Customer Reviews

The Coming Collapse of the Dollar and How to Profit from It: Make a Fortune by Investing in Gold and Other Hard Assets

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I just finished reading The Coming Collapse of the Dollar and How to Profit From It By James Turk & John Rubino published in 2004. James Turk is founder of GoldMoney.com, the leading digital gold currency payment system. John Rubino is the author of How to Profit from the Real Estate Bust.

I've posted a lot about inflation and gold, the Federal Reserve, and the destruction of the US Dollar. I have read about the inflation that Germany experienced after WWII, the devaluation of the Mexican Peso and the Argentine Peso. If that is our future, I wanted to have some idea of what is in store for us and. The book is divided into four parts and is well written and difficult concepts are explained well:

Part One - Why the dollar will collapse
Part Two - Money Then and Now
Part Three - Wht Gold Will Soar
Part Four - Profiting From The Dollar's Collapse

In part one we learn that we have a fiat currency, backed by nothing except a decree that the US Dollar is legal tender. Throughout history, in order for governments to satisfy demands without raising taxes, a government not only begins to debase its money, but inflates as well. Both are happening in the US and no government has been successful. We have a history of that in this country with the Continentals and the Confederate currency, both worthless.

Another fact that dooms our currency is that we have too much debt. Total unfunded liabilities of the US are in excess of $43 Trillion, as a society we owe another $37 Trillion and Derivatives are in excess of $200 Trillion.

Then we have a trade imbalance which just topped $800 Billion for 2005. We have been up in arms lately by the Chinese wanting to buy Unocal, then Dubai wanting to own our eastern port management companies and Dubai wanting to own some of our critical defense industry by trying to buy Doncasters Turk and Rubino point out on p31:

Foreign investors now own about $8 trillion of U.S. financial assets, including 13 percent of all U.S. stocks, 24 percent of corporate bonds, 43 percent of Treasury bonds, and 14 percent of government agency debt. By the end of 2003, about a third of Fannie Mae's mortgage-backed bonds were being sold outside of the U.S.

That was in 2003 and it has gotten considerably worse. What's in store for us:

Over time, the gap between tax revenue and the demands placed on government tends to grow, and spending, borrowing, and currency creation begin to expand at increasing rates. Inflation accelerates, and the populace comes to see the process of "debasement" for what it is: the destruction of their savings. They abandon the currency en masse, spending it or converting it to more stable forms of money as fast as possible. The currency's value plunges (another way of saying prices soar), wiping out the accumulated savings of a whole generation. Such is the fate of every fiat currency.

The government wants to keep this game going as long as possible by issuing phony CPI numbers, then by excluding energy and food, concentrating on a "core" rate. Phoney low inflation numbers keep bond yields down and "COLA" adjustments low. What is the housing bubble, but selling USDs for a tangible asset. Gold is a warning sign and a rising gold exchange rate is fought by capping and leasing gold, until the central banks are short 12,000 to 16,000 tons. And now one of the tools Turk and Rubino use, The Fear Index, to gauge where gold is going in the next few years will be handicapped by the ending of release of M3 data.

Turk and Rubino do an excellent job of instructing you in Part Four. Can you profit from your knowledge of an impending collapse of the dollar? How can you protect yourself? How can you protect your accumulated savings?

I highly recommend this book to professional and novice, alike.

The authors do a good job of explaining how to invest in gold and how to put a portfolio together (from coins to mining stock).
Following the advice and investing all your funds into gold and a limited number of stocks could be self destructive though.

However, as the authors point out, the Government has confiscated gold before - and could again. If things get as bad as they suggest Governments could nationalize mines ........

If the authors are on target with their predictions, investing now in an assault rifle, a cabin in the woods and alot of tinned food would make a better investment than gold.

Gold could very well make a great investment given a sliding dollar; the argument that the dollar will collapse completely is taken to an absolute extreme (the Dollar Crisis, Causes Consequence Cures, covers the same ground more convincingly).

Useful book - worth considering as part of your personal investment strategy. However, I wouldn't plan my portfolio around the authors advice alone - having too great a dependance on any one asset class can be bad. Advice on how to invest in gold (practicalities)is very good though.

The authors are convinced that the dollar will collapse, but their book is far from convincing. Even if the dollar does collapse, it might not do so for years or even decades. They offer up historical and theoretical reasons why the dollar should collapse, and they sound persuasive, but they never show exactly WHY the dollar MUST collapse.

