April 29, 2011
America agrees to lower its currency…and here’s my tirade.
For those of you that continued reading…and did not immediately get sidetracked and google “The Royal Wedding” or “NFL Draft” because it’s mentioned it in this blog…Read On.
Our government agreed to purposely devalue the dollar’s strength after signing an agreement called the “Plaza Accord” (click here to see document) back in 1985. After a 51% decline in the value of the dollar, Congress tried to quickly resolve this rapid decline of our dollar’s value two years later by signing the “Louvre Accord” in 1987. However, this failed to work after 8 months of the agreement being signed due to the fact that some countries kept raising their interest rates, raised tariffs on trade, etc... Eventually, we get to where we are today…with floating interest rates….where the global market determines the “value” of a currency. This fluctuating rate (or fluctuating dollar value) is determined by a few factors – but the main factor is the market’s assessment of a nation’s debt levels and their ability to repay those debts. As you may know – the US is the largest debtor. And as we constantly push up our debt ceiling – it becomes increasingly unlikely that we are capable of repaying our debts…let alone just paying the interest payments on it. So as the US debts increase – the global market becomes increasingly wary of loaning us more money…without a higher interest payment and/or strings attached of course. Look at the interest rates on Greece’s debt…how about Portugal…Spain…Yugoslavia…?
Have you ever noticed how hard it is for you to save up those extra pennies of yours? How difficult it is to store away just 10% of your pre-taxed income in some type of retirement (or advanced savings) plan? Or maybe you’ve noticed how expensive education has become? Or how you can’t get out of that revolving 20% interest rate on your credit card debt? What about the reasons why can’t you pay off that car note in less than 5, 6, 7, or 8 years?
What can you do to protect yourself? How do you avoid constantly losing money in your 401k, IRA, 529, 403b, Roth, etc. every time the stock market crashes? You must diversify and have multiple streams of income ( I know, for those of you who read my blogs, that I sound like a broken record player or a skipping cd - but it's true!). Work hard, make money, and invest it into land, real-estate, commodities, and yes, put a little in the stock market too. This completes your portfolio of investments - one can't have all his/her eggs in one basket...so why invest in ONLY the stock market via your employer-sponsored retirement plan and not something else? Why not own some physical real estate property as well? Why not own some physical gold and silver coins that you can keep in a vault just in case something happens? And, last but not least, also add entrepreneurship to your portfolio....to be successful nowadays, Americans need to be able to sell and have their own business. Or at the very least, have a part-time job in addition to your full time day job.
Less dependence on the government will make America a stronger country...! We don't necessarily need our government for retirement or even for healthcare for that matter. It's nice to have a government supplement our productivity - but I believe most people are capable to be self-efficient.
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Agreed, true diversification is not obtained within a particular asset class (stocks). It extends into other non correlated asset classes (commodities, real estate, etc). But, putting together an amalgamation of "things" (investments) doesn't lead to financial security. We obtain financial freedom by educating ourselves, maintaining low debt levels, developing a sustainable plan, and the final piece is.....DO IT! Add entreprenuership in there and you're well on your way. All of us have been given certain skills (talents). Utilize what God has already given to you. Financial success doesn't happen without discipline and determination. Someone can have a wellspring of money and still not be successful financially. Stop doing what your parents did if they weren't good examples. Within our homes, the reason we can't payoff our debts is not because of the devaluation of the dollar. Most times its because we spent money we didn't have, on things that didn't matter, at times when we couldn't afford it. Funny, that sounds like the "American way." True, our currency was devalued in order to improve our ability to export goods. But this plan was doomed to fail from the beginning. Why? Because America has become a country of consumers, not manufacturers. Nothing is really made here anymore.....that's what neutralized the benefit. Its impossible to suddenly become something you are not. America has the ability to manipulate taxes and tariffs, just like other countries. But, what goods and services would you be losing by executing this strategy. Let's rebuild and open our manufacturing plants. Let's develop new industries and sources of capital. As Barrington continues to trumpet, WE (you, me, and our country) need to be more self sufficient. The only things we control are our actions and thought processes. Barrington, keep saying what needs to be said even if it sounds like the CD is skipping.ReplyDelete