These are precarious times, and it’s never been more important to choose the right investments for your retirement. Nowadays, you need exposure to investments that will do well in nearly any economic environment — recession, recovery, inflation, deflation, or even financial crisis.
#1 – Crushing Government Debt
Every single hour of every single day, the U.S. government spends nearly $80 million that it doesn’t have.
Twenty-four hours a day, seven days a week we are spending this enormous sum of money where there are no government revenues to pay for it.
Incredibly, the federal government has to borrow 44 cents of every dollar they spend.
For a point of reference, consider that in just two months, the government borrows more money than the combined annual profits of Apple, General Electric, Google, Johnson & Johnson and the next 90 largest publicly traded companies in America.
That’s a staggering comparison, and it gives an indication of how difficult it will be to dig our way out of this debt abyss.
Clearly, spending at this rate is not a sustainable activity.
The net public debt of the U.S. has more than doubled since 2007, the year before President Obama took office.
Our total debt now exceeds $17 trillion.
The enormity of our public financial obligations are completely unprecedented in the history of our country, and in the history of the world.
When countries rack up large amounts of debt, it usually marks the beginning of a series of crisis on the political, economic and social fronts.
These kinds of crisis are well documented within the stories of the fall of the Roman Empire, the French Revolution, and more recently, countries like Germany, Argentina and Greece. All of these countries reached a tipping point because of staggering amounts of government debt.
The end result of these financial misdeeds has been, without fail, the destruction of any asset that is tied to paper and a massive rush into hard assets.
#2 – The Fed Must Keep Interest Rates Low
Because of the $17 trillion crushing debt load of the US Government, the Federal Reserve is forced to manipulate interest rates down to almost zero.
By keeping rates low, it allows all debtors to pay their debt service more easily.
As a result, the interest rate at which our government can borrow money is at a record low level. In fact, the Federal Reserve has lowered its benchmark interest rate ten times since August 2007, from 5.25% to a level between zero and 0.25%. Obviously, the current rate can’t last forever.
But what will happen if the average real interest rate ends up being just 4% annually, and we pay it off over 30 years like a mortgage?
Incredibly, we’ll spend $34.3 trillion to simply repay what we owe right now. If the rate ends up being 6%, we’ll spend $43.1 trillion.
Of course, our politicians will do anything they can to prevent this — mainly so they can continue to spend without restraint. They believe if we can keep interest rates low for a long period of time, we can work our way out of this.
This is not good news for savers.
According to Bankrate.com, the average 1 yr. CD in America yields 0.23%. The 10-year Treasury Bond is at 2.75%.
And yet the official rate of inflation is currently at 1.6%. If you account for food and energy, inflation is more like 4% currently.
In other words, you must earn 4% on your investments just to break even. This cannot be done in any type of bonds or CD’s that would be considered safe.
Therefore, all savers are losing money right now.
When savings and debt instruments yield a negative real return, gold and other hard assets tend to outperform because there’s no real opportunity cost to invest in assets that don’t pay interest.
#3 – Exploding Money Supply
It’s time to summarize at this point: We have a huge $17 trillion debt which is growing by $80 million every hour, and we need to keep interest rates low in order to pay our debt service.
One of the mechanisms our government uses to keep interest rates low is for the Federal Reserve to buy our government’s debt, to the tune of $85 billion per month.
This is like paying your mortgage with your credit card. It can only be sustained for so long – and then one day, you hit your credit limit.
Now, of course, our politicians believe that through policy and currency manipulation, they can simply manufacture money from thin air and buy our own debt to escape our precarious situation.
Economics 101 teaches students when more money chases fewer products and services, prices rise.
Politicians can order the Federal Reserve to prevent interest rates from ever rising to a level that would cost the American people anything. They believe they can manage the economy by printing money.
The problem is, that it’s not working and it’s never worked. Jobs are scarce, the majority of people are poorer, and there is no growth.
Over the past 100 years, many other governments have tried to do what our government is doing today… that is, printing money to pay for insurmountable debts.
