Money_How the Destruction of the Dollar Threatens the Global Economy - and What We Can Do About It

by Steve Forbes

  194 although not on the scale of the Fed “Statistical Data Warehouse,” European Central Bank, accessed March 6, 2014, http://sdw.ecb.europa.eu/browse.do?node=bbn129.

  197 has demanded higher taxes Erik Kirschbaum, “Germany’s SPD Demands Tax on Rich Despite Merkel Veto,” Reuters, November 9, 2013, http://www.reuters.com/article/2013/11/09/germany-coalition-idUSL5N0IU06V20131109.

  197 raised its top income tax rate to 52% “Spain,” 2014 Index of Economic Freedom, Heritage Foundation, accessed March 6, 2014, http://www.heritage.org/index/country/spain.

  197 raised its top rate on salaries to 75% Rudy Ruitenberg, “France’s Hollande Gets Court Approval for 75% Millionaire Tax,” Bloomberg, December 29, 2013, http://www.bloomberg.com/news/2013-12-29/france-s-hollande-gets-court-approval-for-75-millionaire-tax.html.

  197 sending its economy into a bone-crunching recession “Greece: Voters Reject Austerity in Legislative Elections,” Facts On File. World News Digest. Infobase Learning, May 8, 2012, http://wnd.infobaselearning.com/recordurl.aspx?wid=96208&nid=483642&umbtype=0.

  197 public sectors in these countries have largely been spared David Malpass, “And the Crisis Winner Is? Government,” Wall Street Journal, December 16, 2011.

  197 raising billions in euros “Billion Counter,” Poland Ministry of Treasury, http://msp.gov.pl/en/privatisation-plan/portfolio-of-companies/3952,dok.html.

  197 a portion of Polish citizens’ pension funds Norma Cohen and Jan Cienski, “Poland Pension Reform Reversal Highlights Public Disillusion,” Financial Times, February 5, 2014, http://www.ft.com/intl/cms/s/0/8ddeb5bc-6293-11e3-bba5-00144feabdc0.html#axzz2wdcS2D7S.

  198 tightening unemployment rules “Wunderreform,” Economist, March 16, 2013, http://www.economist.com/news/europe/21573583-ten-years-how-does-germanys-agenda-2010-package-rate-wunderreform.

  198 Sweden has cut taxes, with good effect James Pethokoukis, “Sweden’s Amazing Supply-Side, Tax-Cut Experiment,” AEIdeas (public policy blog of the American Enterprise Institute), May 9, 2012, http://www.aei-ideas.org/2 012/05/swedens-amazing-supply-side-tax-cut-experiment/.

  198 a rebuke from Keynesian scold Paul Krugman Paul Krugman, “Estonian Rhapsody,” The Conscience of a Liberal (Paul Krugman blog at NYTimes.com), June 6, 2012, http://krugman.blogs.nytimes.com/2012/06/06/estonian-rhapsdoy/.

  198 leading high-tech center (Skype was developed there) “How Did Estonia Become a Leader in Technology?,” Economist, July 30, 2013, http://www.economist.com/blogs/economist-explains/2013/07/economist-explains-21.

  198 misallocated credit and artificial stimulus Harry Wilson, “The $15 Trillion Shadow over Chinese Banks,” Telegraph, February 1, 2014, http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10611931/The-15-trillion-shadow-over-Chinese-banks.html.

  199 has since expanded more than 15-fold Euromonitor International, subscription database, http://www.euromonitor.com/usa, accessed February 27, 2014.

  199 from so-called shadow banks Lingling Wei and Bob Davis, “China’s ‘Shadow Banks’ Fan Debt-Bubble Fears,” Wall Street Journal, June 25, 2013, http://online.wsj.com/news/articles/SB10001424127887324637504578563570021019506.

  199 has had to bail out many of these firms Ibid.

  200 and the United States, whose ratio is a little over 100% International Monetary Fund, “Taxing Times,” Fiscal Monitor, October 2013, http://www.imf.org/external/pubs/ft/fm/2013/02/pdf/fm1302.pdf.

  200 the country underwent a frenzied real estate boom Martin Fackler, “Take It from Japan: Bubbles Hurt,” New York Times, December 25, 2005, http://www.nytimes.com/2005/12/25/business/yourmoney/25japan.html?pagewanted=all.

  200 devalue the yen vis-à-vis the dollar to stimulate growth Hiroko Tabuchi, “Japan Keeps Monetary Policy Steady Amid Deflation Fight,” New York Times, May 22, 2013, http://www.nytimes.com/2013/05/23/business/global/japan-keeps-monetary-policy-steady.html.

