this book is about changing your context.
The reason precious metals investing seems so alien and out there is because there are very powerful and wealthy companies and individuals that have a vested interest in maintaining the status quo. They want you to play their game. What I mean by that is that they benefit financially by making sure you keep your money in their hands.
Precious metals essentially eliminate the middleman. They are the only financial assets that do not have to be “in” the financial system. No financial advisor gets a bonus for pushing you into them like when you buy stocks and mutual funds. One of the reasons I’m proud to be part of the Rich Dad family is because it makes a point of exposing the game that the financial industry plays with your money. In the process they stress the importance of increasing your financial IQ by reading books like this one and others in the Rich Dad series. Once you are equipped with knowledge, you can recognize how the system plays you, and you can take control of your own financial future.
Playing their game is all fine and dandy—if you don’t care to increase your financial intelligence or to invest wisely. But when the whole system comes crashing down, don’t say I didn’t warn you. After you’ve finished reading this book, if I’ve done my job correctly, you will never be able to look at our financial institutions the same way. Your context will be changed, and a new horizon as bright as the morning sun will be before you.
I’ll see you on the other side.
Throughout the history of civilizations an epic battle has always been waged. It is an unseen battle, unknown by most of the people it affects. Yet, all feel the effects of this battle in their daily lives. Whether it be at the supermarket when you notice that a gallon of milk is a dollar more than it was last time, or when you get your heating bill and it has unexpectedly jumped by $50, you are feeling the effects of this hidden battle.
This battle is between currency and money, and it is truly a battle of the ages.
Most often this battle takes place between gold and silver, and currencies that supposedly represent the value of gold and silver. Inevitably people always think that currency will win. They have the same blind faith every time, but in the end, gold and silver always revalue themselves and they always win.
To understand how gold and silver periodically revalue, you first need to know the differences between money and currency.
Throughout the ages many things have been currency. Livestock, grains, spices, shells, beads, and paper have all been forms of currency, but only two things have been money. You guessed it: gold and silver.
Currency
A lot of people think currency is money. For instance, when someone gives you some cash, you presumably think of it as money. It is not. Cash is simply a currency, a medium of exchange that you can use to purchase something that has value, what we would call an asset.
Currency is derived from the word current. A current must keep moving or else it will die (think electricity). A currency does not store value in and of itself. Rather, it is a medium whereby you can transfer value from one asset to another.
Money
Money, unlike currency, has value within itself. Money is always a currency, in that it can be used to purchase other items that have value, but as we’ve just learned, currency is not always money because it doesn’t have value in and of itself. If you are having a hard time grasping this, just think about a hundred-dollar bill. Do you think that paper is worth $100?
The answer is, of course, no. That paper simply represents value that is stored somewhere else—or at least it used to be before our money became currency. Later we will study the history of our currency and the gold standard, but for now all you need to know is that the U.S. dollar is backed by nothing other than hot air, or what is commonly referred to as “the good faith and credit of the United States.” In short, our government has the ability to, and has been, creating money at will without anything to back it up. You might call this counterfeiting; the government calls it fiscal policy. The whole thing is what we refer to as fiat currency.
Fiat Currency
A fiat is an arbitrary decree, order, or pronouncement given by a person, group, or body with the absolute authority to enforce it. A currency that derives its value from declaratory fiat or an authoritative order of the government is by definition a fiat currency. All currencies in use today are fiat currencies.
For the rest of this book I will use these proper definitions. At first it will sound strange to you, but it will only serve to highlight, and bring greater understanding of, the differences between currency and money. Hopefully, by the end of the book you will see that it is the general public’s lack of understanding concerning this difference between currency and money that has created what I believe will be the greatest wealth accumulation opportunity in history What you will learn about currency and money in this book is knowledge that probably 99 percent of the population has no clue about or desire to learn. So congratulations, you will be way ahead of the game.
Inflation
When I talk about inflation or deflation I’m talking about the expansion or contraction of the currency supply. The symptom of monetary inflation or deflation is rising or falling prices, which I will sometimes refer to as price inflation or price deflation. Regardless, one thing is for sure. With inflation everything gets more valuable except currency.
Adventures in Currency Creation
Fiat currencies don’t usually start out that way, and those rare cases when they have were very short-lived. Societies usually start with high value commodity money such as gold and silver. Gradually, the government hoodwinks the population into accepting fiat currency by issuing paper demand notes that are redeemable in precious metals. These demand notes (currency) are really just “certificates of deposit,” “receipts,” or “claim checks” on the real money that is in the vault. I would venture to say that many Americans think this is how the U.S. dollar works today.
Once a government has introduced a paper currency, they then expand the currency supply through deficit spending, printing even more of the currency to cover that spending, and through credit creation based on fractional reserve banking (something we’ll cover later on). Then, usually due to war or some other national emergency, like foreign governments or the local population trying to redeem their demand notes (bank runs), the government will suspend redemption rights because they don’t have enough gold and silver to cover all of the paper they have printed, and poof! You have a fiat currency.
Here’s the dirty little secret: Fiat currency is designed to lose value. Its very purpose is to confiscate your wealth and transfer it to the government. Each time the government prints a new dollar and spends it, the government gets the full purchasing power of that dollar. But where did that purchasing power come from? It was secretly stolen from the dollars you hold. As each new dollar enters circulation it devalues all the other dollars in existence because there are now more dollars chasing the same
