Lessons from history are often our friends and great tutors to explain what will happen in the future.
Now history does not repeat perfectly, but a close observation over long periods of time shows us very clear repeatable patterns. Let me give you several historic examples of how a wealth transfer playout. When Central Banks and governments go on massive money creating binges (quantitative easing and extreme fiscal stimulus) there are clear consequences and beneficiaries of these events. By the way, both are happening as I write this BLOG once again…history is repeating!
The Great Depression was fundamentally created by loose credit and speculation of the roaring 1920’s. The first great war had ended in 1918, and to stimulate the economy the central banks and bankers made credit easy. Farmers borrowed to buy tractors, people bought cars on credit and large amounts of borrowed money flooded the stock markets in speculation. It was all so wonderful as asset prices shot up in the stock markets and house prices rose dramatically giving a false sense of true wealth. People become euphoric believing that prices would go up forever.
Reality check! When any asset price goes into bubble territory (over valued based on historic norm), there is a popping of the bubble and prices dramatically correct or crash often below fair market value. This is exactly what happened in the Great Depression. The stock market crashed over the next 3 years and bottomed in July of 1932 with a staggering drop of 89% from its peak. Hundreds of thousands of people lost their homes, farms and people’s portfolios were wiped out. The governments over reacted with fiscal stimulus which actually exasperated the crisis. You cannot solve a debt crisis with more debt!
Remember I said there are consequences and beneficiaries. This is when significant wealth transfers occur and unfortunately, they happen in major geopolitical and/or financial crisis. The best performing asset in the Great Depression was gold or more accurately gold mining shares as gold ownership was outlawed in the USA. People who did not turn their gold into the US government during this crisis saw their gold value go from $20.67 (1929) to $35 in (1934). The government did this so they could print more money. The clear winner was gold and wealth transferred to those who owned it.
A similar phenomenon occurred in Weimar Germany in the early 1920’s, after the First Great War which left Germany in ruins and having to pay back huge reparations. The German government at the time decided to print large amounts of Papiermarks (currency at the time) to pay back the debt. Again, the government through extremely poor decisions caused the currency to collapse in less than 2 years and created a hyperinflation (meaning prices on goods go up over 50% or more in one year). Not only did these monetary decisions make the currency worthless, it also seriously destabilized the culture and wiped out many people’s life savings. Those who had foresight and owned gold became extremely wealthy. You could buy an entire downtown city block of commercial buildings in Berlin for 25 ounces of gold. That is a real wealth transfer!
Not only can individuals benefit from a wealth transfers in a crisis, so can an entire nation. Britain was the super power in the 1800’s, but after the two great wars they were humbled and basically bankrupt after paying the USA with most of their gold to buy war machines and needed goods. The USA became the main benefactor financially as they collected 20 thousand tons of gold in payment from European allies and became the new dominant empire of the planet. The Bretton Woods deal was finalized by 44 governments after WW2. The deal created a new US backed dollar system with a partial gold standard to stabilize global trade. The USA gained incredible wealth from this deal. This Bretton Woods deal only lasted till 1971 when sovereign Nations realized that the US government was cheating and creating more US dollars to expand their empire than agreed to. President Nixon reneged on the deal as many countries in the mid-1960’s were requesting trade payments in gold instead of the paper currency. In but a few years the wealth of America declined rapidly, from 20 thousand tonnes of gold to a mere 8000 tonnes.
This event would create the next great wealth transfer to those who knew history. After President Nixon temporarily closed the gold standard (a joke, as it is still in place), they created the Petro-dollar system. The deal promised military security for Saudi Arabia (largest oil producer in the world at the time) and her Middle East oil allies in exchange for all the oil in the world to be traded and priced in US dollars. Again, a huge win fall for the USA. This would set the stage for the next massive wealth transfer in less than 9 years.
The 1970’s were a tough decade with stagnation (salaries flat) and then high inflation as prices on the things we really need like food, gas, homes, etc. began to rapidly increase. Interest rates shot to 22% in Canada in response to the inflation. Without the restraint of gold backing the currencies of the world, governments went on a currency printing spree destroying people’s purchasing power. People would say, “my money just does not buy what is used too”.
Just as a reminder, there is one asset class that does really well in this environment. Any guess? Gold shot up 23 times in less than 9 years to a record price of $850. Just to let you know gold is not the only asset that shined in this period, silver gained 36 times in value to $48.70 US. With a $10,000 investment in silver in 1971, if you had the discipline to sell near the peak in 1980…that would have translated in to life changing profit of $770,000 US. You could have purchased with that cash 18 medium priced homes in 1980! Now that’s a wealth transfer to the discerning investor.
Gold and Silver entered a 20-year bear market, while housing and the stock market boomed. Just to clarify there is a direct correlation between the expansion of credit (currency printing) and asset appreciation that always ends in bubbles and crashes. After the technology boom of the late 1990’s and bust, the Central Banks playbook would unfold once again. They lowered interests to near “0” which would create the next real-estate and stock market bubble/crash of 2008…the Great Recession. By the way, gold and silver once again did their job with record levels of QE and reached all time record highs in price in late 2011. Gold just over $1900 US and silver peaked at $50 US.
I have been telling people for over a decade to BUY gold and silver (I also practice what I instruct others to do) and thankfully a few have listened. To be honest, sometimes I feel like I am hitting my head against a wall trying to warn and prepare people. Ignorance or turning a blind eye to reality is not a good strategy. The playbook is unfolding once again with unfathomable global debt, interest rates at all-time lows and Central banks and governments doing unprecedented levels of money printing…record levels in the last two months. This is setting up to provide one of the best opportunities of your lifetime, to participate in possibly the largest wealth transfer in history. I am not exaggerating or trying to be funny. This is a very serious economic situation we are in, that only a small group of people fully grasp.
The real question is, will you participate in being in the right asset classes and partake in the next wealth transfer? Or will you sit on the sidelines? History is about to repeat. So, if you are open to learn and willing to consider partaking in this wealth transfer then please reach out to me. I can help you position yourself for success. I can also provide excellent education resources for you to learn and then you can make an informed decision for yourself and your family.