That said, if the dollar does collapse, then following their advice should prove fruitful. They present a number of different ways for both relatively conservative and aggressive investors to profit. But, embarrasingly, one of the contra-dollar mutual funds they recommend (PIMCO Foreign Bond) is actually a dollar-hedged bond fund, meaning it's not designed to benefit from a dollar decline. I guess they didn't bother to read the prospectus.

Their model portfolios would have even "conservative" investors basically place all their bets on a falling dollar. This is arrogant and irresponsible. Unless you're a speculator who can afford to lose big, you need some diversification (cash, short- term U.S. bonds, dividend stocks, etc.) so that a dollar rally won't lead to huge losses. I'm about 1/3 gold/contra-dollar, 1/3 cash/short-term bonds, and 1/3 dividend stocks. (I am avoiding long-term bonds completely until we see at least 7% yields to compensate for the risk.) When I become bearish on stocks, which I expect to do by 2006, then I may go up to 49% contra-dollar and 51% cash, but I'd never bet more than half my dough on a single investment strategy and no responsible advisor would suggest that you do.

Strangely, the publisher touts praise of the book from ultra-bear Robert Prechter, whose predictions have been pretty lousy of late. Prechter is a deflationist who has been a long-term bear on gold for quite some time. Did Prechter bother to read this gold bug tome before he lavished praise on it?

Gold is money, yes, and everyone should have some. But that doesn't mean "money" is or will be the most profitable asset to hold. We just don't know. If this book can convince some of those people who have been taught by Wall Street and CNBC that all they need is S&P 500 index funds -- and maybe some bonds -- to diversify into hard assets like gold, it will serve a useful prupose. If it turns sane people into raging gold bugs who mortgage their house to stockpile gold coins and go on margin to buy shares in mining companies (something the authors actually suggest since they're so sure gold is going up), then this book is just another vehicle for creating more gold bug losers who get caught up in a mania and ride it down to the inevitable crash (the irrationally euphoric gold bugs of the late 70s are STILL trying to recoup their losses).

The world is today awash with liquidity. Thanks to the extravagant living backed by paper currency, America is today the world's largest debtor nation. Though debt by itself is not bad, it is dangerous both to the borrower and the lender if it is not backed by productive assets. This book is about the origin and consequences of such a situation and the currency that has helped inflate the global monetary bubble on a scale that is threatening to burst on our faces.

First the book gives a good definition of money as a standard of value, store of value and a medium of exchange. Going by this definition, over the centuries mankind has experimented with several monetary equivalents including cattle, sea shells, metals and the like. Whatever the medium, there was a definite asset equivalent attempted to be stored in money. This system got refined over the years and ultimately gold emerged as the undisputed monetary standard in the nineteenth century. Under this system, governments and central banks had to maintain gold equivalent in their vaults for the paper currency issued by them. Excessive government spending was thus effectively curtailed and exchange rates were automatically balanced. It is the gradual deviation and debasement and later the outright abandonment of this system in 1971 that seems to have led to today's situation where the dollar has just over 1% of its value as gold reserves with the Fed.

In an imminent possibility of a virtual run on the dollar by creditor nations and oil exporting countries, the dollar is bound to plunge. Gold expressed in dollar equivalent will surge. This logic does not need any further explanation. But what is more interesting is the discussion on alternate investment strategies that can outperform gold in real terms. Silver emerges as a surprising and sure alternative. Unlike gold, silver gets consumed in large quantities in industrial use and not reclaimed. Hence the quantity of silver available above the ground is actually reducing. When there is a rush to convert paper currency into precious metals, the authors expect silver to rise faster than gold due to these fundamentals. If gold is a Boeing 747, silver will be an F-16 is a good analogy.

The book discusses some facts on mining of gold and different categories of companies involved in this industry. Depending on factors like asset base, quality of mines, financial and operational leverage, quality of management and country risk, each of these are analyzed for their risks and potential returns.

Numismatics also gets a fair share of the coverage.

The book is however bound to come under severe criticism on the following grounds.

- Gold is not the only possible store of value
- The fundamental principles on which monetary expansion kick starts economic expansion is completely ignored
- In a global economy where currencies are tightly linked and freely traded, only the dollar is isolated for criticism
- Unbridled monetary expansion is bad, but return to gold standard is ridiculous in a modern knowledge based economy
- Large transaction and holding costs in buying gold is not the efficient way to deal with investments.

Despite these shortcomings, gold will continue to retain its excellent qualities and reading this book will only add glitter to this noble metal whenever you see it.