  200 enacted by his predecessor will continue on schedule Hiroko Tabuchi, “Japan Sales Tax to Increase Next Year, Abe Says,” New York Times, October 1, 2013, http://www.nytimes.com/2013/10/02/business/international/japan-sales-tax-to-increase-next-year-abe-says.html.

  200 top income tax rate is moving to 55% Nathan Lewis, “Japan’s Long Slide into Overtaxation,” Forbes.com, December 6, 2013, http://www.forbes.com/sites/nathanlewis/2013/12/06/japans-long-slide-into-overtaxation/print/.

  201 Brazil routinely ranks in the bottom half Doing Business, Measuring Business Regulations (website of The Doing Business Project), The World Bank, http://www.doingbusiness.org.

  202 a concerted effort to start diversifying its economy T. Eliot Gaiser, “Chile’s Strong Economy: A Case of Positive Policy and Freedom,” The Foundry (Heritage Foundation blog), January 23, 2013, http://blog.heritage.org/2013/01/23/chile-strong-economy-a-case-of-positive-policy-and-freedom/.

  202 investment in manufacturing, technology, and services “2013 Investment Climate Statement—Malaysia,” U.S. Department of State, Bureau of Economic and Business Affairs, March 2013, http://www.state.gov/e/eb/rls/othr/ics/2013/204686.htm.

  203 cutting tax rates across the board “The Moment of Truth,” The National Commission on Fiscal Responsibility and Reform, December 2010, http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf.

  Recommended Reading

  The following titles are good reads for any investor:

  Bogle, John C., The Little Book of Commonsense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Hoboken, NJ:John Wiley & Sons, 2007).

  Dreman, David, Contrarian Investment Strategies: The Psychological Edge (New York: Free Press, 2012).

  Ellis, Charles D., Winning the Loser’s Game: Timeless Strategies for Successful Investing, 6th ed. (New York: McGraw-Hill Education, 2013).

  Fisher, Ken, with Lara Hoffmans, The Little Book of Market Myths: How to Profit by Avoiding the Investment Mistakes Everyone Else Makes (Hoboken, NJ: John Wiley & Sons, 2013).

  Fisher, Ken, with Lara Hoffmans and Jennifer Chou, The Only Three Questions That Still Count: Investing by Knowing What Others Don’t (Hoboken, NJ: John Wiley & Sons, 2012).

  Malkiel, Burton G., A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, 10th ed. (New York: W.W. Norton & Co., 2012).

  Malkiel, Burton G., and Charles D. Ellis, The Elements of Investing: Easy Lessons for Every Investor (Hoboken, NJ: John Wiley & Sons, 2013).

  Schifrin, Matthew, The Warren Buffetts Next Door: The World’s Greatest Investors You’ve Never Heard of and What You Can Learn from Them (Hoboken, NJ: John Wiley & Sons, 2010).

  Siegel, Jeremy J., Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies, 5th ed. (New York: McGraw-Hill Education, 2014).

  Skousen, Mark, Investing in One Lesson (Washington, DC: Regnery Publishing, 2007).

  Index

  Please note that index links point to page beginnings from the print edition. Locations are approximate in e-readers, and you may need to page down one or more times after clicking a link to get to the indexed material.

  Abe, Shinz, 200, 201

  Affordable Care Act, 34, 71–72, 170

  AIG, 106

  Alternative currencies, 8

  Angell, Norman, 138

  Appelbaum, Binyamin, 77–78

  Apple, 17, 56, 84

  Arab oil embargo, 49

  Arab Spring, 101, 108

  Argentina, 16, 74, 94–95, 102, 104, 112–113, 117, 136, 170

  Asian crisis, 155, 199

  Assets, protecting your (see Protecting your assets)

  Australia, 104

  Austria, 101

  Austro-Hungarian Empire, 148

  Bachelet, Michelle, 202

  Baht, 32, 54, 68

  Baker, James, 52

  Balance of trade, 19, 191–192

  Bangladesh, 14

  Bank of England, 65, 98, 139, 158–159

  Banking crises, 15, 106


  Barclays Bank, 118

  Barter, 27

  Bartley, Robert, 43

  BEA (Bureau of Economic Analysis), 178

  Beam, Chris, 156

  Belarus, 104, 117

  Belgium, 160

  Benko, Ralph, 90, 92–93, 128

  Bernanke, Ben, 11, 19, 20, 61, 88, 89, 134

  Bismarck, Otto von, 22, 143

  Bitcoin, 8, 36–37

  Black Monday, 37, 52

  Bogle, John, 171

  Bonds, 181–183

  Brady, Kevin, 128

  Brazil, 8, 10, 31, 95, 193, 201, 202

  Bretton Woods system, 9, 10, 15, 18, 47–50, 90, 140, 145, 149, 154, 160

  British pound, 32

  Bulgaria, 150, 151

  Bureau of Consumer Protection, 170

  Bureau of Economic Analysis (BEA), 178

  Bush, George W., and administration, 50, 61, 86–87, 102, 146

  California, 133

  Canetti, Elias, 110

  Capital gains, 96, 154, 169, 173, 178

  Carnegie, Andrew, 137

  Carter, Jimmy, 115, 116

  Carville, James, 142

  Cash, 122, 163, 167, 177

  Caterpillar, 174

  Cato Institute, 128

  CCI (Continuous Commodity Index), 76

  Cell phones, 38, 193–194

  Central banks:

