HOME • BEING PREPARED • MISSION TRIPS • CERT • ARTICLES • UPDATES • MEDIA • CONTACT US
 

back to Being Prepared

Report on U.S. Debt (Nuttle)

 

 

How to Position Yourself in an Economic Disaster

 

It is my goal to provide you with a brief overview of current economic conditions along with some personal guidance on how to best position yourself in our current economy.

The best illustration I can give is to compare the US economy to the Titanic, our elected leadership to its crew and American citizens to the passengers. The US economy is on a collision course with a giant iceberg of debt and if we don’t make a dramatic course correction it will destroy our economy and sink the greatest nation and economy the world has ever known. Many of our elected officials and citizens, like the Captain of the Titanic, can see the signs, but foolishly keep going in the same direction, thinking we could never sink. There are however, at least some elected officials, business people, financial professionals and citizens who, like the passengers on the Titanic, clearly see the signs and discern the dangerous waters around them and are preparing the life boats. They don’t want the ship to sink, but since their officials will not listen they are preparing to exit the system to avoid going down with the ship.

The US economy has never been in the position it is in today. It has never had this great of a deficit, it has never been so dependent on other nations to remain afloat and the dollar has never been as weak as it is today. The major force keeping the US Dollar afloat is its designation as world reserve currency. The British pound was the world’s reserve currency up until the end of World War II, where after the US Dollar gained this designation at the Breton Woods Accord in the mid-1940s. The US dollar was backed by gold until Franklin Roosevelt took it off the gold standard in the 1930s and Richard Nixon then completely de-coupled our dollar from gold in 1971. It has been in decline ever since.

Being the world’s reserve currency means that whenever a nation buys or sells a commodity (oil, grain, minerals, etc.) it must exchange its currency for dollars to purchase it. Thus, whether China, Russia, Europe or the Arab nations like it or not, they have to continue to buy US dollars, no matter how much money we print and no matter how devalued it becomes. This is why the rest of the world is angry with us; our cheapened dollar causes citizens of other nations to buy US goods and services at artificially lower prices, instead of buying their own country’s products. If the US Dollar was not the reserve currency and the world was not being forced to purchase the dollar, under current conditions our dollar would experience hyper-inflation and rapid devaluation. If we do not stop irresponsibly printing money and taking advantage of our designation as the world reserve currency, we may lose that designation.

The US government takes in 2.2 trillion dollars annually, but spends 3.7 trillion annually and has a 1.5 trillion dollar structural deficit. Thus, we are spending 43% more each year than we take in. How long can a person or business continue to spend 43% more than they make, before they become insolvent? We have had QE1 & QU2 which is quantitative easing, which means printing money and hopefully we won’t have QE3. This along with a faltering dollar in the US, deteriorating economic conditions in many large nations and the recent destruction in Japan- cause the following questions to be raised:

  • Will the US be able to borrow enough money to stay afloat without Japan, purchasing 22% of our debt (as they have annually averaged in the past), and instead will be selling their current US Treasury holdings? (This will result in even a greater shortfall, because it will lower the price of US treasuries, making it even more unlikely that we will be able to borrow enough to keep afloat and causing us to default)
  • Will the international community say enough is enough and, before we can print any more money and remove the US dollar as the world’s reserve currency, causing us to default and go into hyper-inflation?
China, who purchases 24% of US Treasury securities on average, has also said that they may only purchase as little as half as many treasuries as usual, further worsening the outlook for the US. If we default on any of our obligations, our credit rating, reputation and status as a world power would be severely damaged. Our ability to borrow would be destroyed, just like any other bankrupt business or individual. We would be forced to sell important national assets, as Japan is doing now. Congress could continue to print money until our dollar was even more worthless than it already is, or they could drastically cut or eliminate non-vital government programs, subsidies and financing. We could recover, but it would be a long and difficult road back.

These things do not have to happen, or at very least, the intensity and severity of these possible outcomes could be lessened if congress and the president make some difficult choices and take immediate and bold action. The question is not can they - it is will they? We are not the only country that is in trouble. Many countries are in a similar position, Japan had problems even before the earth quake, and Germany is considering leaving the European Union, which would be the death sentence for the Euro, and there would be no more bailouts for struggling European nations.

So how do you deal with all of the circumstances swirling around you, over which you have no control over? First and foremost pray for wisdom, revelation and insight, and ask God what exactly He wants you to do, regardless of what is going on around you. Being spiritually in tune and prepared is of the utmost importance as we enter into unconventional times, because the Lord never fails to lead his people through every trial they face if they are obedient. For those willing to listen, God is calling us to prepare in the physical as well as the spiritual, so that we may be a light to the world when darkness comes.

