Resource World Magazine

26 www.resourceworld.com j u n e / j u l y 2 0 1 4 s p e c u l a t i o n s L e o n a r d M e l m a n I am indebted to the publisher of Resource World for suggesting that I run, not walk, to my nearest bookstore and purchase a just-published book entitled The Death of Money by James Rickards, author of best seller Currency Wars. After reading this most timely work from cover to cover, I felt a review of the book was well worthwhile and timely. The basic theme of The Death of Money is that vitally important and even irrevers- ible damage has been dealt to the world's US dollar-based economic structure thanks to the international surge to reflate fol- lowing the so-called Great Recession of 2007-10. He believes that there are horrific problems which could soon occur and he also believes there are some specific actions we might take if we are to avoid the worst consequences of the coming financial storm. And, of particular interest, he believes that gold should be at the centre of an individual's preparations for this storm and also that gold also will quite likely be at the centre of any lasting solution to the world's financial troubles. As he describes matters, the heart of the problem is that the world's financial leadership chose to mitigate the worst of the Great Recession's negative impacts by the use of virtually unlimited creation of fiat currencies. In the specific case of the world's largest economic nation, the USA, he writes that the damage done to the Federal Reserve's balance sheet may be irreparable, leading to an alternative limited to two profoundly unwelcome eventualities. As he states, "...It is just a matter of time before the economy experiences more than just 'bubbles', but an earthquake in the form of either a deeper depression or higher infla- tion as one force rapidly and unexpectedly overwhelms the other...The unintended and unforeseen consequences of the Fed's easy- money policies are becoming more visible, costly and problematic in many ways..." Rickards divides his attention between four major economic powers – USA, Europe, China and Japan – and the col- lective rest of the world. Within that first group, China receives disproportionate attention for one particular reason. Among those four, China has been most aggres- sive in building a substantial gold position which has soared from just 500 metric tonnes (MT) in 2001 to an estimated 4,000 MT (One MT = 32,150 troy ounces). He also notes that Russia has joined the parade by increasing their gold holdings from 390 MT in 2004 to approximately 1,000 MT at present – a gain of over 250% in just one decade. The other two eco- nomic bodies of note, the USA and Europe, already have large gold holdings on hand, leftovers from the years up to 1971 when gold was still an integral part of the world's monetary systems. In answer to the question of why China and Russia are making these moves, the text tells us gold could easily form the basis for a new monetary system and one which is NOT controlled by the loose-money- oriented United States Federal Reserve. In fact, Rickards describes what he believes would be the introduction of a workable gold-based international exchange system. First, the International Monetary Fund's Special Drawing Rights (SDRs) would supplant the US dollar as the unit of inter- national monetary reserves and then gold would be used to back up the expanded role for these SDRs resulting in a mon- etary unit where, "...this new SDR would be gold-backed and freely convertible into gold or the local currency of any partici- pant in the system." Next, in answer to "why would the world move away from the present easy- to-create-fiat-money system and toward gold?" he states the collapse of the pres- ent system is virtually inevitable and only gold has the ability to provide renewed monetary confidence thanks to its 4,000- year history. How soon will this collapse occur? "...There appears to be no way out of a sovereign debt crisis for the United States; the paths are all blocked. The Fed avoided a measure of pain in 2009 with its mon- etary exertions and market manipulations but the pain was stored up for another day. That day is here." What are his price projections for gold? Using only currency creation among the four major economic powers as the basis for pricing gold, he comes up with a figure of approximately $9,000 per ounce! He also states categorically that only physically held gold and not 'paper' gold agreements will be suitable for monetary protection. Rickards notes that personal physical gold held in bank vaults may be vulnerable to confiscation under certain circumstances. In my opinion, the information con- tained within this book is not only valuable; it could truly become the basis for saving one's financial life. The Death of Money, published by the Penguin Group, is available at major book stores. n This material is taken from sources believed to be reliable and is provided for information only. Any investment decision should be made only after prior consultation with investment professionals. Leonard Melman is a financial and political writer who focuses on issues relating to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@ shaw.ca The Death of Money THIS BooK IS A MuST rEAd; IGnorE IT AT your own PErIL

• Cover