  and Bretton Woods system, 9

  and currency crises, 31–32

  in Europe, 16–17

  and income inequality, 102

  and inflation, 77

  and interest rates, 139

  Keynesianism and, 19

  and “macroprudential” strategies, 113

  monetary expansion by, 14

  only positive benefit of, 20

  role of, under gold standard, 130, 150, 153–155, 191–194

  (See also European Central Bank; U.S. Federal Reserve)

  Chandler, Marc, 58

  Chavez, Hugo, 95

  Chile, 170, 202

  China:

  and British Empire, 136

  economy of, 17, 18, 66–67, 107, 198–199

  Great Leap Forward in, 52

  investing in, 180

  and silver standard, 133

  and stable currency, 33

  trade deficit with, 55–56, 60, 61

  and U.S. dollar, 34–35, 54, 62, 65

  as U.S. bondholder, 83

  Citigroup, 106

  Classical gold standard, 147–148

  Clinton, Bill, and administration, 86, 96–97, 142, 146

  Coca-Cola, 174

  Cochrane, John, 113

  Colbert, Jean-Baptiste, 43–44

  College loans, 120–121

  Colombia, 122

  Commodities, 10–12, 174

  agricultural, 76

  and cash, 176

  as currency, 28, 132, 133

  and devaluing of U.S. dollar, 89–90, 107–108, 193

  industries related to, 174

  investing in, 184

  wealth transfers to countries producing, 89, 193, 201

  Commodity bubbles, 50

  Commodity prices, 13–14, 76, 97, 144

  Communication, money as instrument of, 37–39

  Construction, 174

  Consumer Price Index (CPI), 75–76, 175, 193

  Continuous Commodity Index (CCI), 76

  Cornyn, John, 128

  Corruption, 4, 67, 100, 117–118, 121, 124

  Costco, 81

  CPI (see Consumer Price Index)

  Credit, 104, 140–141

  Credit allocation, 11, 12, 72–73, 91–92, 111, 194, 198

  Credit drought, 16, 90–91

  Crime, 121–123

  Cuba, 29

  Currency, investing in, 184

  Currency boards, 150–151

  Cyprus, 13, 63, 118–119, 165, 170

  Czech Republic, 202

  Dalrymple, Theodore, 116–117

  Denmark, 150

  Dependence, culture of, 123–124

  Developing countries, 11, 13–14

  Dimon, Jamie, 111

  Dividends, 168, 169, 173, 174, 182, 183, 185

  Dodd-Frank financial reform, 34, 170

  Dollar, U.S. (see U.S. dollar)

  Dollar cost averaging, 172–173

  Domitrovic, Brian, 80

  Dow Jones Industrial Average, 8, 49, 52, 106, 145, 166, 168, 169, 183

  East Germany, 29

  ECB (see European Central Bank)

  Economics, 27, 189

  Egypt, 14, 102, 108

  Einstein, Albert, 169

  Eisenhower, Dwight, 61

  Elliott, J. H., 124

  Ellis, Charles, 174

  Emerging countries (emerging markets), 1, 8, 10, 15, 31, 182–183, 189–191, 201–202

  Entrepreneurs, 17, 20, 56, 67, 80, 90, 113, 180, 199

  Equilibrium, 98

  Erdogan, Recep Tayyip, 117

  Estonia, 198, 202

  ETFs (exchange-traded funds), 183–184

  ETM Analytics, 102

  EU (see European Union)

  Euro, 33, 62–65, 112, 150, 194–195

  European Central Bank (ECB), 16, 18, 21, 63, 64, 194

  European Union (EU), 51, 63–65, 101, 107, 118, 196–198

  Excess reserves, 72, 73, 92

  Exchange-traded funds (ETFs), 183–184

  Fannie Mae, 12, 86, 91, 114

  Fed (Federal Reserve) (see U.S. Federal Reserve)

  Fedspeak, 22

  Fei, 28

  Fergusson, Adam, 84

  Fiat money, 1, 9, 10, 18

  Financial crisis, potential for, 52–54

  Financial crisis of 2008–2009, 1, 4, 7, 20, 34, 50, 53, 74, 78, 85–88, 101, 106, 108, 109, 166, 168, 169, 198

