Staying High and Dry in a Recession: by Robert Kiyosaki

There's an old saying that goes, "It's a recession if your neighbor loses his job. It's a depression if you lose your job."

Watching the financial news networks and reading the financial publications these days, you'll see many people asking if the U.S. economy is heading into a recession. From my vantage point, the answer is yes. I believe that for many people in certain industries, like real estate, the worst is yet to come.

Economic Ripple Effects

Before getting into why I think there will be a recession, it's important to know the specific definition of the term. Very simply, a recession is a decline in a country's gross domestic product (GDP) for at least two quarters. That means that by Christmas we'll know if we're in a recession or not.

In some ways, the coming recession is a product of the physical phenomenon known as precession. Precession is the effect of bodies in motion upon other bodies in motion -- or, more simply, a ripple effect, like when you throw a stone into a still pond and the waves emanating from it overlap.

While there are many such processional "waves" in the coming recession, one is the lack of integrity in the U.S. monetary system. The United States has defaulted on its financial promises many times in recent history. In 1934, we defaulted on domestic gold redemption. That year, it became illegal for U.S. citizens to own gold. Instead, the government required Americans to turn in their gold, and they were paid $20 in paper money for every ounce of gold they surrendered.

Once the gold was collected, the government raised the price of gold to $35 an ounce. Talk about a lack of integrity. And in 1968, the U.S. defaulted on silver redemption, taking U.S. dollars backed by silver out of circulation. Finally, in 1971, the U.S. defaulted on international gold redemption.

International Impact

Another reason for the coming recession is the subprime mess. And while issues related to the subprime fiasco may seem domestic, they actually have severe international consequences. The subprime mess seems to be a problem associated with lower-income people who can't afford their homes, yet it's really the tip of a very large international iceberg, and it'll affect all of us. Here's why.

In the Sept. 12, 2007, issue of Business Week, Kerry Capell asked the question, "Could any country be more exposed to the credit crunch than the U.S.?" The answer: "You bet, and that place is Britain."

Unlike many of its European neighbors, Britain shares many of America's financial traits. In the last few years, access to cheap credit in Britain has fueled a decade of economic growth, with home prices tripling in 10 years -- an even faster rise than in the United States. With cheap borrowed money, the English consumer has caused the British economy to boom; consumers are responsible for two-thirds of the British economy.

Today, Britain is more dependent upon financial services than we are. So what will happen to the world if both England and the United States go into a recession? The precessional effect is bound to be dire -- especially for working people.

Too Much Money

As strange as it may seem to the average person, the problem is not a shortage of money -- it's too much money. The world is choking on too many U.S. dollars.

Normally, when a currency gets into trouble as the dollar is now, all the country has to do is raise the interest rates on their bonds and things are fine again. But because of the subprime meltdown, the Federal Reserve can't simply raise or lower interest rates.

In simplified terms, the Fed must keep rates low in order to save the domestic economy. This causes the international economy to dump the dollar by not buying our bonds, which is one reason why the price of gold keeps going up -- it's the true international money. And the rise in its price (and in the price of oil) signals the loss of the purchasing power of the dollar; the world simply doesn't want any more dollars. This is a ripple effect from 1971, when the dollar came off the gold standard.

Less for More

The tragedy of this excess of money is that most of the world's workers have to work harder to earn less. This is because the currencies of the world are becoming less and less valuable. Even if workers get pay raises, the boost won't be able to keep pace with declines in the purchasing power of money, increases in expenses such as oil, decreases in the value of homes, declines in the value of stocks, and increases in taxes.

Just look at what's happened in the last decade. Ten years ago, gold was about $275 an ounce. Today, it's over $700. That means that, compared to gold, your income would've had to go up by 250 percent just to keep up with the loss in purchasing power of the dollar. Or, compared to oil -- which was about $10 a barrel 10 years ago and today is over $80 a barrel -- your income would've had to go up by 800 percent.

Sure, there are many people whose incomes have gone up way beyond 800 percent in the last 10 years. The problem is that most people's incomes haven't kept pace, and they're technically in a state of personal recession with no way out.