And in the past 100 years, a debt crisis spurred inflation in Germany, Russia, Austria, Argentina, Mexico, Brazil, Chile, Poland, the Ukraine, Japan, and China, just to name a few.
Nowadays, Greece is falling apart. Italy, Ireland, Portugal and Spain are all in trouble for the same reasons.
If you ask anyone who’s lived through a debt crisis, they will tell you that they look at all paper assets with skepticism because of the massive loss of paper wealth they’ve experienced.
#4 – Unstable World Economy
The global economy is in turmoil. The European Union is on the verge of collapse, and if that happens it would have huge negative implications for the US.
Our Federal Reserve has already admitted to covertly bailing out European banks during the crisis of 2008. Is there any doubt that we’d throw money at European governments in an attempt to save them too?
As the euro-crisis worsens, the protests of the people become more violent. Meanwhile, we march ever closer to outright monetization of European debt by the ECB and, covertly by the Federal Reserve.
But the ECB and national central banks are forbidden by European treaty from financing government deficits. Debt monetization is strictly forbidden.
Of course, the politicians have found a way to circumvent these rules in order to prevent the euro from fall apart. They called it Emergency Liquidity Assistance.
It wouldn’t be the first time that the EU and its member institutions have ignored the EU’s own treaties and obligations.
Ultimately it will allow European governments to run huge budget deficits.
Japan, on the other hand, has been very straightforward about the monetization of their debt. Leader Shinzo Abe has vowed to print an “unlimited” amount of money in order to reflate Japan’s economy.
Between the US, Europe, and Japan, the “race to the bottom” is in full force.
The developed world is perilously close to a monetary landslide that could bury us all.
#5 – A Dollar Devaluation Would Cause a Stock and Bond Market Collapse
Just like a Third World country, the US government is attempting to print its way to prosperity.
It doesn’t take a PhD in economics to know that if we continue to print money, people will head for the exits and sell their dollars.
Whether you realize it or not, there is already a “run” on the dollar. Many of our creditors, like the Chinese and Russians, are getting out of the dollar as fast as they can via strategic commodities, like copper, gold, and oil. That’s partly why commodity prices soared over the last decade.
Unfortunately, skyrocketing commodity prices are just the beginning.
For example, as demand for U.S. dollars around the globe decreases, interest rates will skyrocket.
Higher interest rates means lower corporate profits, and a lower stock market.
Higher rates mean bonds will tank. In fact, a 1% rise in the 10-year Treasury means a -25% loss for those bondholders.
Higher mortgage rates mean that people will not be able to afford to make house payments unless real estate prices fall.
There is a lot of precedent for this type of scenario…
In 1994, after a debt crisis and devaluation, the Mexican stock market fell by 51%. A study was done by the IMF in 2000 which concluded, “Mexican authorities had adopted a monetary policy of low interest rates and expanding credit that was too loose…”
Does this sound familiar?
In 2002, after a debt crisis and peso devaluation, the stock market of Argentina plummeted 60%. In 2012, the stock market in Greece fell by 80% after the country incurred a staggering debt load.
With the US piling up the mother of all debt loads, a serious crisis could be on the horizon. And If our currency collapses, everything else will go with it… stocks, bonds, and other paper assets.
#6 – The Dollar Constantly Loses Purchasing Power
Roughly every 10 years, inflation cuts the wealth you have in cash by half.
The Bureau of Labor Statistics says the inflation rate has averaged 2.6% since 1990. In fact, it’s at least twice that much.
You see, in 1990, the government changed the way it calculates inflation. It conveniently removed certain costs from the Consumer Price Index calculations. Those included the prices of fuel and other commodities like food.
If you use the older, more credible government calculation, inflation for the last 20 years would average 6.5% per year.
An inflation rate of 6.5% means that $100,000 in cash today will be worth only $53,276 in 10 years. That’s about half its value, gone.
In 20 years, it’s only worth $28,380. In 30 years, it’s worth an abysmal $15,118.
So what can you do to protect yourself?
You must have investments like gold, silver, and other hard assets that will maintain their purchasing power over the long term.
