Originally published September 25 2008
How to Protect Your Assets as the Financial Crisis Worsens
by Barbara L. Minton
(NaturalNews) The Humpty-Dumpty U.S. economy that has for so long sat perched on a wall has finally had a great fall and is completely broken. Scramble as they may, all the president's men won't be able to put the pieces back together again. Financial Armageddon is finally upon us.
The magnitude of this financial crisis makes it seem like a drama you would see on TV, something that is not real, and something that will not touch you. But it is real and it is now. Mike Adams is trying to alert you to the crisis on a daily basis. It is easy to write off what he says as too radical and too alarmist. But if you choose to ignore his warning, it will be to your peril.
The economic situation worsens on a daily basis
Faced with a cracked mortgage market, the president's men have come up with one idea after another to forestall the inevitable. The stimulus package might have had folks whistling the Star Spangled Banner on their way to Walmart, but it cost the taxpayers $107 billion and didn't even produce a hiccup in the downward economic spiral. Then came the bailouts of selected institutions which worked about as well as the little Dutch boy sticking his finger in the dyke.
The latest plan is to build a levee around the swelling blob of bad debts, sinking banks, imploding money market funds, and short seller's pounding of stocks. They tell us that this move will end the debt crisis and restore confidence in the system. Will this levee hold? Not for long.
This move may produce a few feel-good days during which the unsavvy will be told to buy financial assets at these low prices, while the savvy use the period of market stability to sell their stocks, bonds and dollars. But don't expect it to last.
The latest interventions are so extreme and over the top that they have sent a loud message around the world that the U.S. is in big trouble. Rather than reducing uncertainty and increasing stability in the markets as they had planned, these actions will only create more fear.
And fear begets selling. World class investors are extremely risk averse and will be more anxious to cash out of U.S. financial instruments than ever before. When the markets' celebration of the latest plan starts to fade, look for these world class investors to start selling with both hands. The precipitous drop in the market averages will continue, destroying the value of the assets in your retirement accounts you have worked all you life to accumulate.
Consumers have used up the values of their home and are deeply in debt. They will soon lose their jobs as the economy worsens. There is no more money left to consume, so the downward spiral will quicken. Soon there will be no more offers for credit cards and balance transfers. When Americans are defaulting on their debt right and left, no one wants to lend them any more money.
As the economy collapses, where will the Treasury, the Fed and Congress get the money to fund their plan? They will have to borrow from investors who don't want to lend or get it from taxpayers who won't have it to give. For the already announced rescues, the tab is over $1 trillion. And that is just the beginning. If the holdings of Fannie Mae and Freddie Mac continue to decline in value, the bill to the U.S. taxpayers could exceed $10 trillion and would double the size of the federal deficit.
What you can do now to protect yourself now
With the government out looking to borrow gargantuan sums in the trillions of dollars, interest rates have to go up. It is the law of supply and demand. When demand is exceptionally strong, prices increase dramatically. This increase in interest rates means the government will have to pay more interest to get the money its needs to borrow to keep its bailouts afloat. The increase in interest rates will affect you too, if you have any adjustable debt. If your house is financed with a variable rate loan and you have money in the stock market or in bonds, get that money out and pay off your house before the value of your investments declines further and the cost of your mortgage increases. And don't take on any new debt.
If you have money in an employer sponsored retirement account, you won't be able to take it out without penalty until you are age 59½ . But you can move your balances and change your allocations. Most mutual fund companies have a gold fund or a precious metals fund where you can put your money. Many also have commodity funds. The recent market actions were a clear signal that gold will outshine going forward. Gold has traditionally been a safe haven for money in times of crisis. It is a classic store of value.
You can buy gold online easily and cheaply from Kitco or U.S.A Gold. Both of these firms have been around awhile and are reputable. Gold is sold in any amount you would like, even less than one ounce. You can trust these dealers to give you the current market price for the gold you buy, plus a very nominal mark up for them of $10 or less per ounce depending on how much you are buying. A basket of gold mining stocks can be easily bought through a fund that trades on the New York Stock Exchange, SPDR Gold Trust, symbol GLD. Another fund that holds gold shares, Gold Bullion Securities, symbol GOLD, is traded on the American Stock Exchange.
While the crisis unfolds oil should at least hold its value and may continue to increase in price. There are also exchange traded funds that hold only oil shares. Mike has told you to sell your paper assets such as stocks and bonds and to invest only in real assets. This category includes most commodities: natural gas, mining, minerals, energy, agricultural, livestock, farm land, and all precious and industrial metals. Probably the only commodity you don't want to be exposed to is real estate.
Although we may be in the third inning of the housing bubble deflation, the inevitable deflation in commercial real estate has not yet begun. House prices are declining, so people can no longer borrow on the equity in their homes to fuel consumption. As interest rates rise, adjustable mortgages will also rise along with the cost of anything commodity related. This will further hamper consumption. As consumption falls off, a host of industries and businesses that depend on the consumer will experience declining earnings and have to lay off workers who will in turn have to withdraw from the pool of consumers. As job losses mount, the rents on commercial real estate will have to be adjusted downward resulting in an implosion of commercial real estate prices which may be even greater than that of the implosion in house prices. And as this all plays out, people will no longer be able to pay the minimums on their credit cards, resulting in further downward pressure on lending institutions.
Although this crisis will end up being a world wide phenomenon, if you must have paper assets, convert them to the currency of a country that does not have the huge debt overhang that the U.S. does. The value of the dollar has just begun to resumed its downward trend. This is an opportunity for you to lighten up on dollars and convert some of your holdings to a currency that does not face debasement to the same degree as the dollar, like the Swiss Franc.
These ideas for keeping you financially sound are consistent with those mentioned by Mike. They are also the ideas of some of the greatest financial gurus of today, such as Jim Rogers and Peter Schiff who have both been predicting this crisis for many years. Both have books you can order from Amazon or buy at your local bookstore. Schiff's book, Crash Proof, is probably the best one around for telling you how to protect your money right now. Roger's book, Hot Commodities, gives you an overview of investing in commodities and explains why they should continue to be a store of value.
Schiff's company, Euro Pacific Capital, can open an account for you and expedite your trade of dollars for other currencies. If you are looking for conservative investments like CDs you can get them denominated in foreign currency from this firm. Given the global outlook for rising inflation, bonds in any currency appear to be a poor investment choice for the foreseeable future.
If you read these books you will probably learn how to understand this collapse in depth and benefit from it. But at the moment, that should not be your goal. At this moment in time, keeping what you have worked so hard to accumulate should be your primary concern. Don't be lulled into a false sense of security by a few up days in the markets. The big daddy of all sell offs is right around the corner. Once the selling gets going it will make what's gone on so far look like child's play.
Why Natural News is publishing articles about the economy
Some readers of Natural News question the relevance of Mike's articles about finance and the economy. But let's face it, staying healthy costs money and none of it is covered by the ridiculous system of health insurance that costs so much and provides so little to keep us truly healthy. If you want to be the best you that you can be, you will need money to provide yourself with high quality whole foods along with high quality water and supplements. You will want to stay relatively free of stress. You will need time to devote to exercise and a full night of restful sleep. If you are watching your financial situation deteriorate on a daily basis and you don't know what to do about it, your health will suffer. If it gets really bad, you may lose years off your life to stress or deprivation. So even though you don't want to think about what is happening in the economy and finance, maybe even considering it to be an area that is beneath you, your financial health is part of your total health as an individual, and it cannot be overlooked.
About the authorBarbara is a school psychologist, a published author in the area of personal finance, a breast cancer survivor using "alternative" treatments, a born existentialist, and a student of nature and all things natural.
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