It is my belief that there is a significant potential for the current trend of the dollar losing value to continue and accelerate. The dollar is now, for the first time, lower in value than the Canadian Dollar and has lost 60% of its value when compared to the Euro. We are in the early stages of a run against the dollar by foreign investors. Solid commodities have increased in value as measured by the dollar value significantly over the last few years and continue at an accelerating pace.
It is not an opinion that the US dollar is losing value against gold or other solid liquid commodities it is a fact. It is not an opinion that the US dollar will drop further in value as measured against other currencies and solid commodities if a sell off of the dollar continues and accelerates as it most likely will.
The only way the US dollar could stabilize and regain value would be if the US government were to keep taxation at the current level or lower it further and then cut the budget to the point where the expenses of government were at least 10% less than actual prior year revenue and keep the budget at 90% of actual prior year revenue for at least 10 years. That time period may be enough to significantly reduce the national debt with a strong growing economy that would result in investor and consumer confidence, lower interest costs on the debt, greater tax revenues, and a lagging growth in government spending. Sounds great, won’t happen.
It is my opinion that we are in a recession and will go into a depression within the next 24-36 months. We have a government that is increasingly socialistic. There has been an organized program to create a mindset in the US citizens to be tolerant and supportive of socialistic concepts and governing methods for over 80 years. In the 1930’s Roosevelt instituted a number of very socialistic programs to try and get the country out of the depression. The socialists have praised those programs and claimed success when in fact just the opposite was true those programs lengthened and deepened the depression. What got us out of the depression was the reduction to near elimination of all the socialist programs and the result oriented can do attitude that arose during WWII. Socialism cannot function where there is accountability and a clear focus on a stated result. The first solutions to be tried in the next depression will be more extreme versions of the programs instituted during the Roosevelt administration and then either an external war or an internal war will occur. An external war could result as enemies decide that we are weak and ready for the taking, our government decides that they need a war to send potential internal anti-socialist enemies off to defend our nation and to take the focus of the people off of the problems in government. An internal war could possibly occur if the anti-socialists coalesce and act before an external war is declared. It would be a war because the socialist will control or have neutralized most if not all of the weapons and military forces that might oppose them.
Putting aside all the political issues, one question looms large. How does a normal family survive the economic turmoil ahead?
In an inflationary period money rapidly loses value against the goods and services a consumer needs. Today a loaf of bread is $3 next week it is $4. Wage and salary income do not increase as quickly as the cost of goods and services. Short sale cycle commission incomes may keep pace with inflation depending on the goods or services but existing tax rate levels will cut into the rising income levels of commission workers negating some of the increased income. Year end bonuses will have little or no value. Based on this premise the ordinary family must move its income earning methods away from or augment the stable income sources that have been relied on in the past. Pure wage and salary earners both in the private and public sectors will be hurt the worst. Military personnel or others who receive food and housing as part of their income will be somewhat sheltered. Direct selling producers of food commodities (small farmers) will be sheltered. Indirect sellers of food and other necessary commodities will be sheltered to a lesser extent.
Stocks and bonds for the most part will have little or no value as income producers during an inflationary depression.
In all this doom and gloom there is an incredible opportunity. Families that are willing to work hard can choose a path that may ensure long-lasting financial success. There are commodities that keep pace with or even outpace inflation and hyper-inflation. In inflationary periods existing debts are paid with dollars of lesser value. If those dollars were earned prior to the inflation there is no gain, if the dollars are earned just prior to making the payments there is no gain. If you borrowed the money at a fixed rate to make the payments at a rate that is less than the rate of inflation you would probably have a gain. If you bought gold or another solid liquid commodity and sold it as needed or even better borrowed against it at a rate that is lower than the combination of the inflation rate and the debt rate, you would have a gain and an asset that increases at an equal or greater rate than that of inflation.
Steps to protect your financial position:
1. Adjust your income so that it is tied to the absolute value of what you produce
a. Take commission position or renegotiate your method of compensation
2. Sell volatile investments (stocks, bonds, to a lesser extent residential & commercial real estate)
3. Buy absolute value commodities (gold, silver, agricultural real estate, businesses providing absolute value goods and services)
4. Eliminate the need for a cash position by setting up line of credit secured by gold or other absolute commodity
a. This will reduce the value lost to inflation while providing availability of cash when needed
5. To be very safe keep total personal debt ceiling at 80% of absolute value commodities and make sure that your debt service does not exceed 25% of your absolute income.
6. Move debt away from you by forming corporations and trusts
a. These can be more safely leveraged at a higher rate
7. Move non-cash liquid assets closer to you
8. Live in or have second home in non-metropolitan area, preferably warmer agricultural area.
9. Develop trusted reliable sources for food, water, health care, fuel and other essential goods and services
Tags: american socialism, commodities, depression, economic forecast, gold, government, inflation, leverage, linkedin, opportunity, recession, socialism, taxation
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