Profiting from devaluation courtesy of Harry Browne

2012-JUL-14

History doesn’t repeat but it does rhyme, so the old saying goes. While we can learn many economic lessons from studying the past, countries, institutions and monetary arrangements change, rendering exact comparisons tricky. That said, readers of the late Harry Browne’s book How You Can Profit From The Coming Devaluation (first published in 1970) will be amazed at how applicable it is to present economic circumstances. Lipton Financial Services, Inc has just republished this excellent work with a new foreword from James Grant of Grant’s Interest Rate Observer fame.

The book starts by quoting economists’ hopelessly optimistic assessments about the US economy dated from 1928-29. Some of the comments could easily have applied to late 1960s America, or indeed the America of 2006-07. Browne’s point isn’t that depressions are inevitable – far from it. He argues that they “are the direct effect of certain economic causes. If the causes do not occur, the depression will not occur.” The early chapters give a superb overview of how government manipulation of the money supply reaps havoc with microeconomic calculations by individuals, families and businesses.

Browne’s predictions in this book came to pass over the course of the 1970s. He stated that the US government would devalue the dollar “sometime between this coming Saturday and the end of 1971.” Sure enough, President Nixon ditched the US Treasury’s obligation to redeem dollars for gold on 15 August 1971, with inflation subsequently soaring to a 1980 peak of 15%. Those wise enough to take Browne’s advice to buy gold and silver have done very well since. In 1970, gold cost just $35 per troy ounce, while silver was under $1.50/oz.

As James Grant points out in his foreword, Browne – who died in 2006 – did not live to see the current “Great Recession”. He surely would not be surprised though that precious metals are again outperforming many popular investments, amid aggressive government efforts to devalue currencies.

James Turk comments: “I came across Browne’s book shortly after college, where I was taught that gold was an archaic curio that no longer had any monetary usefulness and would drop to around $7.50 per ounce after the US government stopped “supporting it” at $35. But when that fateful day finally arrived the gold price instead began rising, which made me question the accuracy of my Keynesian college professors and the value of their theories. So I began a quest to understand how the monetary world really works, and Browne’s book was one of the first to help me recognise that my college economic courses were rubbish. I am glad I read this, and shall be forever grateful to Harry Browne.”