First, the owners of baseball’s New York Mets were accused of complicity in Madoff’s scheme. Then the New York Times — ever seeking ways to stall their plummeting circulation — featured an interview with that crumb Madoff. Wasn’t this supposed to be one of those “lock the door and throw away the key” deals?

Besides, who cares what he has to say? It’s not like Madoff’s going to spill the beans now, right? Besides, what sort of credibility would you give whatever beans he does decide to spill? Remember, this is the guy who single-handedly (or so he claimed) fooled thousands of people for years and years — including some sophisticated financial professionals — into believing he was “managing” their thousands into millions and their millions into billions.

As you’ve all heard by now, his scheme was the biggest Ponzi scheme in U.S. history. But was it really?

This month we’ll answer that question. But before we do, let’s pick up where we left off last month and take a look at thegreatest sustained uptrend in the history of modern markets. It’s one that virtually no one seems to have noticed. And, as we asserted last time, you’ll learn why none of your financial planning or your investment strategies can possibly succeed if you choose to ignore this incredible trend.

We start with this startling fact: until last year, throughout the entire history of the New York Stock Exchange no item has gone up ten years in a row. That includes the recent historic primary bull market in stocks that ran from 1980 through 2007. In fact, even the much older London Stock Exchange never witnessed 10 straight years of positive gains for any single item.

So which asset accomplished this astonishing uninterrupted climb? Gold.

That’s right. The record was broken by an asset that has typically been dismissed as a “barbaric relic” by economists and central bankers, is barely tolerated if not outright ridiculed by investment managers and Wall Street wizards and profoundly ignored by the vast majority of the American people.

Lest you think we’re making much ado about nothing here, just think about what would happen if stocks had gone up for 10 years in a row? You’d see headlines splashed across not just the financial press, but the general media too. In fact, can’t you just picture Mr. and Ms. America frantically placing buy orders with their brokerage firms so they won’t be left behind — a virtual replay of the tech mania of the late 90s?

Or take another example: oil. Remember what happened when the price of oil spiked right before it collapsed in 2008? Goldman Sachs touted oil at $200 a barrel, gas prices shot up — we even heard whispers of the end of America’s long love affair with the automobile.

Pick any other item and you could imagine some other dramatic scene – except for gold. Something’s going on but it seems like we don’t know what it is. The question is: why? Let’s try to understand by starting with the economists and central bankers of the world.

Economists and central bankers can’t really do much with gold since it was “de-monetized” with the dismantling of the gold standard. For them, gold represents just another commodity — like oil. But, as we’ll see later, it isn’t just another commodity.

What about Wall Street? See, the problem there is that Wall Street can’t make much money off the yellow metal compared to the trading commissions and banking fees they rake in with stocks, bonds and investment banking deals — never mind all those exotic creations like CDO’s and CDS’s, all of which bring in billions in profits.

How about all those thousands of professional money managers? You’d think an asset that’s gone up while virtually everything else has taken a turn going down over the last 10 years would provide meaningful “diversification” to professionally managed portfolios. Isn’t “asset allocation” supposed to be one of the most important features — if not the most important feature — of a professionally managed portfolio? So you’d think gold would have a role to play in just about every asset allocation model out there, wouldn’t you? Ya think? The reality is, gold accounts for around 0.8% – in other words less than 1% – of all professionally managed portfolios.

What about the average American? While people might hear or read about gold these days — as opposed to the last 30 years or so, most Americans have no idea what they would do with the stuff — unless they’re selling their coins and jewelry to merchants touting gold’s historically high price.

Oh, right, we almost forgot. It must be that gold is in a “bubble.” Yeah, that’s it. Interesting how those same economists, investment managers and Wall Street bankers — virtually all of whom failed to identify the tech stock bubble in the late 90s, as well as the recent housing bubble, never mind the sub-prime debacle — have been able to identify this gold “bubble” isn’t it?

But never mind all that. The real question is, “Why should this matter?” Gold really isn’t much of an investment, after all. It doesn’t pay any interest or dividends. And admittedly it’s tough to store if you decide to go out and buy gold bullion coins or bars.

Why it matters has to do with what we told you last month will be the most important theme for the coming year, possibly even the coming decade: money.

You see, gold is money. It’s been money far before our “Federal Reserve Note” (a/k/a the U.S. dollar) was a gleam in the eye of the heads of the Federal Reserve — our central bank. In fact, it’s the oldest continuous form of money ever, going back thousands of years.