That said, let’s take a look at some basic principles that will remain true and investments that will hold their value and even increase in times of instability. There are four basic types of investments; Cash, Growth, Fixed & Property and, ideally, you want to have a position in each. Your age, the amount of assets you have attained, and your risk tolerance have traditionally been the main variables that determine how much you invest in each of these areas. However, in unstable times like now, the conventional investment vehicles such as mutual funds, stocks and bonds, likely need to change.

CDs, money markets and saving accounts, which comprise the fixed and fluctuating cash categories, may benefit from rising interest rates, but will be hurt by inflation and declining treasury issues, which most often have been the underlying funding vehicle for cash investments and are at the mercy of a declining US dollar. If the dollar continues to decline, you should consider diversifying into other currencies and not holding all your cash in dollars. If you have a $1000 in cash keep half in dollars and exchange $500 into another currency, if you $10,000 in cash keep $2000 in dollars and put $8,000 into other currencies. The top performing currencies today are the Australian Dollar, Chinese Yuan, Norwegian Krone and the Swiss Franc, because they are partially backed by something real and tangible. You should keep some cash at home in the event your bank temporarily closes or runs out of money, due to the fact that the FDIC and Federal Reserve have insufficient funds to deal with the crisis at hand.

The Growth category is usually comprised of individual stocks and mutual funds, but as inflation and interest rates rise, this will cause stocks and mutual funds to decline. The large nations like the US, Japan, France and Britain are borrowing all the available capital in the world to keep afloat. This creates a tight inaccessible capital market and hampers businesses and manufactures from accessing capital for start-up, growth and expansion, which further exasperates unemployment and prevents job creation and recovery. Gold & Silver however, are both inflation resistant and are the investments of choice in times of instability. Other growth options would include food stuffs and energy based stocks.

The foreign currency trading market, or FOREX, is another growth option in unstable times. The more volatility and upheaval in the currency markets, the more the FOREX market makes. The company I utilize for my clients and Merging Streams Trust patrons, does the trading for clients through a specially designed program that trades an average of only 10% of the clients investment each day (and never more than 20%), protecting 80-90% of a client’s funds at all times. FOREX trading is based on mathematical algorithms; when one hour, four hour and twenty-four hour trends converge, something is bought and sold. The fact that three of the world’s largest and most prevalent currencies (the Dollar, the Yen and the Euro) are all in trouble, will not hurt but help FOREX investments, because fluctuation is what drives this market and it thrives on economic volatility. Over the last four years, the company I work with has averaged between 2% to 2.5% per month, or 24% to 30% per year in profits. So far, in 2011, they have been earning approximately 1% per week.

In terms of fixed investments this category has traditionally been based on various types of bonds. Government bonds and municipal bonds have always been considered very conservative because they are guaranteed by the full faith and credit of the US government or a state government. Unfortunately that doesn’t mean much in our present situation and there is little faith in the government’s ability to pay its obligations. Bill Gross, manager of PIMCO Bond (the largest bond fund in the world), recently sold all his US Treasury holdings. Corporate Bonds, like government bonds, are debt instruments and are loans to corporations, but like government bonds they may not be backed by anything real or tangible. A bond backed by a commodity is something tangible; it can be bought, sold or traded and thus will not lose its value. A commodity always has a value, thus bonds backed by a commodity like gold, silver, wheat, generators, or computers are safer because they will retain their value in an unstable economy.

In terms of property, currently residential homes and commercial properties are declining in value and are difficult to sell. However, agricultural property is on the rise because of inflational pressures on food prices, which unfortunately hurt the consumer, but provide farmers with greatly increased profits. Thus the purchase of agricultural land and the ability to grow your own food is going to be a great advantage for those who are in position to do so. Those living out the country should invest in the ability to produce an agricultural product even if it is just to feed themselves and their families.

Merging Streams Trust Burundi will soon be providing many of the fore-mentioned options for protecting and growing your finances. We need to step out of the box and away from conventional thinking, in order to navigate through the days in which we are living. This is exactly what Jesus did when He walked the earth; He was one of the most unconventional men in history. If we do not use wisdom and let ourselves be guided by the Spirit, we will be like the man who buried the talent because he was afraid to take hold of it and try. Winston Churchill said, "The pessimist sees difficulty in every opportunity. The optimist sees opportunity in every difficulty,” and the world falls deeper into debt, dysfunction and disarray, God is presenting us with the opportunity to step out of convention; out of the Baal system, individually and corporately, in order to build revolutionary new systems and networks for provision and sustainment. If ever there was a time to step out of the box and press in – it is now.

Fulton Sheen:

fsheen@gmail.com

SUPPORTING ARTICLES & SPEECHES:

  • Mark Nuttle’s Address on Economic Policy and Geopolitics: (KEYS-S1084) For CD or DVD copies contact the MorningStar Bookstore at 800-542-0278, or Multimedia Director Tim Flachman at 803-802-5544, ext. 281, or tflachman@morningstarministries.org