I like the book. Bottom line for me is that trouble is coming and we all need to be prepared. Recently, on the 5 year anniversary of Nasdaq's high , I was reading in our local paper about the dramatic downturn and thinking about the many people I know who are in the tech industry and lost much of the value of their 401K's not to mention their jobs and are still desperately today looking for work. Many of these guys have taken huge paycuts just to keep working. WE are still feeling the effects of that bubble. The weird thing is that I also recall briefly reading a review of John Rubino's book about the tech bubble before the burst and feeling that he was probably wrong.

I think its wise to consider their advice as there are many things to take from this book that will help provoke thinking ( and then compare to the daily news). Inflation is rising, people are strapped for cash, with huge credit card debt, plus their mortgage rates are rising. I personally know people here in the Bay Area who have put no money down on a half million dollar 2 bedroom condomiums and are barely making ends meet now. If there is an accompanying recession, it will be doubly painful as most have no savings or fall back plan. For me, it is a chance to take a good look at what I am doing with my money and my investing so I appreciate the research they have done.

I do not consider myself an investment guru or pretend to be, just trying to look out for myself when I sense things are terribly wrong.

I recommend this book !

The title and subtitle of this book really should be swapped. However, the choice is understandable - gold has a stigma unmatched by any other investment. Gold has been a money pit for longer than most people can remember. If you want a definition of a bear market, look at the price of gold over the last 25 years. As such, there has not been one single good book on investing in gold. Until now.

The book is in two parts. The first part makes the case for a weaker US dollar. Although Mr. Turk and Mr. Rubino hit all the important points, it is far from thorough. Those who do not know that the US dollar has been declining for four years will be in for quite a shock in these chapters as this information has been glossed over by every major financial publication in the US. Those who do know and understand why will want to skip forward or read Richard Duncan's "The Dollar Crisis" which is much more thorough but also much more dry.

The natural hedge against a declining US dollar is gold. This leads to the second part which is far more valuable. They thoroughly discuss all possible ways to invest in gold and its cousins. This is not a theoretical treatise. For example, the authors describe how to buy gold and even name places where you can go to buy gold. They cover gold stocks, both big and small, naming specific companies. They even cover a new breed of options for gold stocks. Model portfolios are provided. Websites for gold related news are cited. Gold related newsletters are listed. No other book that I know of provides this type of specificity and thoroughness.

Controversially, Mr. Turk and Mr. Rubino see no problem in putting 100% of your assets in gold and gold related investments. In fact, they make the argument that anything other than gold is imprudent. It should be noted that even those who agree with their premise will dispute this assertion. But as I mentioned, the subtitle of the book is the more appropriate title - this is a book about gold, plain and simple. One may not agree with the authors' narrow recommendation, but this book still provides an excellent guide to the portion of your assets that you do choose to invest in gold.

This is a timely and unique book.

This book has some good introductory information, and is probably of some use to anyone considering gold or silver as an investment.

With that in mind, these guys are gold bugs, or hucksters putting the hard sell on for gold. Period. Their portfolio "diversification" strategies are basically between holding actual gold and mining stocks. I mean...thats it! NOTHING else. That is just plain loopy, and frankly irresponsible to recommend. We are to conclude that NO other commodity would be worthy of investment? We are to conclude the entire world will only want to hold gold, and no other asset? Yes, in an absolute financial melt-down, gold and silver would offer some big benefits, but folks owning other basic materials would not do so badly either. Maybe better. That bears discussion, but gets very little.

They are either lazy in their writing, or are deliberately overlooking certain facts in conveying their advice. For instance, in their chapter on direct investment in gold, they make it sound like holding physical gold basically has no advantages to investing in digital gold. I found that curious, since there are obvously some advantages to holding the actual gold, versus the representational forms. Then, later in the book, they finally fessed up and said that James Turk is one of the main backers of "digital gold". After putting a figleaf on how it is a conflict to recommend this means of owning gold, they devote a whole chapter to how this will be the NEW currency, and the only way to hold "cash."

Their advice is poorly considered in at least a few places, so it makes me wonder how much thought they put into anything else. Their discussion of aggressive strategies very briefly discusses buying mining stocks on margin. They show the gross profits from margin trading, but do not even mention the cost of borrowing the funds to do so. Yet, in other chapters they rant about how its VERY dangerous to have variable rate loans, since these rates will go through the roof! So guys, wouldn't it be worth understanding how a soaring rate scenario would affect your margin holdings? Nah! Just throw out a few numbers and move on to the digital gold thing.

