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Date: August 20, 2013
Subject: No One Saw It Coming

                                                                                                           This is
                                                                                                 G&G Associates
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                                                                                             No One Saw It Coming

"I don't think there was one person who saw this coming."

Those words were spoken by a stunned, defeated Romney campaign advisor on election night of the 2012 presidential campaign.   Poll after poll had buoyed Republican hopes. All of the old-fashioned indicators pointed to a Romney victory. That is, until the first voter-turnout results started pouring in.

What the Romney campaign didn’t realize was that its “fat and happy,” traditional approach to campaigning was dead in the water. Team Obama relied on technology and data-mining to outsmart and outwork the Romney camp, resulting in a voter turnout advantage of historic proportions. The game had fundamentally changed … and not by chance.

Today, the global economic landscape is experiencing a similar tectonic shift, and America’s supremacy is threatened by a nation that is working harder and smarter than we are.

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Most Americans unwittingly think they inhabit the freest, wealthiest, most-democratic country this planet has ever seen. And that might have “been” true at one point. But the assessment is no longer universal. What we don’t realize is that the world sees America far differently than most Americans see themselves.

In fact, others puzzle at that self-assessment. Just about everywhere I’ve traveled in the world since 9/11, the locals are honestly amazed at Americans and argue – rightly and often with a sense of melancholy – that we’re looking at ourselves through beer goggles just as the bar is closing. They see the Land of the Free losing its liberties to laws that spy on our activities and constrain our physical and financial movements. They see that America has managed its currency and its finances with all the grace of an obese glutton.

All empires (HISTORY REPEATS ITSELF) reach a point of inevitable decline, and America’s financial dominance has passed the tipping point.  Much like the Romney campaign was surprised by unexpected events last November, America will soon be surprised by what’s brewing elsewhere in the world – in places like Russia, for instance.

They are working to undermine America’s supremacy by attacking it tangentially. In doing so, emerging countries like Russia – along with China, South Africa, the Middle East and others – could hasten America’s undoing … and the great bulk of Americans have no clue what’s coming.

Worse, because the masses are gullibly patriotic, arrogant and prejudiced at the rest of the world. Most refuse to even consider the possibility that America in the future might be an anything other than king of the hill.
A Currency Cold War is Underway

Last fall, the central Bank of Russia started making moves to try and build a reserve currency, one backed by the plentitude of hard assets Russia owns. At last count, the country had an estimated 5,000 tons of gold ore still in the ground and some of the world’s largest reserves of oil, natural gas, coal, aluminum and iron ore.

“Russia,” I must say smartly, “is using oil, gas and minerals as the new tools of war instead of military tools. This will be the beginning of a currency cold war.”

Russia, like many countries, knows the U.S. dollar is vulnerable. The USD is backed by nothing. You can argue, as cheerleaders love to, that the dollar is supported by the full faith and credit of the U.S. government. But that’s marketing Bull Shigidy. The U.S. has twice defaulted on the dollar, despite claims to the contrary. If we’re basing currency value on full faith and credit, then we should all be rushing to the Danish krone, which has never seen a default.

In reality, liabilities … not … assets, back the greenback – an unpayable mountain of debt, now running toward $125 trillion when you include all the off-balance sheet costs the US owes as a nation. The US has an increasingly dysfunctional government that shows no signs of honestly confronting its financial frailties. And it has a spending affliction in D.C. that will change only when a financial catastrophe forces politicians – probably under threat from violent mobs – to stop acting like rude teenagers who can’t figure out how to manage the debit card they’ve been given.

The Russians and the others all know that America’s financial decline will one day destroy the USD.  Few in America seem to realize, or seem to even care, that this outcome is racing toward us.

Thus, in a strange twist of historical fate, the Russian ruble could become the world's first hard-currency, backed by real assets, replacing the dollar, backed by real debts.

Russia is all too happy to step into the eventual void by working now to establish a version of a hard currency as a new global standard. True, Russia has its own set of political issues to grapple with, and Western countries will be loath to keep their reserves in the ruble. But emerging nations aren’t so picky. They will gladly keep some of the reserves in a ruble that is provably backed by real assets.

And here’s why that’s important: The emerging nations have all the money!

Of the top 20 countries with the largest currency reserves, 13 are emerging nations – including Russia, at number four. As those countries pull cash out of the dollar and send it to Russia, the declining value of the dollar will slam U.S. consumers with higher prices for all the goods imported into the country. So, this is not an esoteric exercise. It has real impacts on us here at home.
 

                                                                                   Never ASSume You Are On Top

I expect none of this to change. Only a handful of Americans care, because the great bulk will never accept the premise that America isn’t number one, or that they live in a deeply flawed nation with structural weaknesses that could very well tear the country apart.

Russia’s clearly not the greatest country either. But if it successfully builds a reserve currency, America’s inherent financial weaknesses will ripple through the economy.

If Romney’s 2012 election fiasco serves any historical lesson, it’s this: Never assume you’re on top … because what you never expect is likely to prove you wrong.

Question is … are you prepared to deal with what will happen one day?

AGAIN: To become a member of the G&G Investment Society (GGIS), send an e-mail to GGIS@gngassoc.com and/or visit our website at www.gngassociates.net and you can sign up there.

                                                              
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Meda Ase p (Thank You Very Much),
Asar Maa Ra Gray
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LEGAL NOTICE: This work is based on what I’ve learned as a financial researcher and analyst based SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you should not base investment decisions solely on what you read here.  It’s your money and your responsibility.  Nothing herein should be considered personalized investment advice.
 

 

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