David Stockman, Ronald Reagan’s budget director from 1981 to 1985, recently stated, “I invest in anything that Bernanke can’t destroy, including gold, canned beans, bottled water and flashlight batteries.” It is shocking for most people to hear this hard-nosed survivalist mentality from a well-known Washington figure. Americans are used to constantly being told “everything is under control; we in the government know what we’re doing; trust us.” The truth is that the people in government don’t know what they are doing, that we can’t trust them and that the only thing under control is us.
A comprehensive economic security plan requires an analysis of both needs and potential threats to meeting those needs.
What are your real needs? Do you need life insurance? If you aren’t married and you don’t have children under the age of 18, you probably don’t need life insurance. Do you need that Porsche Cayenne that’s sitting in your garage, or would an old Jeep Cherokee serve your needs just as well? On the other hand, do you need $2M USD in savings, or can you afford to spend some of that nest egg to enjoy your remaining years here on Earth?
The other half of the equation is a realistic assessment of threats to your economic well being. Is your home insured against fires, floods, tornadoes, and hurricanes? Is your home protected as much as possible from those events? Is your hard-earned wealth protected against the frivolous lawsuits which are now common in American courts? Is your next egg protected against the hyperinflation which is very likely to strike the U.S. dollar in the next few years?
After his previous comment, Stockman went on to say “We are not in a conventional business cycle recovery, so stimulus is futile and just adds needlessly to the $9 trillion of Treasury paper already floating dangerously around world financial markets. Instead, after 40 years of profligate accumulation of public and private debt, and reckless money-printing by the Fed, we had an economic crash landing, which left us with an enduring structural breakdown, not just a cyclical downturn.”
Please repeat those words, “an enduring structural breakdown.” Is your financial strategy set up to provide you and your family with economic security during an “enduring structural breakdown?”
Economic security requires diversification. A lot of folks push gold or silver as the answer to economic security, but gold can — and has — fall rapidly in value. In addition, precious metals can be and have been confiscated by totalitarian governments and stolen by simple thieves. And, of course, precious metals are relatively heavy. Can you image trying to move in an emergency situation while carrying your life savings in a backpack full of gold bullion?
Diversity in 2011 means getting a large component of your life savings out of U.S. dollars. The Singaporean dollar (SGD) looks very good right now, but I would not suggest keeping your entire cash holdings in any one currency.
Diversification also means holding physical assets, such as real estate. The American real estate market is still set up to fall another ten to twenty percent, but real estate in certain developing nations will only increase in the next few decades. Look for nations with small governments and low debt levels. Panama and Montenegro are two nations I would recommend for real estate investment.
The other form of physical assets are the ones David mentioned, “canned beans, bottled water and flashlight batteries.” Buying durable goods now can protect you against the massive price increases we will see when the dollar is devalued. When that “enduring structural breakdown” causes social unrest, you will be glad that you converted some of your dollars into bottled water, canned food, and ammunition.