#7 – Everlasting Value
Gold is nearly indestructible – you can heat it to extreme temperatures, you can smash it, and you can submerge it in water for centuries. It will not burn, rust, or degrade.
And as human history has shown, its value will not degrade either.
Take the world’s oldest surviving coin, for instance. It’s no coincidence that it’s made mostly of gold.
The coin, called a stater, is more than 2,700 years old and originated in an ancient Hellenic region, which was a major commercial center linking the Asian kingdoms of the east with the coastal Greek cities of Ionia.
This ancient stater was hand struck, with a design on one side only.
The earliest coins like this were made of electrum – a naturally occurring alloy with a standardized 55% gold, 45% silver and the rest being base metals.
Although this ancient coin is not minted by a government that is recognized today, you could still take it into many shops around the world and once the gold weight was verified, you could spend it.
If you owned this coin, twenty-seven hundred years after it was minted, you could put it for sale on Ebay and get good value for it.
This coin has survived wars, famine, plague, natural disasters, and fallen governments, and it still can be exchanged for goods and services.
That’s what everlasting value is.
Try spending Confederate notes of the old South– you’d get laughed at and possible thrown in jail. They’re worthless to anyone except collectors.
Have you heard of anyone who’s rich because their family owned government bonds for hundreds of years? Nope.
Or how about stocks? Think about it. The long-term average return of stocks is supposedly 9%.
You should be able to invest $1 in the S+P index and 300 years later your family would have $169 billion dollars.
If it only takes $1 and a lot of time, why isn’t everyone rich? Do you know anyone’s family who is rich because they owned stocks for hundreds of years?
The answer is no. And that’s because paper wealth is wiped off the map when government regimes blow out their currencies. And as soon as a government unhinges it’s currency from any hard asset backing, as we have, it’s as good as a “dead man walking”.
Throughout history, fiat currencies have an unblemished record of failure and paper asset destruction.
And what’s left standing is that which you can stub your toe on – gold, silver, and other hard assets.
So if you’re interested preserving your wealth in retirement and in passing wealth to future generations, gold has got to be part of your plan.
#8 – The Purchasing Power of Gold is Rising
Conventional wisdom says that an ounce of gold bought a quality men’s suit 100 years ago, and it should buy a quality men’s suit today. Actually, back in 1920, it took about 2.4 ounces of gold to buy a suit. Nowadays, it only takes half an ounce.
And did you know that the cost of a Buick in 1920 was $1,175? Nowadays the cost of a less expensive model Buick is $24,125, a 1,953% increase. But in terms of gold, it takes 67% less gold nowadays to buy a Buick.
These are both examples of how the dollar is getting weaker and how gold is getting stronger in terms of purchasing power. In other words, over time you can buy more things with gold and less things with the dollar.
This is quite a revelation that even sophisticated investors may not be aware of. We’re taught that gold simply keeps up with inflation, but the facts show that gold increases your purchasing power.
This is because gold protects you against inflation and captures the productivity gains that occur through innovations that lower the cost of producing and delivering goods.
Conversely, the dollar, once it was no longer backed by gold does the opposite and exposes you to degrading effects of inflation and does not allow you to benefit from lower production costs.
The table below contains more examples of this.
|1920 Price||Today’s Price||% Change Dollars||Cost in Oz Gold 1920||Cost in Oz Gold Today||% Change Gold|
#9 – Gold Supplies are Limited, and Cannot Be Produced at Will
Possibly the best thing about gold is that it cannot be easily taken from the ground. In order to make a simple gold wedding band, almost 3 tons of earth needs to be excavated.
Gold mining also requires huge quantities of water to separate the earth from the precious metal. In fact, in Nevada, where most of the gold in the US is mined, the gold industry consumes more water than all the people in the state.
The amount of above-ground gold in the world is estimated to be at 170,000 tons. Yearly gold production has increased the supply around 1.5-2% every year, depending on its price.
The supply of dollars, on the other hand, has exploded in recent years. According to Michael Pollaro of Forbes magazine, the US has had 50 consecutive months of double digit money growth.
