New book paints scary financial picture

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By Gordon Allison, Jr. | Book Review

Editor’s note: Adam Baratta wrote his first financial book published in August 2018, titled, Gold Is A Better Way: And Other Wealth Building Secrets Wall Street Doesn’t Want You To Know. He just released his second book, The Great Devaluation, which builds on his first book. Both books have become national bestsellers. This review is written by Gordon Allison Jr., a Pamlico County resident and frequent contributor to The County Compass.

The Great Devaluation is best described as “the movie Groundhog Day meets the Great Depression. It is presented in a series of stories that demonstrate the financial words, processes, and numbers set forth to explain how world currencies are controlled. Baratta describes the founding of the Federal Reserve Association (The Fed) by the banker, J. P. Morgan, and friends in November 1910, as to its purpose, how it was supposed to work and operate as an independent public/private venture.

Congress approved the Fed in the Federal Reserve Act in 1913.  The Fed has historically managed the US Dollar by first decoupling the dollar from gold in 1933 based on an Executive Order by President Franklin Roosevelt. Then in August 1971, President Nixon closed the gold window so foreign countries could not exchange US Dollars for gold. At that point the dollar became a fiat currency, which means the dollar is only backed by the “full faith and credit” of the US Government, not gold. That allowed the Fed to do its thing.

Baratta believes that the current world happenings mirror those of the financial world of 1929, which was 91 years ago. Do you see the parallels? The stock market has been flying at high value levels way beyond realistic price to earnings ratios, and it is all fueled by massive debt!  We have populist movements growing around the world and a wealth gap that is identical to 1929, when the top 1 percent owned more than the bottom 50 percent combined.

Here is the current situation. The US Government has been secretly adding to the money supply for decades. Baratta compares the US debt to a deadly virus growing exponentially. He uses an example of a glass that has only one bacteria in it at 11 PM and asks, “If the glass becomes full at midnight, what time will the glass be half full?”  Most people guess the glass will be half full at 11:30 PM. However, doubling every minute is a non-linear process; therefore, the correct answer as to when the glass will be half full is 11:59 PM.  Baratta makes the case that the world is only one minute to midnight away from a new monetary system becoming necessary.

His reason is that the printing of money is easy if it has no consequence. However, if we equate the dollars to the bacteria growing exponentially as in the example above, you may surmise that the Fed made a decision to take the easy way out and print money to the point of no return.  Baratta claims that time on the clock is now up and the debt train cannot be stopped! Trump is on track to double the debt of Obama, who doubled the debt of Bush, who doubled the debt of Clinton. 

The goal of the Fed is to have 2 percent inflation per year on average! The Fed’s Standard Operating Procedure (SOP) was to answer a recession with an interest rate reduction of 5 percent. In Fed talk that is ‘500 basis points.’ At some point, that failed to work. So the Fed started printing more dollars to inflate the currency and cause it to have less purchasing power.  When interest rates dropped to 0 percent, the next step would be negative interest rates. That is, you would pay the government to keep your money. Believe it or not, some countries are actually doing just that! The Fed was printing money before the term Quantitative Easing (QE) was used. When QE became well known, the Fed changed the terminology to obfuscate what was being done and now calls it a ‘Reverse Repo Operation.’

The good news until now is that Americans have not felt the pain that other countries have experienced because the US Dollar is very strong as the World Reserve Currency. China has been pushing for several years to substitute the Yuan, or the Yuan plus a basket of select other currencies, to replace the Dollar as the World Reserve Currency. Presently, the US has not gone into negative interest rates as some countries have. It is a case where the US money problems are bad, but other countries’ financial problems are worse.  The Great Devaluation is a history lesson that offers readers a road map for what to expect and how to profit during the coming tumultuous decade. Thus Baratta’s book is a very compelling read.

Mr. Baratta isn’t from the finance world.  He worked in Hollywood as a screenwriter and producer.  He came across the story of the Supercycle, also known as the Saeculum, which are periods of approximately 90-year cycles, identified by the Etruscans between 900 BC to 100 BC.  From birth, there is a 22-year period of youth and adolescence, followed by 22 years of rising adulthood, then a 22-year period of midlife adulthood, and then the final 22 years of old age.

We are desensitized to the Supercycle since calendars are usually marked off in rows and columns, but not circles. Therefore, the current generation is unlikely to remember events that occurred a Supercycle ago. Ergo the expression, “History Repeats Itself” since past actions and their results are forgotten. Baratta believes the world is on the verge of making the exact mistakes we made a Supercycle ago. Baratta explains the problem is actually a limitation of the human brain which “sees” and processes information in a linear fashion and interferes with processing exponential growth.

Baratta is an excellent storyteller and uses the analogy of an old station wagon his mother gave him while he was in college. It developed an oil leak and needed a few hundred dollars of work to fix the problem. To save money he didn’t have, he bought oil and poured it in every couple weeks. Soon he needed to add oil every week. It got so bad, he had to check the oil level each morning and add oil as necessary. Rather than fix the problem when it first occurred, adding the oil became the easy solution. The oil is analogous to Fed debt. Adding more debt is the easy way out for the Fed.

In another section, Baratta uses an allegory that Plato told.  A group of prisoners were held in an underground cave from birth to death. A fire burned behind the prisoners, and guards walked between the fire and the back row of prisoners. The cave dwellers’ reality was the shadows of the guards showing on the cave wall. One day a prisoner escaped and discovered trees, the sun, woods, and other things. When he rushed back to the cave to tell the others what he had found, the other prisoners threatened to kill him. They had a perceived reality and were loath to accept a new reality.

Is it time to change the reality from buying and holding stocks and bonds that Wall Street wants investors to follow, to making trades that occur in a short time span that have real gains? Baratta argues the world is about to be shown the light, and many won’t want to hear the news.

Baratta has a warning about midway through the book that reads as follows: “This section may not be for you if you are expecting to continue living in the dark. If you are comfortable with the world as it is and prefer to avoid glimpses into the future, please read no further. The information imparted here will be impossible to un-see.  Once you have been shown the real world, it will be impossible to return to the darkness of the cave.”

Baratta believes it’s all a chess game.  Here are the 10 moves to The Great Devaluation:

1) Business cycle ends. Financial assets struggle. Valuations too high. 2) Federal Reserve cannot normalize, which causes financial assets to collapse. 3) Central Banks forced to lower interest rates. 4) Investors exit financial markets, creating the next recession. 5) Recession forces Central Banks to borrow and print trillions of dollars of new money. 6) Dollars devalue as gold prices surge higher. 7) Recession hits in earnest; World crisis ensues. Millennials face off against Boomers. 8) The pendulum shifts.  New leaders enact social policies. Massive financial stimulus.  9) Largest transfer of wealth in human history. Money funneled from the rich to the working class.  10) Coordinated currency devaluation (2025-2027). Gold prices move to $10,000 per ounce.

For the longest time people wondered why Warren Buffet didn’t buy gold.  Well, wonder no more. Warren has begun buying gold. James Rickards, another financial guru, explained in 2018 why gold will sell for $10,000 per ounce at some point in time. Should the price of gold go to $10,000 per ounce, Buffet will make over 500 percent on his billions invested. Why is gold so valuable? Because there is a limit!!  All the gold that has been mined since the beginning of time only amounts to a quantity that will almost fill three Olympic-sized swimming pools.

Editor’s disclaimer:  The reviewer, Gordon Allison, has both a personal and business relationship with Mr. Baratta, through Baratta’s company, Advantage Gold, which is a highly rated precious metals firm. 

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