Last updated on March 13, 2014 at 21:25 EDT

NIA’s 10 Most Interesting New NIAnswers

November 30, 2009

FORT LEE, N.J., Nov. 30 /PRNewswire/ — The National Inflation Association today released the following statement to its www.inflation.us members:

“Since the release of The Dollar Bubble, which has already been viewed over 142,000 times in less than one week, we have been overwhelmed with new NIAnswers questions. If you haven’t received a response to your question yet, please be patient. We hope to catch up on our backlog of questions by the end of this week. Thank you to all NIA members who have contributed questions to NIAnswers!

We would like to provide you right now with the 10 most interesting NIAnswers that we have recently added to our database. Please take the time to read and enjoy!

Do you think investing 20% of my cash assets into gold is an intelligent amount and can gold become a bubble and need to deflate at some point?

There is no such thing as owning too much gold. We are at a point where you shouldn’t be holding any dollar denominated assets at all. If you must own cash, let it be a foreign currency like the Yen.

Yes, gold can become a bubble and have to deflate at some point. At this time, the average American thinks gold is expensive and they are selling their old gold jewelry in order to get dollars. Therefore, we are nowhere close to having a gold bubble, we still have a dollar bubble.

Gold will be a bubble when your shoe shiner, taxi cab driver, next door neighbor, and dog groomer are investing into gold. At that point, we believe the price would certainly have to exceed $5,000 per ounce. But, it is possible gold could exceed $5,000 before it becomes a bubble. It depends on how long the Federal Reserve keeps interest rates artificially low and how much money they print.

Where is all of the money creation if M3 has flattened out over the past few years with a declining rate of growth?

We just went through the worst period of forced liquidations in history and we didn’t see a substantial decline in M3.

When banks begin lending their $860 billion in excess reserves parked at the Fed, and China and Japan begin spending their trillions in U.S. dollar reserves to purchase goods within the U.S. , we will see an increase in the multiplier effect and M3 will rise faster than it ever before has in history. This is the calm before the storm.

Why didn’t India let the IMF sell their gold on the open market, which may have driven down the price and allowed them to buy cheaper?

Most likely there were other countries such as China also looking to purchase a large block of gold from the IMF in a private transaction. There may have been a private bidding war going on between India and other countries that we do not know about. If the IMF did sell the gold on the open market and India was there buying it at the same time, most likely the price wouldn’t have fallen very much. In fact, there is a chance India would’ve ended up paying more that way. We expect there will continue to be large buyers for whatever gold the IMF wishes to sell.

I live in Dubai and the currency here is pegged to the dollar, so what will happen when it buckles?

We expect the United Arab Emirates to eventually depeg the dirham from the U.S. dollar and peg it to a new basket of currencies just like Kuwait did with the dinar. They have kept it pegged until now in order to keep with the status quo of exporting oil to the U.S., but eventually they will realize they are better off allowing the U.S. dollar to collapse and their currency to strengthen, and increasing exports to Asian countries that can better afford oil.

Let us assume worldwide oil production peaked in 2008. How will this affect the inflation scenario?

We believe oil prices over the next few years will rise above its high in 2008 of $147 per barrel based on inflation alone. If we are past peak oil production, we could begin seeing oil prices rise in terms of gold.

The gold/oil ratio is currently 14.5. It has historically averaged 10. Therefore, on a historical basis oil is currently cheap compared to gold.

However, we expect oil to remain cheap compared to gold as we believe gold prices will soon deserve an increasing monetary premium. It is unlikely we will see the gold/oil ratio return to the low of 7 it reached last year.

By the time the world is beginning to run out of oil, we believe most cars around the world will be powered by alternative fuels.

If you are unable to invest, are there any other preparations you can make for hyperinflation other than stockpiling non-perishables?

Becoming educated about our economy is the most important step, and if you have read our articles and watched our videos, you are ahead of most people.

Even if you don’t have a substantial amount of money to invest, it is important to at least start saving up silver coins/bullion. It costs only $19 for a one ounce silver coin and if silver returns to its historical ratio of 1 to 16 with gold, silver could rise to $75 per ounce just based on the current price of gold.

However, when hyperinflation gets really out of control, we believe there will come a time when you will only be able to make purchases in the U.S. with silver or gold.

If you can’t afford to buy silver, it is important to somehow take on an extra job to earn extra income or cut down on unnecessary expenses. Try living with the absolute lowest standard of living as possible. If you get used to it now, you will be an extra step ahead, because the average American is guaranteed to soon see a dramatic decline in their standard of living.

Move away from major cities because they will see major crime during civil unrest. Live in a less-densely populated area where you can afford a backyard where you can grow your own food; and preferably live in a place where you can have your own clean well water.

Try becoming more self-sufficient. Imagine there being no electricity and no food on the shelves at stores for several months. You need to be able to survive in this type of situation.

The next few years will be a great time for entrepreneurs. Maybe start a business buying things at garage sales for next to nothing, fixing them up, and selling them on eBay. Maybe you have some kind of a skill that allows you to make something that you can sell on your own web site.

Figure out a small business you can start on your own. Start somewhere, anywhere, and it could evolve into something much bigger. Don’t be afraid of failure, you will only be a failure if you don’t make an attempt to succeed.

