Investment options suck in the USA.
Since I’ve started this blog, I’ve been reading about investing and entrepreneurship. My quest in figuring out where to invest has led me to about 3 different places. Many people tell me that I should take advantage of my 401k plan at work. However every investment vehicle I have to choose from other than the money market that pays 3.0% is at -15% percent for the year. My boss told me, “Hey, you’re thinking about it the wrong way. That’s a 15% discount!” I have the feeling though that the US economy is just hitting it’s stride in the downward trend we’ve been seeing.
I completely disagree with every move I’ve seen the Federal Reserve make. Cutting interest rates to such ridiculous lows, lending to big Wall Street Firms, directly lending to non depository banking institutions, bailing out Fannie and Freddy… I read a report on the amount of money the government has tossed into the economy in the past 2 years of the housing crisis. The estimate was a whopping 1.43 trillion, yes with a T, dollars.
Here is the danger with paper currency. The urge to print more is always there. The problem is though that the more that is printed, or created electronically, the less value it has. To make it very simple…imagine that I control all of the ice cream sundaes in the world. There is only one place to get them and I produce 10 per year. They then become very valuable, especially if it was a crime for anyone else to create ice cream sundaes. Imagine then that I then begin producing 100 per year. The value of my ice cream sundaes would drop. The demand would lower. The more dollars we create, the less it buys. Inflation reduces the total value of our debt. The government essentially controls through the creation of inflation how much debt they have.
Peter Schiff points out that people assume inflation is rising costs, but rising costs are actually a symptom of inflation. For me to believe that our economy was a good place to put my money I would want to see the fed doing the right things. In my opinion this would be letting the market set the price of money, rather than keeping it artificially more. I would want to see this country taking steps to again become a manufacturing power house among the nations of the world, I would want to see the fed also reducing the limits on fractional reserve banking. Currently it’s set at 10 to 1. I would want to see attitudes begin to change. People in this country are reckless consumers. We produce nearly nothing in this country. What ever happened to Made in America? The way to a sound economy is through producing goods and services and selling them internationally, and saving.
The answer of my questions of what to invest in, has become, Real Estate, which is at or near bottom. The thing I strive to remember in investing in Real Estate is that one should never buy a property that will not cash-flow. Economically depressed areas are safe bets as the cost of buying and maintaining the property is beyond most renters. Places like Michigan and Ohio. The more units, the better. That way my investment is spread across multiple renters. Another place I would invest my money is into my own business. Kate and I are working on our own once we finish up our wedding and move into our own place. As far as storing wealth, my answer is precious metals. Gold, Silver, Platinum and Palladium.
One thing I’ve stumbled upon while investigating precious metals investment, is that among this subculture is a firm believe that fiat currency, or paper money that isn’t backed by anything, is that it will be printed by it’s government until it’s worthless. Examples of this include Germany, Bolivia, Argentina, Peru, Brazil, and the Ukraine. Some “dooms-day” economists believe that the US is heading towards this glum economic future.
I do read a couple of blogs, and most people won’t even talk about a coming financial apocalypse. My opinion is that it’s dangerous not to talk about it. The Government is trying to do another “economic stimulus. Can anybody tell me how printing more money and asking us to buy more stuff will fix our economy? Estimates on the rate of inflation range from 3%-12%. I am starting to think that we’re more towards the 12%.
Please leave me comments on what you guys think.
How would you fix the economy?
precious metals have been historically horrible for capital preservation. We aren’t on the gold standard anymore, you can’t eat it (well you can, because there is gold foil on some candy and stuff), you can’t trade it for goods and services, and water is more likely a dooms-day medium of currency, not precious metals. Current elevated price of precious metals is a bubble, based on antiquated and false notions of hedge against inflation. Since the last spike and subsequent plunge, precious metals have been terrible against inflation remaining flat to steadily declining except this past year.
global economies are so intermixed, that it doesn’t matter what the US economy does, because the world economy will equally react in kind and and relative to the US economy.
if your assumptions about inflation are true, then you would also have to assume that real estate is a terrible hedge against inflation, because capital appreciation in real estate is far lower than the rate of inflation. moreover in your apocalyptic scenario, real estate won’t be of any value either since no one will be trading it.
Precious metals have been historically awesome for capital preservation depending on what part of history you’re looking at. I hate to point out that you are WRONG but water could never be used as money as it is too bulky and cumbersome to transport. Can you imagine having your entire net worth in water? How would you make your mortgage payment in water? How would you buy food in water? You would need water to prepare the food. Gold and silver would be used as large amounts of value can be transported in your pocket.
As you can see, the global economy is currently in peril. Last time I checked we are all on the fiat money system. Real estate is a terrible hedge against inflation if an apocalyptic event did occur. To date this hasn’t happened, and is unlikely. Most people would flee the city and fight over land they could use for farming. In an event of that nature there would be no banks, or few banks, however I don’t really see an apocalypse happening.
Do you know that if you owned gold instead of stocks you would still have more value, dollar for invested dollar after the plunge we’ve seen? Peter Schiff knows, and I do too. Get into it.