How to protect yourself from a currency collapse is a complex subject, one that my wife and I have discussed sort of as a running conversation since the U.S. was pushed back into deficit spending by the combination of tax cuts, and the response to 911, both of which occurred in the early days of the last decade. There must be lessons for us in the history of the great depression, and in situations where currencies have collapsed in other countries, such as the one you reminded us of. I'm open to suggestions regarding the best way to respond to the threat, without disrupting our personal finances too much in the process. As a stopgap measure we have, at times, owned significant amounts of foreign currencies, but I'm not too sure how truly seaworthy that approach is, should the winds of financial uncertainty rise too high. Where's Mixz1 when you need him? ____________________ [It's a social commentary that the American people- as a whole- were never asked to sacrifice to help their country pay for the response to 911- neither by paying higher taxes, nor even by buying bonds- to prevent the acquisition of massive debt by the nation to which they had repeatedly pledged their allegiance.]
What can be done? On the subject of how to protect against a currency collapse, we have considered owning, and have owned, foreign currencies. This has prevented us suffering loss in times when the dollar has been weakening, over the last eight years, or so. In normal times, owning a currency pair, USD/AUD, for example, takes some of the ups and downs caused by currency fluctuation out of your portfolio, but we try to do better than that by making moves away from currencies which we think are trending downward. But this may only work in "normal" times. If there was a true dollar collapse, I don't know what the consequences for other currencies would be- probably not good. They might all lose value in a panic situation, and inflation, everywhere, could take off. We've thought of buying a farm, but we know nothing of farming: I suppose we could rent the farm to someone who does, and have them work it. We've thought of owning precious metals, not gold particularly but perhaps a rare metal required in industry, then wondered how practical that would prove to be when it comes to financing whatever life style you might retain in a crisis. It would offer protection from runaway inflation, it seems to me, so long as demand for it held up, at least a little. Anyway, as I said earlier, it's a complex subject, and perhaps that's why most people would rather not think about it.... Those who can manage to do so will be better prepared than those who can't. That there will be a crisis seems unavoidable. ______________________ Aside from asking the American people to step in and save their government, and their currency in the process, by lending, generously, and paying more in taxes, I'm not sure what other response is possible on the part of the government, saddled as it is with debt, which would already be in default if the government were not simply printing money to satisfy redemptions and pay interest, when due, as they're doing now. But one thing I have thought of is an international auction of U.S. Government assets. This already occurs with lots of U.S. Government property, on a regular basis, and includes many kinds of things, but I'm talking about really valuable things, like land, in prime commercial areas, or near cities, in the path of development. To begin to talk about conducting such an auction might, itself, get the people on board to try to save their government, and their currency, from disaster. Even this wouldn't get it, though, without the American people agreeing that they can no longer have all of the things they have wanted from their government, whatever their pet thing is, whether it's weapons or medical care. This has, and will continue to be, where the real disconnect is occurring: a people unwilling to accept that their country is not as wealthy as it once was, and that things which seemed "affordable" before, no longer are....
Foreign currency accounts For anyone interested in having foreign currency accounts in the U.S., the FDIC insured, "Everbank", is an option. www.everbank.com
Greece gone.... Mixz1 called our attention to Germany's reluctance to be part of a bailout of Greece. They are now signaling that they will not help Greece. Germany Backtracks on Europe Rescue for Greece - NYTimes.com If Greece turns to the IMF for a bailout, where will the IMF get the money to help, given that they have traditionally been funded to a large extent by the U.S.? With the U.S. having exhausted its credit resources- who will step in, so that the IMF can lend to Greece? Is it possible the U.S. will just decide to print more money to fund the IMF, like it is doing with much of its other obligations? We may start to see a domino effect as other nations, including the U.S., begin to be tested on their credit worthiness, and their cost of borrowing goes up.
Because I'm from the U.S., and the USD is my functional currency, I tend to worry more about dollar devaluation; but, the Euro seems to be under greater, short term threat of significant loss of value as a result of sovereign debt and the possibility of downgrades in the creditworthiness of its euro zone members. In addition to Greece's debt woes, Portugal has now been downgraded, and the euro has slid in value against the dollar, in response. Some commentators have observed Germany seems to be weakening in its commitment to the single currency. National pride would surely make them hesitate to pronounce the single currency a failed project, but they might abandon it if the price of maintaining it became too great, as a result of other nation members' profligacy. Strength in the Asian economies has helped to keep the world economy afloat in this troubled period: should we see China start to slip back in economic activity there would be real cause for concern about what is going to happen globally in the near term. I've never been a big believer in owning gold, but I could find myself looking at this question, afresh....
You're paying a real premium for gold if you buy today IMHO.. a few years ago when it was $300.. you would have done good.. but this late in the game with gold at $1100.. I can't see it staying that high... of' course I said that at $900 a year ago.... I know people in the gold game..and they don't look at it as long term... LAND is long term.. gold is weekly or monthly depending on the fluctuations. The "good" thing about the US, as opposed to smaller countries, is if/when $hit hits the fan, the US has enough assets (ie:land/territory/mineral rights/technology) to sell off to satisfy the creditors without too great of an impact to the national infrastructure. I only hope the people in power are not too selfish/full of themselves, to realize its better to give up something than allow the whole economy to crash.
I bet the Euro meets the dollar then settles...... maybe then I'll buy some... The whole "one global currency" idea sounds real good in times like these.... PS: Jim, where are you buying at?
There's several themes going at once on this thread- currency devaluation, the threat posed by sovereign debt, the risk of currency collapse, and the risk of a general economic collapse, among others. On the subject of currencies, I concluded some weeks ago, and mentioned it on this thread, that I thought the USD would strengthen in the near term. Acting on that belief, we closed out our foreign currency holdings. Seeing the result, but not fully understanding the mechanism, it seems when traders close out positions on a large scale it creates demand for dollars, perhaps because the investments were made in dollars, initially (for example, when I used USD to buy foreign currencies). In any case, it seems when traders get nervous, the dollar strengthens. _______________________ Life, I agree with you about gold, have never considered it a good investment and, as a result, watched from a distance while it increased in value over the last seven or so years when those who generally predict bad times were urging people to buy it, and predicting it would go much higher, as it did! :icon_sad: But, now I'm considering it from a different point of view- as "money" which could be used to pay living expenses (how, exactly, I have no idea) should all other money be rendered worthless. Having perhaps 20% of ones assets in gold could prevent losing everything, I suppose, but I'm very new to thinking about this. Land, while always worth something, especially if you could live on it in subsistence fashion, growing your own food, etc., cannot be used to pay living expenses when there is no market for it, as there would be in a general collapse, it seems to me. ____________________ It's difficult for me to imagine there being a general collapse, given governments' willingness to prop up national economies; but, if governments ceased cooperating to solve problems, if trade wars broke out, if countries became unwilling to come to the aid of others, it could happen. Considering this, it becomes worrisome to see Germany getting cold feet about participating in a bailout of Greece, and other EU members, and when there is talk of the U.S. applying economic sanctions to China, at a time of global weakness.
I buy at a Bank branch in Terramar usually. Yesterday 16.80 m.n. for a Euro was good enough to entice me! Heading to Euroland later this summer.
