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Book Summary: Currency Wars - The Making of the Next Global Crisis - Written by James Rickards

February 20, 2012 | Comments: 0 | Views: 179

This book is a must read for anybody who wants to preserve their wealth. Right now we have the biggest wealth transfer going on in history and you need to be educated to protect your family. James Rickards is very knowledgeable and he details how currency wars can lead to real wars between nations and the risks associated with them.

Why is this important to me?

I always want to ask this question as if I am sitting in your shoes. I don't want to waste your time. I am a layman when it comes to macroeconomics. James defines a currency war as basically a ½ off sale so as the dollar is debased, it becomes cheaper for nations to buy our goods and services and our economy starts to flourish. In theory, this sounds fine but other nations fight back and then inflation takes over. 2% inflation does not sound like a lot but if you do the math this means that the dollar buys 75% less stuff in one lifetime. Some of the politicians want to increase inflation to 4% which means your savings would buy 75% less in 35 years. This is a big deal that most people do not understand.

Currency Wars is an excellent book with great educational information. James takes you back in history and describes previous currency wars and their results. For the sake of time, I am going to profile the outcomes of the current currency war which James calls the Four Horseman of the Apocalypse.

1. Multiple Reserve Currencies - In this scenario, multiple currencies would become the reserve like the Euro, Yuan and Dollar. If this happens then the dollar becomes more of a local currency. Most people do not know that if the dollar loses the status as the reserve currency then our standard of living will drop by 30%. Gas at $3.50 per gallon will easily shoot up to $7.00 per gallon. The reason this does not happen now is because oil is priced in dollars and we can print more dollars. Once the reserve status is removed then we can no longer do that.

2. SDR - Special Drawing Rights - This is basically a fiat currency controlled by the IMF (International Monetary Fund). If the SDR's become the reserve currency then it is controlled by the G20. The reason this is a threat to U.S. National Security is because there are non-democratic members of the G20. You have Communist China and Dictatorships from the Arab world. This would weaken the U.S. overall and potentially affect human rights over time.

3. Gold - Gold has been viewed as money for over 5,000 years. Why? It is durable, scarce and uniform. It is not an investment or commodity but it is money. I agree with Warren Buffet when he says Gold has no utility. There is truth to that but it does have a store of value. Think about precious metals for one moment. Two silver coins in 1950 would fill up your car with gas (roughly 50 cents). Today, two silver coins would fill up your car with gas (roughly $60). The only thing that lost the value is the dollar. This may seem ok on the surface but for people on fixed income, fixed mortgages and other fixed instruments, their purchasing power is deflated. This does not happen with precious metals. This is why China by law does not allow any gold mined in its county to leave the country. They are buying more gold today than any other nation. They know to reduce their risk of the $1.5 trillion dollar debt exposure, they need to hoard gold.

4. Chaos - Chaos is a real likelihood based on how markets react. Think about this, Merrill Lynch is a 100 year old institution that was sold in a weekend to BofA. If the markets start going crazy then there would be runs on banks. Banks can not cover massive withdrawals so they would close and create a credit event. This event would basically freeze lending. Businesses would dry up and the almighty commodity - "jobs" would be lost because businesses cannot finance their operations. Note: If Chaos is the end result of this debt mess the U.S. is in, there will be a solution on the other end. It has happened in other countries and they did survive. The problem is the pain caused during the chaos is what will catch 90% of the U.S. population by surprise. There will be short term riots and martial law in certain areas. Remember the riots in Wisconsin over entitlements in 2010?

Currency Wars is a must read for anybody that wants to preserve their wealth and American way of life. This book should be required reading by all of our politicians and economists that dictate policy.

I hope you have found this short summary useful. The key to any new idea is to work it into your daily routine until it becomes habit. Habits form in as little as 21 days. One thing you can take away from this book is precious metals. I realize that Gold and Silver have increased quite a bit in the last several years but they are the only true preservation of wealth. I hope none of these outcomes in Currency Wars happens but it may make some sense for you to invest in tangible precious metals to cover yourself. I recommend you research it and make your own decisions. The key is to get educated.

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