Let’s see, our GDP is growing at an anemic 1.4% and the amount of dollars is growing at double digits…
It doesn’t take a rocket scientist to figure out that the dollars’ value will be further diluted. There will be more dollars chasing less goods and services, while gold has the best chance to maintain its value due to its limited supply.
#10 – Gold Is Freedom Insurance
When you own physical gold, unlike stocks, bonds, or the dollar, there’s no counterparty risk, no interest rate risk, no political risk, and little systemic risk.
Gold is typically purchased to protect oneself against all of those types of risks.
Gold is no one’s liability, and it for the most part it exists outside of the control of the world’s most powerful banks, brokerages, and governments.
This is why gold is so popular as a type of portable wealth.
Wealthy refugees who flee from their homeland to start new lives in other countries tend to have a deeper appreciation of and understand the importance of owning physical gold.
During World War II, Germans who wanted to flee their country could not sell their possessions or even empty their bank accounts before they left. Doing so would have attracted unwanted attention from the Nazis, so they had to abandon their savings accounts, securities, and real estate.
The only wealth they could safely transport was gold. To these people, gold was not an investment but rather a way they could transport a lifestyle across borders inside a suitcase.
For US citizens, gold bullion is not reportable, nor does it generate taxable income until you sell it. So keeping bullion in a private and secure place outside the U.S. is a simple and legal way to hold and move assets out of the country.
One of the simplest ways to do this is to open a safe deposit box in Canada. In several Canadian banks all you need to open a safe deposit box are two forms of identification and to show up in person.
You can use your box to store gold and other items you want out of the U.S. government’s eyes.
Transporting your gold to Canada is risky and not necessary. Simply buy your gold in Canada and then store it in your safe deposit box – this way you don’t have to declare it to customs officials.
If you insist on transporting precious metals to Canada yourself, you can use a professional transport service although this can be expensive if you’re only moving a small amount of wealth.
#11 – The Secret of the World’s Richest People
The world’s wealthiest families are hoarding gold right now. What do they know that you don’t?
If you ask the common man in the street about investing in gold, most will give you a strange look. After all, most people believe investing is all about stocks and bonds.
Most people only buy gold during inflationary periods and crisis, or not at all.
The fact is, that gold is a kind of currency used for centuries by many of the world’s richest families.
As we’ve already discussed, gold never becomes obsolete or out of style, it actually increases your buying power, and it can save your hide during a crisis.
Old money families like the Rothschilds, the DuPonts, and the Morgans have long been known to preserve their wealth in gold.
But new money billionaires like Li Ka-Shing of China love gold too.
The Chinese born Li, a Hong Kong business mogul and investor is considered to be the richest person in Asia.
Forbes estimates he is the 11th richest person in the world with a net worth of $27 billion in U.S. dollars. Two of his sons are believed to be billionaires in their own right.
CEF Holdings Ltd., one of Li Ka-Shing’s companies, is looking to acquire gold assets after a recent slump in gold prices created buying opportunities.
“Long term, gold is a good place to be,” CEF Chief Executive Officer Warren Gilman, 53, said in an interview in Hong Kong.
Many others feel gold is a good investment right now.
However, the truly wealthy feel that gold is not an investment. To the wealthy, it’s a necessity. Gold is for those who want to be rich and stay rich.
The world’s wealthy class are less fixated on daily fluctuations in gold prices. They aren’t trying to earn short-term profits from gold ownership – they are trying to maintain and grow their overall purchasing power with gold.
But the wealth preservation characteristics of gold are just as beneficial to the middle class or anyone who owns it.
Gold can protect real wealth because it is often negatively correlated with other assets, making it an effective portfolio diversifier. As the world sinks into greater financial and political uncertainty, the wealthy want to protect themselves from the unthinkable.
Physical gold is pure, concentrated wealth that can be hidden from the prying eyes of governments.
The other goal for the wealthy is to prepare for crisis, not to predict it. Like insurance, you don’t want to buy it after you need it – you need to get it while it’s cheap. You can’t wait until there’s a crisis.
If you truly want an enduring store of wealth, you should do as the wealthy do and hold physical gold.