If you are among those who think that money is safe because it is in bank CDs (certificates of deposit), corporate bonds, municipal bonds, money-market funds, and so on, ‘Conquer the Crash: You can survive and prosper in a deflationary depression,’ second edition (www.wiley.com) has a word of caution: That most of these investments depend upon the solvency of some creditor institution that will probably not survive the developing depression.
You should, therefore, continue to hold most of your liquid wealth in Treasury bills, greenback cash, short-term debt of Switzerland, Singapore and New Zealand and some gold, ideally held in safe depositories such as those identified by SafeWealth Ltd., based in Switzerland, advises the book’s author, Robert R. Prechter, Jr.
A chapter on ‘reliable sources for financial warnings’ opens by stating that the most widely used rating services are almost always woefully late in warning you of problems within financial institutions.
“They often seem to get news about a company around the time that everyone else does, which means that the price of the associated stock or bond has already changed to reflect that news. In severe cases, a company can collapse before the standard rating services know what hit it. When all you can see is dust, they just skip the downgrading process and shift the company’s rating from ‘investment grade’ to ‘default’ status.”
SafeWealth Group uses a stringent ‘survivability indicator’ for financial institutions globally, taking not just the present balance sheet and corporate structure into account but also the institution’s projected viability in a financial crisis or depression, the author informs.
Depressions are a mess, he had ominously written in the 2002 edition of the book. “You may have money, but certain goods might be scarce or rationed. You might be financially smart yet get caught in a war zone.” More worryingly, the main influence of a bear market may be to cause society to polarise in countless ways, warns Prechter.
“In a bear market, people in whatever way are impelled to identify themselves as belonging to a smaller social unit than they did before and to belong more passionately.” He reasons that this is probably a product of the anger accompanying the bear markets, which wipe out much of the middle class.
A question that the author had raised in 2002 was, ‘Should you rely on government to protect you?’ Alas, the government can be a disappointing guardian, he laments, in answer. Government is rarely prepared for national financial calamities or economic depressions, Prechter explains. “This is not a result of personal failures so much as an aspect of collective human nature. People are often prepared for the past but rarely for the future.”
When the bust occurs, governments won’t have the money required to service truly needy people in unfortunate circumstances, he had predicted. “They are likely then to make things worse by extending ‘unemployment benefits,’ which sucks money away from employers and makes them lay off more workers, by raising the cap on retirement benefit taxes, which takes money away from employees and makes them unable to save and spend, and by increasing taxes generally, which impoverishes productive people so that they cannot spend and invest.”
When the crisis reaches an extreme, he foresees that people may rediscover the values of using gold as money and give up on the idea of central banking. “I want to be among the advance guard of the new monetary era by owning accounts denominated in real money, not the ‘IOU nothings’ offered by banks worldwide under the fiat-enforced, debt-based, money-substitute system.”
The book speaks of a patented way to own actual gold, GoldMoney of James Turk, using which you can transfer US dollars, Canadian dollars, euros, British pounds, Swiss francs, or Japanese yen electronically from your checking account to buy grams of gold, called ‘goldgrams.’ The company stores the metal in London and Zurich vaults insured through Lloyd’s of London, and external auditors ensure that it has the gold credited to your account.
“You can use goldgrams as currency simply by ‘clicking’ goldgrams from your account to someone else’s GoldMoney account. Essentially, GoldMoney is like online banking except that your account is denominated in goldgrams and mils, not dollars and cents.”
A Bloomberg report dated December 31, 2009, informs that the Channel Islands-based GoldMoney.com held $911 million in gold, silver and platinum for investors at the end of November. “The purchasing power of all currencies is being eroded. I look at the real price of goods and I see hyperinflation for the dollar in the not-too-distant future. That means a declining value of the dollar and higher gold prices,” reads a quote of Turk cited in the story.
‘Another form of cash’ that Prechter mentions is the ‘Certificate of Indebtedness’ for holding ‘cash relatively safely and in large amounts.’ The ‘C of I’ is a Treasury security that does not earn any interest and has no fixed maturity, he notes; and it can be bought, sold and held only in a TreasuryDirect account, which is run by the US Treasury and is open to all investors, even those with as little as $1,000 to invest. “The intention of the instrument is to provide a temporary vehicle for holding funds designated for future Treasury security purchases… There is no limit on funds kept in the C of I, and redemptions can be made at any time. In many ways, this option is like using the US Treasury as the banker for your deposits.”
Among the appendices to the book is a section on ‘the next phase,’ where the author reminisces that the two ‘d’ words in the subtitle to the book were anticipatory, published at a time when the likelihoods of their happening were considered as remote as ‘being eaten by piranhas.’ His advice is, therefore, simple and straight: ‘Keep your toes on the riverbank.’
Similarly graphic is the description of the ‘big five’ central banks – the Federal Reserve, the Bank of Canada, the Bank of England, the European Central Bank, and the Swiss National Bank – as ‘five outlaws’ at one end of a dusty street. On the other end of the street stands the ‘monster’ that they created and nurtured in their global lab, the author adds.
“The outlaws have opened with a barrage of bullets. But the only bullets they have are made of the monster’s very substance: debt. Every bullet that hits him only makes him stronger. And now the monster is beginning to draw his gun, and it’s a bazooka. He is taking aim. The monster is about to overcome his makers…”
Prescribed study for the frightening times.