There will be a need for many new inventions during the next decade. If you can take a product that everybody uses today and somehow figure out how to make it smaller, cheaper and more efficient, you could have a blockbuster product that makes you wealthy. It may seem far-fetched, but try opening your mind and thinking outside the box.

Should I cash out my life insurance policy and invest in precious metals and/or commodities?

If it wasn’t for the government’s bailout, AIG would’ve gone bankrupt last year and everybody with an AIG life insurance policy would’ve lost everything. There are many insurance companies that are near insolvency. It won’t matter if the government continues to bail them out, because the cash value of the policies will likely become worthless when the dollar collapses. Yes, it is a good idea for you to cash out your life insurance and buy precious metals and/or commodities. It might be hard to convince your spouse that, but it’s the unfortunate truth. Because of the Federal Reserve, life insurance is one of the worst investments you can make for your loved ones.

Will 2010 be a good time to invest in Real Estate?

Our government’s bailouts and stimulus acts are allowing banks to hoard foreclosed properties off of the market, hoping that demand for Real Estate recovers. We are also seeing artificial programs like the homebuyers tax credit and the upcoming deed for lease program prop Real Estate prices up.

Real Estate is still too expensive in America . Prices need to fall to below year 2000 levels nationwide. They need to reach a level where any school teacher can afford to buy a home in the neighborhood where he/she teaches.

Priced in gold and silver, we could still see another 90% decline in Real Estate prices.

It won’t be a good time to buy Real Estate until we reach a point where nobody wants to own Real Estate and everybody wants to own gold and silver.

If I buy U.S. stocks/ETF’s with U.S. dollars and the dollar becomes wallpaper, when I sell my position will my trading account be paid in wall paper dollars?

We don’t expect the U.S. dollar to become completely worthless until at least a decade from now.

If the dollar was to lose 90% of its value in the next 5 years, some of our stock and ETF suggestions could gain by thousands of percent and we believe you would be paid back in an extremely large amount of dollars. You could then take those dollars and immediately transfer them to either a more stable foreign currency or physical gold.

If the dollar became completely worthless, we expect most U.S. stocks to delist from U.S. exchanges and list on foreign exchanges. In this case, you would be able to sell your shares on a foreign exchange and receive a foreign currency.

Remember, shares of a stock represent a percentage of ownership in a company with underlying assets. Unless the company dilutes its stock by issuing new shares, your shares will always represent that same percentage of ownership in the company. Therefore, changes in the currency don’t affect the real value of your shares, only the nominal value.

Can you please explain how silver might help to build wealth while gold just preserves the value of paper money?

Gold doesn’t preserve the value of paper money unless that specific currency is on a gold standard. Today, almost all global currencies are fiat currencies that are backed by nothing.

If you take your paper money and use it now to purchase gold, it will preserve your purchasing power while the paper money loses its purchasing power and eventually becomes worthless.

Gold has been used as real money for thousands of years long before fiat currencies were invented. The free market itself picked gold to be real money, because it’s easily tradable, transportable, durable, divisible, long lasting, and has a supply that will always be scarce (it can’t be printed).

Silver has all of the same monetary qualities of gold. The difference is, silver is also an industrial metal that is used in thousands of different electronic devices. There has also been 10 times more silver produced throughout world history than gold.

During secular bull markets in paper assets like stocks, people forget that silver is a form of real money and it drops to a value where it is valued for its industrial uses only. During bear markets in paper assets and periods of high inflation, silver becomes the poor man’s gold and once again deserves a large monetary premium.

While gold prices today are about 64 times more expensive than silver, during inflationary periods like the 1970′s, the gold/silver ratio usually declines to a level of 16.

Therefore, we expect gold to increase in value nominally, only as a function of the dollar declining. Meaning, if you can buy a cow for one ounce of gold today, you still should be able to buy a cow for about one ounce of gold in five years. You aren’t becoming wealthy by owning gold, you are simply holding onto your wealth rather than going broke like everybody will who is invested in dollar denominated assets.

If however you invest in silver instead of gold, and we see a return to the historical gold/silver ratio of 16 compared to its current ratio of 64, you will see about a 4 times increase in your purchasing power. Meaning, if a cow costs 64 ounces of silver today, it might only cost 16 ounces of silver in the future.

The best way to become wealthy is by considering gold and silver stocks. Because gold and silver producers have many fixed expenses, or expenses that may not rise as fast as gold and silver, the profits of some gold and silver companies will likely increase at a much faster rate than the precious metals themselves. Therefore, we could see some gold and silver stocks that increase by tens of thousands of percent over the next 10 years. But if you invest in the wrong gold or silver company, it could go bankrupt and you could lose everything.

Therefore, for the average American without stock market experience, it is best to stick with the precious metals themselves and not the stocks of gold/silver companies.”


It is important to know that we are not investment or financial advisors. NIA’s web site and newsletter are meant for informational and educational purposes only and should not be used to make investment decisions.

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CONTACT: Gerard Adams, Editor@inflation.us, +1-888-99-NIA US

SOURCE National Inflation Association

Source: newswire