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Inflation, Hyperinflation and GDP – Protect Your Wealth with Gold

What is Inflation and Hyper-Inflation?

Ron Paul stated that inflation is a simple concept to grasp: more money equals less value. Per Investopedia, hyperinflation is “rapid or out of control inflation” and is often due to a substantial increase in a nation’s money supply not supported by corresponding growth in gross domestic product (GDP). Note Investopedia’s definition of GDP: “The monetary value (our emphasis) of all the finished goods and services produced within a country’s borders in a specific time period.”

GDP is Meaningless and Misleading
Alasdair Macleod – former stockbroker on the London exchange, mutual fund manager and Guernsey bank executive director – makes the case that GDP as an economic indicator is not only meaningless but misleading. He claims GDP is impossible to accurately measure when considering the complexity and subjectivity involved in evaluating the total output of a nation’s goods and services. Instead, what economists really measure is an economy’s total money supply.

How Can the Total Value of Goods and Services Vary in a Sound Money Economy?
If an economy has totally sound money – i.e., one that is not a fiat currency – then there is no variation in its quantity, assuming no cross-border flows. Historically, the prices of goods and services in a sound money economy fall over time due to higher production efficiencies and evolving technology. If adjusted against the distortions of fiat money, government spending (a net economic cost) and the rise in price levels due to monetary and credit expansion, U.S. GDP has remained flat for over 50 years. Macleod makes the astounding observation that if GDP had been measured during the early years of the Weimar Republic, Germany would have basked in the glow of an unprecedented post-WW1 economic boom. Most importantly, he challenges the doubter to explain how the total value of all goods and services can vary in a sound money economy.

Since the Establishment of the Federal Reserve in 1913 the Value of the U.S. Dollar Has Plummeted
And it’s only going get worse as the Federal Open Market Committee (the Fed’s policy arm) stated in 2012 that their intent is to devalue the dollar by an additional 33%. The Fed has implementing this policy by buying billions and billions of dollars in bonds per month. Where is the source of the money? They print it! The stage is being set for an onslaught of inflation and further economic turmoil.

The Price of Gold Has Multiplied by a Factor of 44 Since 1971
More accurately, the purchasing power of the dollar has collapsed by the same factor since Richard Nixon ended the dollar’s convertibility to gold following the demise of Bretton Woods. The dollar is one of the world’s ‘reserve currencies” yet its value diminishes as more currency is printed. It’s a great deal for the U.S. since we own the printing press; not so much for other nations if the value of their currency is pegged to the dollar. It’s why emerging economic powers like China and India are buying gold at an astonishing rate – between 2007 and 2012 China doubled its gold reserves. Their plan? Put gold back in play as part of the Special Drawing Right (SDR), the IMF’s composite currency.

The Fed is Manipulating the Price of Gold and Silver to Protect the Dollar
While the world is deserting currencies such as the euro and the dollar, the Fed continues to print trillions of dollars and so the supply of dollars is quickly overtaking demand. How can the Fed manipulate the price of gold? Through the orchestration of brokerage houses such as Goldman Sachs clients were “informed” that institutional investors and hedge funds were deserting gold; thus they should follow suit. It was a ruse to prevent the torrent of dollars into bullion. Note that the recent plunge of gold prices was followed by an immediate recovery in the days following gold’s nadir. This market unsettlement is ominous, as gold plunged by 21% in July 2008 only to be followed by the stock market collapse later that fall.

“The Great Cypriot Theft”
Normally the decision to tax Cypriots’ bank holdings would cause mass flight from the euro toward safer havens such as gold. Thanks to its market manipulation of precious metal spot prices, the Fed is attempting to bolster both the value and trust of reserve currencies like the dollar and the euro. A bank run and falling gold prices are impossible to explain except by market manipulation. The groundwork is being laid in America for the Fed’s “taxation” of Americans’ deposits because

The supply of dollars is quickly overtaking demand
The Fed is printing trillions of dollars to finance the U.S. deficit, keep interest rates low and prop up the U.S. Treasury bond market
Breakneck depreciation of the dollar
The abandonment of the dollar in other countries’ bilateral trade
Signs abound that the dollar is ripe for collapse with the corresponding ascension of gold. Note Germany’s recent decision to repatriate its gold from the U.S. and Texas’ plan to establish its own “bullion depository.”  Holding gold is a basic strategy to protect against inflation and hyperinflation. In fact, hyperinflation has occurred often during the past century as the chart below demonstrates.

Confiscation Plans for U.S. Depositor Funds
Most Americans don’t know it but legally the bank owns the depositor’s funds immediately after they are deposited. Your money then belongs to the bank and you are an unsecured creditor holding IOUs. On 10 December 2012 the FDIC (before the Cypriot Bank theft) announced plans to convert depositors’ IOUs into “bank equity” if needed in preparation for the next financial catastrophe. No exceptions have been made for FDIC “insured” deposits.

Protect Your Wealth with a Gold IRA
Actually, the recent downturn has presented itself as an ideal opportunity to establish or bolster one’s position in gold. An investor can legally establish or rollover an IRA backed by precious metals including gold. Perhaps the safest and easiest way to fund a gold IRA is by purchasing gold numismatics such as American Eagles, Austrian Philharmonics or Canadian Maple Leafs. Or you can consult a reputable fund manager with proven performance. The fact is that no paper-based financial instrument – stocks, ETFs, bonds, etc. – can protect the investor from inflation. Remember the carnage of 2008 when millions of Americans lost their savings. Protect your investment with gold.

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