Jay O'Keefe's Investment Letters

Letter 9      
November 18, 2007

The U.S. Dollar

Every time I hear a government report on inflation (the Consumer Price Index), I cringe. They love to quote what they call the ¡°core inflation rate,¡± which excludes food and energy, currently reported to be around 2%. Do they think we have quit eating or driving? Then over the last year or so, they will mention the ¡°headline inflation rate,¡± which is supposed to include most everything we buy. Headline inflation is estimated somewhere between 3% and 4%. I suppose they believe the American people are dumb, or perhaps asleep?

Speaking in the kindest terms I can come up with, these numbers are bogus, or smoke and mirrors. More realistically, in my opinion, they are fraudulent. Let¡¯s approach it from the standpoint of our beloved U. S. dollar, those pieces of paper we pour out our time and energy every day to acquire. It¡¯s a fact that the dollar has lost more than 95% of its purchasing power since 1913, the year the Federal Reserve Bank was created. I remember that all through the 1930s and 1940s coffee was a nickel a cup (with refills). It¡¯s now between $1 and $3 depending on where you buy it. I could give you hundreds of other examples.

Would you like to get a grasp on this concept? Read the excellent one page essay below, by Richard Russell in his Dow Theory Letters report for November 14, 2007. (www.dowtheoryletters.com)

¡°Why should Congress delegate to a private banking cartel the power to create money that we call the dollar? Of course, it¡¯s not a Constitutional dollar, it¡¯s really a Federal Reserve note. The original dollar was defined in terms of a specific weight of silver.

¡°The Federal Reserve represents a departure from the Constitution¡¯s dictates on the production of money. The creation of the Federal Reserve should have required a Constitutional amendment. There was never any amendment. There was never any Supreme Court decision on the Constitutionality of the Federal Reserve. Why? It¡¯s the question that no one wants to deal with.

¡°What about this piece of paper that we call the ¡®dollar?¡¯ There is no definition for the so-called dollar. The dollar is only ¡°measured¡± in terms of other fiat money. A dollar is worth so much of a Euro, the dollar is worth so much of a renminbi, the dollar is worth so much of a rupee. It¡¯s utterly ridiculous. The fact is that there is today absolutely NO definition for a dollar. A dollar is a figment of the Federal Reserve¡¯s dream factory.

¡°The Federal Reserve under the political Alan Greenspan flooded the US and the world with junk Federal Reserve Notes. The result of ¡®Greenspan¡¯s Folly¡¯ is inflation across the face of the globe, and now we have the cancer of competitive currencies. Not only is fiat money intrinsically worthless, it¡¯s being ground out day after day in prodigious quantities. Greenspan claimed that the Fed was treating Federal Reserve Notes just ¡®as if¡¯ they were backed by gold. I have to wonder how this egotistical little pipsqueak lives with himself. His mentor, Ayn Rand, must be turning in her grave.

¡°Money should be issued by the US government and backed by gold. The US government should pay for what it needs with gold-backed dollars that it alone issues. If that were the process, there would be almost no need for an income tax. The US Treasury would issue all the money we need.

¡°Theoretically, the Federal income tax pays for a large part of the US government¡¯s expenses (the rest is borrowed). Why shouldn¡¯t the government pay for its own expenses by issuing the money it needs? That money would be backed not only by gold but by the full faith and credit of the US government. Why give the power of money creation to a private bank euphemistically called the Federal Reserve? The fact is that it¡¯s neither a reserve for anything nor is it Federal. It¡¯s a private bank and a cartel with a fancy and deceptive name.

¡°Systematically and methodically, US citizens are now being robbed by the system. Because the Fed has issued trillions in fiat paper, we¡¯re suffering from inflation. And because the US government doesn¡¯t issue its own money, we¡¯re being systematically bled by the Federal income tax. This inflation and taxes rob us of the fruits of our labor. And the US public grudgingly accepts this disgusting process because it doesn¡¯t know any better. Our poor duped citizens have never even questioned where our money comes from.

¡°As far as the IRS is concerned, their function is to be the policeman, they simply see to it that we pay the taxes. Thus, the IRS is just a symptom of the disease¡­the disease is the Federal Reserve and the method by which money is created under this banking cartel.

¡°Ultimately the system will fail because it¡¯s an evil system and an immoral system. And the only power evil has is the power to destroy itself over time.

¡°Why is the system evil? It¡¯s evil to pay people for their labor in paper that costs nothing to create. A person should receive something real, something tangible, something substantial, for their work. Anything else is, in actuality, a subtle form of financial slavery¡­or working for nothing.¡±

(Note: Mr. Russell uses the term fiat in the above quote. In case you are not familiar with this word, fiat is a Latin word which means literally, ¡°Let it be done.¡± Synonyms include ¡°declared¡± and ¡°decreed.¡± Fiat money is money which the government declares to have value, but which in fact has no intrinsic value because it is not backed by anything which has intrinsic value, and is merely created, without limit, on a printing press.)