I have just read "Hot Commodities" by Jim Rogers, and it is a clearly superior book. No obvious hype, a lot more facts and logical thinking. By the way, he makes a pretty good argument why gold is likely not such a good investment compared to other commodities. Now...he too is selling his RICI index of commodities, so he is not fully objective. But at least he makes a reasonable attempt at proving out his thesis.

As for some of the above reviews, they smell a lot like shills. They are so over the top in praise of this mediocre book, I would discount them considerably.

It is the authors' contention that gold will rise to a thousand dollars an ounce. Properly viewed gold's value as a medium of exchange for essential commodities will not actually rise. It will likely still buy the same amount of food or oil absent transient shifts in supply and demand that it has for decades. It will hold its value because gold is money. It will be the U.S. greenback that will lose its purchasing power because it is a money "substitute" a fiat currency subject to government mishandling (viz. inflation).

History provides ample evidence of governments expanding and diluting their money supply to satisfy their various constituencies. Expensive social programs buy stability and growth. At the same time printing more currency to fund these programs avoids having to tax society with the bill. But the question a reader must ask is whether the authors have made a persuasive case for this happening in the immediate future. Investors believing the latter might follow this book's recommendation to build a portfolio consisting mostly of gold and precious metal assets and their mining company stocks. The decline of the dollar and our mushrooming trade deficit's impact on the dollar is a cause of legitimate concern. Richard Duncan's THE DOLLAR CRISIS [2003]covers this topic in forceful detail. But while post World War I Germany defined hyperinflation in just a few years Rome lasted for centuries before its economy imploded. Does the investor divert their resources to build a shelter today gambling that the dollar's end is near, or is it better to continue to address the multiple risks of today by diversifying and gradually weighting their recommendations as evidence mounts.

Proponents of gold have always had a survivalist gene in their thinking. It is helpful to their case to remind us skeptics that in 1933 FDR prohibited the "hoarding" of gold and a year later devalued our currency relative to it by almost seventy percent! But opening foreign bank accounts as the authors suggest has legal and logistical impediments and ignoring currently beneficial investment opportunities outside their metallic frame of reference may be like building a shelter for that inevitably approaching but ultimately uncertain asteroid.

The value of this book is not in adopting its too aggressive and too narrowly focussed portfolio recommendations. Readers will profit by recognizing the value of including precious metals in their holdings, and even more so if they decide to diversify their portfolio to include commodities and natural resource assets in addition to stocks, bonds, and real estate. If you should subscribe to the authors' thesis exchange traded funds (ETFs) that track underlying gold indices may be an efficient and more prudent way of adjusting an investor's allocation than storing gold and evaluating individual mining stocks.

This remarkable book should be read by everyone who has a savings account or a 401K. Even if you don't act on the authors' recommendations, you will see what is REALLY taking place in today's financial markets. I can guarantee that you won't hear any of this on CNBC.

Be warned: the authors are doing something very rare. They're telling the truth.

Turk and Rubino make a very convincing case for a repeat of the 1970s bull market in gold and silver based on the debasement of the US dollar - in what is becoming a mad sprint to win the competitive devaluation war. The deflationary effects of cheap manufactured goods from Asia over the last decade or so, especially China, have lulled people into a false sense of security - but that may well be about to change. China is proving now to be a double edged sword as it's energy demands now start to change dramatically. The revaluation of the Chinese Yuan - under pressure from the US - may also start to create increasingly inflationary pressures.

But will the masses rumble this cocktail of government deception in hiding the true extent of inflation and money hardly worth the paper it's printed on before it's too late? Probably not, because of the sad fact that economics is not "cool". A great pity because a financial crisis does now seem assured - and not that far off.

The book makes clear that people can very easily protect themselves through the early purchase of hard assets like precious metals. However, the authors also advocate buying shares of relevant mining companies but I believe this could be a very rocky road to salvation - at least in the initial panic as they are a paper asset. Moreover, such companies are now experiencing steadily rising costs associated with more expensive energy - a pity the theory of Peak Oil, which was not on most people's investment radar when the book was written is not dealt with in depth as it could only add greatly to the case. Back in the 1970s many share prices were forced down into single digit p/e ratios as a result of high interest rates!

Though a pity this book was not written a year or two later as it would have made the case doubly compelling, the authors make a superb case for the purchase of physical precious metals and unlike so many works covering this type of subject, the book is so very readable. A "must read" for those wishing to protect themselves against the coming debacle - but how many will do so - or take action?