Some of you may be aware of this, some may not. For now, we’re not going to review the history of gold as money, nor are we going to try to prove that it is. We’ll simply defer to the lateJP Morgan — the most influential financier of his day — who famously said in 1912, “Gold is money, and nothing else.” He was a man of few words.

Even better, we’ll defer to the institution that bears his name, JP Morgan Chase, which recently declared that gold will be accepted as collateral for loans — a virtual admission that gold is more than any old commodity; it is, as their late founder said, money.

So the fact is, you simply can’t have an intelligent or meaningful discussion of money unless at some point you include gold as part of that discussion. That’s why we’re bringing it up now. Since we’re going to be talking about money from time to time this year, you can bet that gold will have to be part of that discussion.

So what does Madoff’s Ponzi scheme have to do with all this? Well, part of his rotten scheme was telling people that there was money where there really wasn’t any. His investors received paper statements, year after year, for over 20 years, telling them they had anywhere from a few hundred thousand to a few hundred million just waiting for the day when they might need it. Except there wasn’t: it was all a Ponzi scheme. But was it the biggest ever?

Well, if you’ve been reading these letters for a while, you may remember the last time we talked about how the Social Security system — specifically the Social Security trust fund — doesn’t actually have any money even though we’re told it does. And haven’t we all been receiving paper statements year after year telling you how much money is waiting for us when we’ll need it?

If you think this is an improbable or outrageous stretch, we found this interesting side-by-side comparison recently. Let’s see…

Unless we’re missing something, this looks pretty reasonable, doesn’t it? And if it’s reasonable, it’s got to take first prize in the Ponzi scheme ratings. Except that, well, there’s apparentlysomething that may displace even Social Security as the greatest Ponzi scheme ever.

For that story, we take a very quick look at some disturbing comments from — of all sources — the Bank of International Settlements (a/k/a BIS), the so-called central bank for central banks. While the BIS produces hundreds of studies on the world’s economies, a recent paper, “The Future of Public Debt: Prospects and Implications,” by Stephen G. Cecchetti, M. S. Mohanty, and Fabrizio Zampolli, breaks from the staid, toned-down analysis typical of such central bank studies.

Here’s a sampling of some of their alarming conclusions:

–“…fiscal problems confronting industrial economies are bigger than suggested by official debt figures…”

–“As frightening as it is to consider public debt increasing to more than 100% of GDP, an even greater danger arises from a rapidly aging population.”

–“…persistently high levels of public debt will drive down capital accumulation, productivity growth and long-term potential growth.”

And in the typical understated style of these sorts of studies, our authors suggest that, for those countries like the U.S. who currently suffer from high levels of structural (read: “permanent”) national debt along with high budget deficits, the current crisis“could force governments with weak fiscal systems to return to fiscal rectitude sooner than they might like or hope.”

In other words, all that bickering going on over the budget should remind us of Nero who famously fiddled while Rome burned. We really don’t have time to waste in addressing these problems.

Of course, how we actually do address these problems is another story — considering that 80% of the federal budget consists of defense spending, entitlements and payment of interest on our current debt. Come to think of it, while one can argue the merits of cutting Public Television off from the federal trough, we’re hard pressed to find items that will make the kind of difference the situation requires. Will any of the current proposals even make a dent when all is said and done?

In fact, the problems may simply be too great to be resolved by any historic means. Financial analyst and author John Mauldin, in referring to this study, reaches what he calls the “inescapable conclusion” that government bonds currently are a Ponzi scheme. Government bonds a Ponzi scheme?!! For goodness sakes, we’re talking about, for example, those same U.S. treasuries that people refer to as a “safe haven” in times of crisis.

Our point here isn’t to convince you we’re in a crisis. We already know that. But it is important to understand two points: 1) the severity of this crisis is certainly not lessening — even in the face of recent economic recovery; 2) all of this is having and will continue to have a huge impact on our money.

Can we all agree that the severity of our current crisis gives no signs of lessening? Remember, we’re admitting that the economy has shown signs of life. But that’s exactly the point. That life — the steady breathing of positive GDP numbers that we’ve all seen over the last few quarters — has come at a cost. Here’s what it’s taken to get the economy back to somewhere close to where it was three years ago:

– The Fed Funds rate moved from 4.5% to zero.

– The Fed’s balance sheet expanded by more than $1.5 trillion.

– The Fed has increased M2 money supply approximately $1 trillion.

– The federal government has expanded government debt by $4.8 trillion.

