fiat currencies drops to zero. So investors are starting to realize that the only true safe
haven for their hard-earned wealth is diversification ... namely into the precious metals.
In 'Gold' We Trust
The full faith and credit of the United States simply doesn't give the global financial markets the warm,
fuzzy feeling it used to. In addition, euro-zone investors and consumers have certainly had their faith
rocked by the eroding value of the euro. And around the world, fiat currencies have been shaken to the
core by devaluation, low or no interest rates, and out-of-control debt and borrowing.
Not only is it no wonder that we are seeing gold and silver rise in this environment, but it is also likely
that we are only at the very beginning of this cycle. This means gold and silver have much further to go.
Plus, we are seeing more and more active buying out of China, and the Year of the Dragon will surely
support even more buying than usual.
The biggest surge in buying is going to be from investors who have always shied away from precious
metals and have finally realized that, in today's world economy, it's imperative to have some exposure to
precious metals — even if it's just as a hedge for your fiat currency holdings.
Bring Your Paper Money to Life
Whether you're a new or experienced investor in the gold and silver arena, I suggest creating a basket
of different holdings in gold and silver.
Actual physical bars and bullion are certainly an element you want to consider. I suggest avoiding coins
(numismatics), as this can require special knowledge and, while it can be profitable, it also carries
additional costs and risk.
Key mining stocks should also be a part of a core protective portfolio, so you should consider picking
two to five major gold producers with good infrastructure, mining sites and cash flow. Stick with bigger
names and buy on dips.
A few key gold and silver ETFs are worth examining and adding on pullbacks, like the SPDR Gold Trust
(GLD) (on which we currently hold call options on in my Master Trader service), the Market Vectors Gold
Miners ETF (GDX) and the iShares Silver Trust (SLV).
The bottom line is that the money we have in our pocket is simply paper with ink and some pictures and
promises. Having something tangible that you can hold in your hand as a real store of value can be very
comforting and profitable, indeed.
The question you must to ask yourself is: Can I afford not to take action on this currency risk any
longer? The time has come, and I'm sure you'd rather do it now — before the next fiat currency funeral
Kevin Kerr is a considered one of the best resources on how to trade commodities, futures, and options
for the new and advanced resources trader alike. He is co-editor of Global Resource Hunter, a monthly
newsletter designed to help you ride the commodity supercycle — an ongoing surge in price of food,
energy, metals and more.
Kevin is also the editor of Master Trader, a service meant to use ETF options for gains in any major
asset class in the world — stocks, precious metals, commodities, bonds and even foreign currencies —
no matter what event or trend is happening in the world!
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