Someone has said, ¡°A picture is worth a thousand words.¡± Have you ever looked at a long term chart of the US Dollar Index? (See chart below). It looks like a chart of Enron a few months before it went bankrupt. Look at it. That¡¯s what you are working for. So, what should we do? Take the dollars you earn and get rid of them as fast as you can. Use them to buy real (tangible) assets. That¡¯s what smart investors (and even other governments) all around the world are doing. That¡¯s what my little investment group and I have been doing the last eight years, not based on my wisdom, but by listening to Rogers, Maybury, Russell and others, who foresaw what is happening today ten years ago. That¡¯s how we have averaged close to 20% per year for these eight years. A dollar invested in our portfolio on January 1, 2000 has now more than tripled.

(Go to www.bigcharts.com advanced chart page, enter USD and select 2 years.)

Of course, my belief is that the reason we followed these great investors is that we committed the whole project to God in prayer in 1999, as I¡¯ve explained before. And I want to quickly add that God was not obligated to prosper us as He has, nor is He obligated to continue to prosper us. You may read Chapter 1 of the Biblical Economics book for a discussion of this. Which brings me to an important point.

What about those who have little or no money to invest?
I have had this question on my heart for several weeks. This is exactly where Mary Ann and I were in 1973. It¡¯s called ¡°being broke,¡± which by the way, is better than being bankrupt. When your debts exceed your assets, you are ¡°insolvent.¡± When your creditors demand payment, the next step is bankruptcy. Jesus was broke but He wasn¡¯t insolvent, and he couldn¡¯t go bankrupt because He didn¡¯t owe anything. Debt is what caused us to go broke, but we were able to pay our debts before we went bankrupt. I¡¯m thankful that was our position.

For those who have little or no money to invest, but are not insolvent, I¡¯ll give you the same advice I would like to have been given in 1973. First, thank God for having you exactly where He wants you, which is the place that is in your best interest (see Chapter 1 of the Biblical Economics book). Next, concentrate on getting completely out of debt, the sole exception being the mortgage on your home, if you have one. Even there you might want to consider selling or downsizing, as you proceed with the following steps.

Once you¡¯re out of debt, commit to spending less than you make, and begin saving the difference, doing whatever it takes to add to your savings every month. In the book, this is called ¡°allocating your resources instead of attempting to pay for your desires.¡± (see Chapter 14 of the book). Here are two Proverbs pregnant with God¡¯s financial wisdom. ¡°He that chases fantasies will have his fill of poverty.¡± ¡°He who gathers money little by little makes it grow.¡± God¡¯s plan of wealth building (assuming He wants you to accumulate some) is little by little employing the principle of compounding.

If you have little or no wealth now, thank God for the non-financial assets which you have, which are worth far more than material wealth. Examples: youth, health, the opportunity to follow God¡¯s wisdom in managing what He has entrusted, or will entrust to you. As you accumulate those dollars, get rid of them and invest in real assets. You can follow the strategy contained in these letters if you feel led to.  You can find my latest portfolio at http://somehelpful.info/Money/Jay-portfolio.htm.

Above I mentioned that coffee was 5 cents a cup in the 1930s and 1940s. What I didn¡¯t add was that in those years our dollar was real money, defined as one ounce of silver, or 1/20 ounce of gold¡­and you could convert your dollar into those metals at those ratios. Both England and the US were nearing the end of a one hundred year period of no inflation. During that period both countries backed their currencies with precious metals. One of the greatest economic gifts our congress could give the citizens (my opinion) is a stable currency. Then the low income, so-called laboring class could play on a more level playing field with the wealthy. I often wonder what our country would be like today if we had stayed on the money system we had for most of its first 200 years, the system clearly defined in our Constitution.

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"Well done, good and faithful servant; you were faithful over a few things,
I will make you ruler over many things.  Enter into the joy of your lord"
(Mt. 25:21 NKJV)

If you have not been faithful in the unrighteous mammon, who will commit to your trust to true riches?" (Lk. 16:11 NKJV)

The Apostle Paul wrote, "Now godliness with contentment is great gain. We brought nothing into the world and it is certain that neither can we take anything out. So having food and clothing we will be content with that. But those who want to get rich fall into temptation and a snare and into many foolish and harmful desires, that plunge people into ruin and loss; because the love of money is a root of all kinds of evil; in their greediness some have been led away from the faith and have impaled themselves on many distresses." (1 Tim. 6:6-10 NKJV)

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The information in these letters is the responsibility of Mr. E. Jay O'Keefe, but all your decisions are your own responsibility.

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