  (See also Great Recession)

  Finger, Richard, 76–77, 82

  Fingleton, Eamonn, 53

  First Bank of the United States, 41

  Fisher, Ken, 187

  Flat-screen TVs, 38

  Food prices, 11–14, 101, 108, 115, 144, 191

  Food stamps, 83, 123

  Forbes, Malcolm, 71

  Ford, Henry, 74

  Ford Motors, 56–57

  Foreign exchange markets, 31

  Foreign stocks, 180–181

  Fracking, 84, 89

  Fragile Five, 10

  France, 43–44, 85–86, 101, 109, 135, 137, 140, 142, 160, 195, 197

  Freddie Mac, 12, 86, 91, 114

  Friedman, Milton, 28, 80

  Fuel prices, 11–13, 144, 191

  Fukuyama, Francis, 103–104

  Fungible currency, 27–28

  “Gaming the system,” 119–121

  Gates, Bill, 190

  GDP (see Gross domestic product)

  Geithner, Timothy, 46

  General Motors, 181

  Georgia (state), 128

  German Empire, 22, 135, 137, 138, 142, 143, 147

  Germany:

  under Bismarck, 22, 135, 143

  and Cyprus financial crisis, 118

  East Germany, 29

  and euro zone, 107

  fiscal reforms in, 197–198

  as “high trust” society, 103–104

  trade deficits with, 47, 48, 52, 61

  and Triffin dilemma, 47, 48

  Weimar Germany, 27, 74, 75, 77–80, 84, 99–101, 109, 110

  West Germany, 145

  Gilder, George, x, xv–xvii, 145, 189

  Gimein, Mark, 14

  Global economy, 106–108, 196–202

  Gold:

  characteristics of, 132–133

  as investment, 183–184

  myths about, 131–132, 156–162

  Gold bullion, 167

  Gold coverage, 147

  Gold exchange standard, 148–149

  Gold mining stocks, 183–184

  Gold prices, 21, 34, 76, 87, 89, 97, 151–152, 167–168

  Gold standard, 4, 33, 69, 127–162

  abandonment of, 9–10, 48–50 />
  “alternatives” to, 132–133

  arguments for, 129–131

  and credit, 140–141

  and end of speculation, 145–146

  and government accountability, 141–143

  historical era of, 134–138

  and inflation, 129, 143–144

  and interest rates, 139–140

  and myths about gold, 131–132, 156–162

  scenarios for, 146–155

  Goodwin, Fred, 109

  Google, 17

  Government:

  accountability of, 141–143

  monetary instability and growth of, 112–114

  Great Britain, 32–33, 68, 101, 109, 129, 134–135, 139–140, 142, 143, 160–162

  Great Depression, 9, 55, 131, 149, 159, 169

  Great Disorder, potential for, 100–102

  Great Inflation, 9, 20, 192–193

  Great Recession, 1, 7, 11, 122, 198

  Great Society, 48

  Greece, 63, 64, 101, 106–107, 109, 112, 135, 193, 195, 197, 200

  Greenspan, Alan, 11, 13, 20, 22, 88, 97–98, 178

  Greider, William, 22

  Gresham’s law, 37

  Grice, Dylan, 100, 102, 109

  Griswold, Daniel, 57, 59

  Gross domestic product (GDP), 17, 21, 54–55

  Haiti, 14

  Hamilton, Alexander, 5, 30, 40–41, 69, 135

  Hanke, Steve, 61, 151

  Hayek, Friedrich, 37–38, 80

  Hazlitt, Henry, 121

  Healthcare reform, 34

  Hein, Paul, 100, 117

  Henderson, Callum, 51

  Henninger, Daniel, 7

  Herbert, Gary, 36

  Hill, Kashmir, 36–37

  Hitler, Adolf, 99

  Holland, 137

  Home Depot, 17

  Hong Kong, 66, 199, 202

  Housing assistance, 123

  Housing bubble, 12–13

  Hungary, 170

  Hyperinflation, 7, 53, 73–74, 77–79, 84, 94, 101, 102, 109, 179, 195

  Iceland, 7, 13

  Income inequality, inflation and, 88–89

  Index funds, 171–172

  India, 8, 10, 31, 102, 115, 133, 136

  Indonesia, 8, 10, 31, 202

  Inflation, 20, 53, 71–85, 192–193

  beneficiaries and victims of, 81–83

  and crime, 122–123

  danger of “moderate,” 77–79

  distortions created by, 83–85

  and income inequality, 88–89

  and investing, 175

  and lack of gold standard, 129, 143–144

  and oversupply of money, 73–75