Strategies for Financial Survival
June 23, 2008 by Bob Livingston
Good judgment does not always accompany a good education or impressive professional experience.Where we Americans go badly wrong is trusting authority under the aura of education and pseudo professionalism. There are many fools under these mantras.
There is really no substitute for taking personal responsibility in every area of our lives, including finance, health and religion. Keep following a leader and you will eventually be in a ditch more like a human grave. We sit on an economic powder keg. Authorities would have us to believe that the system will recover and prosper. There is no system. It is a patched-up paper money monster that has nothing left but confidence. When that falters, she blows!
The truth is we have eaten our seed corn! Not only that, we have borrowed from our future. Americans have been sold completely on the idea that lowering interest rates is the ticket to eternal material prosperity.
Consequently, the American consumer has already borrowed from next year’s consumption.
All speculative manias in history have led to financial excesses, overproduction capacities and huge debt. This has led to a vicious downturn and financial busts which in turn has led to recessions or depressions. The very salient point is that none of the financial establishment or public gurus saw the collapse coming now or in the past.
The economic situation in the U.S. today is far more dangerous and complex than ever before. We are indeed faced with a fundamentally totally different set of economic, financial, and now, geopolitical conditions than ever before in our economic history.
Inflation eventually creates deflation, as so well demonstrated in Japan. Ironically, deflation gives paper money more purchasing power, something governments never intend.
Inflation is an increase in the volume of money and credit relative to available goods. Deflation is a contraction in the volume of money relative to available goods. Simply put, deflation develops as a result of excessive debt built up during boom times. Almost no one expects deflation before it starts.
And almost no one knows why deflation comes like a bolt out of the blue.
Here is the reason. The social mood reverses from euphoria to loss of confidence periodically. Why does the social mood reverse ever so often? The answer is because inflated economic activity and confidence burns out and reverses. Loss of confidence causes a collapse of credit which leads to substantial involuntary debt liquidation and many bankruptcies. If debt liquidation gets out of hand, the money stock collapses faster than it can be created as now.
The key to the next few years is to preserve your assets/savings and diversify. This means unequivocally to spread your assets. Do not put all your eggs in one basket.
A cash reserve in your possession is not all bad in case the printing presses fail to inflate as they intend to do. You can always change cash to gold coins.
Needless to say, debt is a bad thing in deflation. In fact, it’s a disaster. Try to get rid of your debt now or as much as you can. This includes real estate debt.
When prices collapse as in the current Japanese deflation, cash and savings is king because as prices go down, cash becomes worth more and more.
• Buy gold coins, especially one-ounce bullion coins, American Eagles. Buy some “junk silver” _U.S. 90% silver coins minted through 1964.
• Buy Swiss francs in the form of a Swiss annuity.
• Stash cash in U.S. dollars as long as we experience deflation or the threat of deflation.
• Do not buy or hold stocks except some select quality gold stocks, i.e., Newmont, Royal Gold, Goldcorp, Agnico Eagle, Glamis Gold, Goldfields, Randgold, and/or Tocqueville Gold Fund.
Buy now and hold for the big advance coming soon. The top could be three to four years out. Then we will sell and buy the New York Stock Market again which will eventually arrive at rock bottom with historical values. Please remember that at that point, the world economy will look like a black hole and you will be scared to death.
In the meantime, the gold market will not go straight up. There will be corrections or shakeouts.
Hold and build your position.