OK, it's a joke. I am actually talking about financial life. Until very recently, I discovered, after reading the amazing story wrote by FerFAL about surviving the Argentina Financial Crisis, how dangerous my financial situation was.
To put things in perspective, we live in America, where average American has $10,000 credit card debt. Like many frugal people, especially after reading The Millionaire Next Door, (read it, if you haven't) we have been living way below our means - not to starve ourselves of course, we each healthy food, we are comfortable and we travel worldly - I'll talk about it in a different post.
We thought we were well off.
I was dead wrong.
The problem is that all our saving, literally, all of them were in US dollars!!! They spread in between stock and cash/cash equivalent. We do not own any house or hard asset - that's another topic.
What's wrong with US dollars backed by “the full faith and credit of The United States government”?
There are many articles about this. Here's a brief summary:
1. The United States is one of the MOST irresponsible governments in the world, financially! 9.3 Trillion in debt. $30,000 per American citizen. Try to play this at home and see if the wife and kids let the hubby manage finance anymore when he runs $30,000 debt per person. Sadly, we elect one president after another playing with OUR money!!!
2. The US dollar is the world currency (note the word "currency") and the only internationally accepted currency. For example, oil must be traded in US dollars. Because of this, the United States is free to and has been printing as much paper currency as "deemed necessary". When there's too much paper, the currency will inevitably inflate, losing its purchasing power. By the way, the currency, backed by “the full faith and credit of the United States”, is printing at an annual rate of 8% as of 2006 - oh, the government stopped publish that information since 2006 - HINT HINT.
3. The world's largest creditors, Japan, China and Mid easterners, all hold US government debt in US dollars. They also run significant trade deficit to the United States, meaning, they export goods and services to US far more than they import goods from the United States, causing more US dollars flowing out and into those countries.
Nice work!!! While the people in those countries work till their backs break, we just pay them some paper at a cost of $0.03/page. By the way, mostly American companies help greatly on increasing the trade deficit by outsourcing.
4. No people in the world have access to "credit" so freely like American. Everybody has got more than one credit cards, and everybody has got a nice house - on mortgage.
So what's the problem? The problem is how much longer countries like Japan, China and Saudis would like to send the United States real goods and services in exchange of some paper which is being printed by an financially irresponsible country and is rapidly depreciating?
One day, those countries will say: "Enough is enough. I am switching from US dollars to Euros." China already signaled that they would do that, and my suspicion is that this has already been on the way. The Arabs already started to talk about an Arabic currency. The Persians already forced all their oil trade to be done in currencies other than US dollars.
At the macro level, should any major event happens, the US dollar would take a roller coaster ride, going down, hard!
Now come back to myself, because of the fact that I had no hard asset, no house, etc., the only thing left for me would be a bunch of paper, which would worth significantly LESS, should the US dollar go down.
Even for those who own their houses - majority of the American people only have their savings in retirement fund (401K, IRA etc.) and in their house. A joke said that should the dollar go down anywhere else, there would be bank runs - people running to their banks to withdraw their money. In America, there would NOT be bank runs, average American's deposit in their banks is negative. There would be actually house runs - banks recall their loans - house mortgage to be paid in full NOW!!!
Now this is my mistake #1, relying on one single currency while holding no tangible asset.
The question is not if the US dollar will go down or not, the question is how soon and how hard?
As soon as I realized this, I couldn't sleep well. With all the things are going on, tax cut, the war, more society benefits, etc, etc, etc, does even one single presidential candidate - front runners - DARES to answer this question, without some political mumble jumble, a clear and solid answer:
WHERE THE MONEY IS COMING FROM TO PAY FOR ALL THESE???
Nada!
Well, I don't want to end up with nada!!!
There are awesome advices offered by FerFAL. I'll elaborate in a different post. The following are a few key points:
1. Go international (ever thought why I list this as No. 1?)
2. Diversify
3. Educate yourself
4. Be prepared
Cash is trash and gold/silver is money. The only way to preserve wealth is to hold something tangible such as properties (land and house) - great speculation risk and precious metals. History has proven again and again and again, any currency not backed by tangible asset fails sooner or later, and more importantly, by the end of the day, gold/silver is the king of the world - we are just blinded to see the king.
Now, I am not advocating the end of the world scenario, but I do believe that we are going through a series of currency devaluation due to mismanagement of our government and banking system and the life style majority of us are choosing to live. How bad is it going to be? I think the dollar will be worth 50% of what it is now in 1-2 years, and oil will be over $5/gallon. It will not be the end of the world because many countries will join force to save each other and USA. Most of us will lose our shirts and pants - our life savings, those who don't save would fall below poverty, causing higher crime rate; however, some of us will profit heavily from it.
Most people see economical down turn as a disaster; there are a few who believe it's an opportunity!
The year 2008 is going to be very interesting!
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