By- Rick A. Griffith
I was reluctant to write this post, as this subject has been weighing heavy on my mind for months now. It is time to bring this topic out in the open for my fellow readers and bloggers. I'd love your opinions, please feel free to use the comments section below as an open sounding board on this issue. Below is a brief overview of some of the challenges ahead for all of us. I normally try to write to an international audience, but this issue covers our problems here on the home front in the US which will clearly effect every other nation in the world. Here is my report.
The Dollar Crisis
For years now we have all been hearing about our national deficit, but in reality, many Americans do not really even understand what this is on a fundamental level. While many citizens (and apparently politician's) believe we can continually print new money out of thin air without compromising it's purchasing power, the truth is that this money must be borrowed and repaid with interest.
Without getting too technical, the main issue here is that the well is drying out, or rather, is already dusty. To put things in perspective on just how much money we are borrowing, here is a quote from Senator George Voinovich from his recent speech in the US Senate.
"Last year, we borrowed $1.4 trillion -- or 41 cents of every dollar we spent. Over half of this debt is held by foreign investors."
If you think that sounds crazy and aren't great at math, look at it this way. 1.4 trillion = well, just watch the video below...Keep in mind the US is currently in debt at about $13.5 trillion dollars, and this number increases each day!
It is insane to think that this kind of irresponsible spending can continue. While we all seem eager to put this recession behind us and move onto the next boom, I'm afraid I have bad news. We haven't hit the bottom yet.
Do you ever wonder why you were born in the place that you were in the period of time that you happened to live?
Don't you feel lucky to be an American when you watch all those Hollywood movies of how awesome we are?
I do, it's nice to feel like the good guys.
Aren't we just blessed to be born in middle class suburbia with 3 beds 2 baths, wall to wall carpet, indoor plumbing and a McDonald's within walking distance?
After all we could have been born in Rural China, under communist rule and never enjoyed any of the common luxuries we enjoy every day.
What many of us don't know is that a big lifestyle change is in order.
China, Japan and Europe have grown weary of our exploits and are no longer going to foot the bill for all of our toys.
We are a nation of consumers, not producers and that is a big issue. While it seems the Government and most stock brokers want you too believe that we can simply continue this reckless spending, an end is near. The video below shows a good example of this. Notice Peter Shiff's take on things and the non sense rebuttals from the other guests. The message is that we cannot simply recover from the mess we've made, the wound may be fatal.
Our printing presses will be rendered useless without the continuing capital pouring in from other countries, predominantly China and Japan. Signs from earlier this year point to the increasing reluctance of Asian countries to continue lending their funds into this bottomless pit.
The End Is Near? Not really...
I am no anarchist and don't believe that randomly in 2012 the world is going to seize to exist. I don't see massive violence and complete destruction of our great country. However it seems that a permanent change in lifestyle may be coming sooner than later for many Americans. We will no longer be able to just stack up debt, only to default and go bankrupt (get it in while you can I guess, max out those Amex's:). The truth is that spending as a whole will need to be reigned in and we as a nation will be forced to live more simply, out of necessity and not luxury.
A main daunting concern is what will happen to the elderly or those near retirement, unable to continue earning wages. Will the meager social security and pensions be enough to get them by with a weaker dollar?
To be very honest, no one can possibly know. The best idea is to prepare now, while some time is still left and before dollar based retirement funds and accounts are devalued by a nose dive of our currency that is inevitable.
So how do I hedge against the impending crisis?
There are a few very important steps you can take to prepare for such a crisis. First off and most importantly, I think it is important to have a US Passport ready to go. I don't think that the occasion will arise that everyone starts to flee the country, but having a travel document ready to go saves alot of lag time. When the crisis does occur, it is likely that a scramble to get these documents will occur, so having this done it advance is a good idea.
Secondly, diversifying some of your investments to non dollar based assets is a good idea. Holding Gold, commodities and foreign real estate are great ways of doing this. While Gold is the huge player in this game and most people seem to be flocking to the idea of buying as much as possible, I think that foreign real estate is a great under the radar pick up.
With the current (likely short lived) purchasing power of the dollar, great investment property can be purchased around the world in countries that are not in the same mess that we are here in the US. The diversification of currency is a huge asset as well. When the dollar does crash, being able to be payed rent in a stronger currency is a big advantage of foreign real estate investment. I will cover great locations to purchase foreign real estate in a coming post. The main idea here is getting your money out of unsafe domestic accounts and diversifying into a currency in a growing country, preferably that encourages foreign investment with favorable tax advantages, but we'll cover this in more detail later on. Gold, Silver, Oil, Wheat, Corn and other hard assets are also good long term plays here.
Lastly, changing your standard of living and starting to live simpler, is a very good start. With the current market crash, real estate prices have dropped to less insane levels. While I still think they have a ways to fall, I think it is a hugely great idea to pay off your primary residence and owe nothing on it except for property taxes (this means no condos with HOA dues). Here in Phoenix for example, livable properties are selling at foreclosure for less than $30,000, less than many of us owe on car loans.
Owning your principal residence free and clear is a big step toward lowing your monthly expenditures and this is a great time to make such a move and either pay off your existing mortgage, or buy a discounted Shortsale, Reo or foreclosure property with cash.
These are three very simple tasks that can get you started in your preparation of the coming dollar crisis, however there is much more you should consider if like me, you would like to maintain an above average lifestyle after the dollar crash. I'll cover these topics in an upcoming post titled, "Going Global, How to avoid losing what you've earned!", which I'll be posting next week.
Until then, educate yourself and make a plan of action on how you can navigate your way through a dollar crisis. It is coming so we might as well be prepared. Please let us know your thoughts on the situation below, your feedback is appreciated even if you disagree with my views!