Throw Yourself a Lifeline

As the global economy continues to gyrate, you'll hear more and more people calling for the Federal Reserve to either lower or raise interest rates. The problem is that the Fed has less and less power to do much.

If it tries to save the domestic economy, the international economy will pound us. If the Fed tries to save the dollar internationally by raising interest rates, it'll kill the domestic economy.

Instead of looking to the Fed to save you, then, I recommend you save yourself by investing in real international money. One way to do so is by purchasing silver. Gold is expensive, but silver is still a bargain even for the little guy. When the recession comes, the ripple effect on your financial future will be immeasurable.

Robert Kiyosaki
Posted on October, 2007

Beware the IDR Falling into Singapore's Hands

Former Malaysian prime minister Mahathir Mohamad was interviewed by Malaysia's fortnightly political tabloid Siasah on Aug 9. This is an extract from the interview published in the current issue of the tabloid.

SIASAH: The Iskandar Development Region (IDR) is a massive and expensive project that is said to be very beneficial especially to Johor in the long run. But various quarters - including you, Tengku Razaleigh, PAS members and international financial analysts based in Singapore - are sceptical about whether the project will run as smoothly as planned.

Tun Dr Mahathir: We can develop our territory anywhere we like. But the problem is Singapore's involvement in this project. Why must there be a special joint ministerial committee to decide on the development in Malaysia? Why must we depend so much on Singapore's participation to develop the IDR? As we know, Singapore is not a good neighbour, and even if it agrees to be involved in the IDR, Singaporeans will eventually buy houses or factories and reside here. Singapore reportedly has plans to increase its population to eight million to 10 million (sic), a large part of which will be imported from mainland China. As Singapore can only accommodate up to five million to six million, the rest of its population will probably be placed in the IDR. So if we're not careful, the IDR will eventually be filled with Singaporeans. Past experience has taught us that we lost Singapore because the Chinese population exceeded that of the Malays. And tomorrow, if the government allows Singapore Chinese to occupy the IDR (through business, employment and property purchase) to a larger extent than the Malays, the IDR would be dominated by Singapore Chinese because the Malays cannot afford to buy homes there. Malacca and Penang remain in Malaysia because the Chinese population can be offset by the large Malay population. But in Singapore, the Chinese make up more than 75 per cent of the population while the Malays make up a mere 15 per cent. The Chinese there are rich and control the economy. For this reason, we had to release Singapore because the Chinese were too numerous and controlled the island. And at that time, Lee Kuan Yew, who had initially agreed not to interfere in the political affairs of the peninsula, broke his promise by contesting in the 1964 general election in Bangsar, which led to the late Tunku (Abdul Rahman) becoming incensed and expelling Singapore. Today, we are trying to invite Singapore to enter Malaysia by participating actively in the IDR through various incentives and investment promotions. Eventually, the Johor Malays - who would initially refuse to sell their land - would be blinded by the highly lucrative offers for their properties and sell them to the Singapore Chinese for instant wealth. After that, where will the Malays reside? They will be driven away from the rapidly developing IDR. They won't be able to afford the costly property there and will be forced to live outside the IDR. The IDR will then be filled with Singapore Chinese and Malaysian Chinese who can afford it. What if their numbers exceed the Malay population? We will once again lose Malay territory to the Chinese, as had happened with Singapore previously. What about the Singapore Government's active involvement leading to the formation of the joint ministerial committee? Is this necessary? All this while, we had never sought anyone's assistance or advice to develop our country. We had developed Kuala Lumpur ourselves without anyone's aid. We never called on any foreign minister to advise us on how we should develop KL. We have the Economic Planning Unit (EPU) to plan and advise us on our development. The development of Putrajaya, Labuan, Langkawi and the whole country was the result of our hands and the expertise of our people. Why must we develop the IDR by seeking advice from Singapore ministers? They are just like us. We developed this whole country without the help of foreigners and without the advice of any foreign minister, including Singapore's. In fact, those Singapore ministers sitting on the ministerial committee can't even make decisions without the direction and consent of the island's most powerful man, Lee Kuan Yew.

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