What we don’t know may come back and bite us. Cash is king… still! The U.S. consumer has once again painfully learned that lesson. 401-K’s are being tapped for emergency cash thus people are once again mortgaging their future to maintain their current paradigm, not unlike the U.S. Government. We were once the largest creditor nation and have shifted 180% to become the largest debtor nation. People want to blame Bush or Obama but the problem was well on its way to fruition when both men took office. Bill Clinton opened the doors wide for the housing crisis and Greenspan was the partner in crime. Their “anything goes” view of the financial markets opened a door that could not be closed. Once opened, it was like opening a pharmacy to a drug addict.
Ben Bernanke is now attempting to navigate the country through this financial mess. The problem is that his expertise (Analysis of The Great Depression) has a flaw that may prove to be his demise. During the Great Depression, the U.S. Dollar was tied to gold, today it is not. In the 1930’s during the global depression, investors flocked to the U.S. Dollar since the U.S. was more stable and the Dollar was backed by gold. Now, no major currency is backed by gold and money is circling the globe looking for the “best” safe haven. In an earlier blog, I mentioned that the true U.S. deficit in present day value is roughly $202 Trillion. Once the market figures out that the U.S cannot continue its current path, the Dollar is at risk of collapsing. If this were to happen, other countries and their currencies are at risk since the American economy is so intertwined with them. Hard assets are the best insurance to protect wealth. Gold and silver continue to be the best insurance policies against the sharks in the water who want to extract the wealth from average citizen.
Reduce your debt, it’s your best investment. However, keep enough cash on hand to weather any financial storm that may arrive.