With all this, unemployment has barely budged. In fact, the recent drop in the unemployment rate was primarily due to dramatic drops in what is known as the “participation rate”: the numbers of people looking for jobs has dropped. Those people now not looking remain without jobs. The better gauge of unemployment, “total civilian employment,” has gone sideways since late 2009, when it rose about a million — over a year ago.

Meanwhile all that new money created to goose the economy, along with all that debt we’ve created continues to deaden the U.S. dollar. How do we know? Just look at the price of gold.

But wait. Hasn’t the dollar both decreased and increased over the last ten years? After all, if it had only gone down for the last decade, shouldn’t all that stuff we import — not just from China, but anywhere else in the world — have gotten ridiculously expensive by now? Yet we know that it hasn’t, right?

Well, if you remember, last month we referred to “competitive devaluations” of all currencies. We explained that what goes on in competitive devaluations is that central banks print up a ton of their own currencies to keep them cheap compared to other currencies. They devalue their currencies so that the prices of the products they export to other countries remain competitive.

That means that, instead of the dollar weakening against all these other currencies, it has — for the most part — retained much of its value relative to the other currencies. The operative word here is “relatively.” Even in these last three years as we have printed money and piled on debt, so have the governments of all other countries printed money and — some to a greater degree, some to a lesser degree — piled on debt.

So shouldn’t we find that the values of all the other currencies in the world have declined against gold? Indeed, that’s exactly what we find. Not all at the same pace, mind you, but the direction of currencies against gold remains unanimous: down. Some have called it a “race to the bottom.”

Which leaves us with one really critical point about money we can take away from all this: the relentless rise in the price of gold is another way of saying that the value of the dollar has declined dramatically over these last 10 years.

And if you understand the idea of competitive devaluations, you might be able to get some idea of why holding other currencies besides the dollar — while it can serve a purpose under some conditions — will not really help you to retain the value of your money.

But more importantly, addressing the point we raised at the beginning of the letter, you should be able to begin to understand why we said that none of your financial planning or your investment strategies can possibly succeed if you choose to ignore this incredible trend.

We’ll talk more about this as we work our way through 2011.

Well, we started this letter saying spring was sullied by the alleged involvement of some baseball owners with Bernie Madoff. But on second thought, that’s not really true, is it? After all, what’s spring training about if not the uplifting idea that hope springs eternal? And it’s in that spirit that we close the circle for this month with:

In most of the world the passing of Doris Bauer would have gone unnoticed. Except for the fact that in the world of New York sports radio, especially late-night sports radio, she was known as “Doris from Rego Park.”

When Doris used to call at 1 AM, it wasn’t necessarily to debate. It was more a pouring out of her insights about her beloved New York Mets. You can read more about her in two pieces from the New York Times by clicking here and here.

I confess to taking a dose of New York’s sports radio station, a/k/a “the FAN,” from time to time. Not only do you get the usual sports banter, but every once in a while you’ll stumble across outspoken and extremely knowledgeable New York sports fans locking horns over some hot topic like whether recently retired Yankees pitcher Andy Pettitte should be in the Hall of Fame. I’ve often thought we’d be a lot better off if our congressmen knew as much about the issues they typically debate as NewYork fans know about sports.

Someone recently posted a song written for Doris on Youtube I thought you might enjoy. It’s certainly not a great work of art or anything. But it still touches you. If you listen to it, make sure you watch the screen and catch the brief remarks on the bottom of the screen that the author added. You can find it by clickinghere. I hope you like it.

Apparently Doris never married, didn’t drive and lived with her mother — who was a survivor of the Holocaust — her whole life. But if I read her life correctly (the little I know of it) I think it tells us that not only are we connected in ways we can’t even begin to know, but that our looks, background, neighborhood, lifestyle, financial status and all the rest really don’t matter in the least to those we touch every day — especially the ones we care about and those who really care about us.

So let’s all thank Doris today. She’s taught us that hope really does spring eternal this year as we all look to opening day when all our teams start the season with that perfect “0 wins — 0 losses” record. And maybe we can all remember Doris and the hope that spring training brings when we wake up tomorrow morning with our next best chance to start our lives anew.

All of a sudden the weight of those fiscal imbalances, our overwhelming national debt and the crisis that keeps threatening to bring us all to ruin feels just a bit lighter now. Don’t you think?

Richard S. Esposito, ChFC
Lighthouse Wealth Management LLC
405 Lexington Avenue, 26th Floor
New York, NY 10174
Tel: 212-907-6583/Fax: 866-924-1952

Email: resposito@lighthousewm.com