what to do if the dollar falls?

There was an interesting article on Yahoo Finance today which I'm sure many folks here must have read:

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"While some people do become richer in this system, funny money actually punishes working people who save money. It devalues the value of your work and your savings, even though you may feel wealthier." .. "For now, though, this funny money game continues. How long will it last? I don't know. I do know that throughout history, all paper money has eventually come back to its true value, which is zero. That's when the game truly ends, and a whole new cycle of pass the buck begins."

As usual it points out the problem without offering a solution. Is there a solution to this?

Anoop

Reply to
anoop
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Anoop, a solution to what, exactly? This is not world war two Germany, no hyperinflation here. This isn't even the early 80's with inflation that was out of control. I don't downplay the effect of inflation, and I'd accept the goal of zero to one percent as a target. Exchange rates fluctuate, true, but an equilibrium is reached and change is somewhat slow. If we had a 300 yen exchange rate today, a Lexus SUV would be $15000, instead of $45000. A Camry, $5000. Do we want that? Every US auto maker would insist on tariffs to stabilize the effect of such an exchange rate. You want the government involved in every transaction of goods being imported, more so than today?

I rarely lob personal attacks, no matter what I think of the writer, but in Kiyosaki's case I make an exception. Many of his posts are dangerous, suggesting dumping dollars and loading up on gold. No regular poster here would offer such advice.

The 'answer' is to stay invested in a way that will keep you ahead of inflation. If you truly believe the dollar is poised to tank, choose good foreign index/mutual funds. You'll get the advantage of both the exchange rate as well as stock-based growth. (you are right, he offers no solution, he's just a fear monger) JOE

Reply to
joetaxpayer

A solution to "funny money actually punishes working people who save money." I can't imagine that the solution would be to stop saving and start spending. So then what are the alternatives? Real-estate, for example, looks like a bad idea right now.

Based on this it looks like it would be safe for me to ignore the article. :-)

Anoop

Reply to
anoop

The article makes no sense whatsoever. The U.S. economy is getting the savings of other countries like China or Japan because its economy is still the one of most efficient -if not the most- in the world, and the return of capital investment is higher than overseas. A higher rate of return of capital investment means that the U.S. can offer a better reward for Chinese or Japanese savings than what they can get at home. Incidentally, there are other two relatively large economies which run persistent current account deficits, U.K. and Spain. In the three cases

-U.S., U.K., Spain- the economy grows faster than in other developed countries. That's why foreign capital gets into these three economies. On the contrary, countries like Japan, Germany or Switzerland run relatively large current account surpluses, in all these cases their economies performed poorly since the 1990s, the rate of return of capital is very low, and their citizens try to find better investment opportunities overseas.

ano>

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Reply to
jose.bailen

Unless they save it in a mattress, this isn't so. In general, interest rates have inflation premiums built in. This isn't 100% true, but generally so.

On the other hand, most working people are net borrowers. A gold standard penalizes them. Look up the populist movement of ca. 1880 about free coinage of silver.

As is typical for this author, he mixes up a variety of issues with emotionally laden rhetoric, careful selection of facts, and a shortage of logic.

-- Doug

Reply to
Douglas Johnson

Not keeping your money in cash or money-market funds is a good start. If inflation kicks in, you want to make sure you are invested in things which can move with it - or reprice appropriately. Equity in firms which (a) do business internationally and/or (b) have price-adjusting power (ie. to charge more dollars to adjust for inflation) can keep generating inflation-beating returns far better than money sitting in a money market fund. There may be rocky paths along the way, and you have to be careful, but the real losing bet is sitting on dollars in a savings account rather than investing it.

In the long run, maybe not. In the short run, especially if you have to borrow to buy it (which almost everyone does), probably. Folks seem to forget sometimes that buying real estate with huge leverage - is still using leverage - doing things that nobody'd ever suggest one attempt to do with other asset classes (ie. borrowing huge to buy stocks).

It's Kiyosaki. Unfortunately, I think he's too dangerous to simply ignore. He needs to be debunked and his dangerous advice pointed out every time someone brings it up. I saw him a few days ago on the teevee, along with Trump, talking about their new book. Both of them going on about how nobody can ever get rich or save enough by investing in diversified profesionally managed mutual funds (and tossing in the canard about 2.5%+ management fees). Then they both go on to tell everyone to take risks, start their own businesses, yada yada - all feel-good, rah rah, useless advice. These guys are dangerous to normal average folks.

Reply to
BreadWithSpam

Partially agree, but I am not sure what you mean by rate of return of capital, in particular with the countries you mention. For example, German bonds have a similar return rate to Spanish bonds. Or did you mean that if one had invested in some Spanish stocks return would have been better than on German ones?

Wrt US vs. European bonds, sure, US yields are higher, but then again in 2002 1 EUR was .86 USD, now it's about 1.25. I am choosing 2002 since it was the date the Euro started to circulate in Europe

I don't mean that we should buy that "dollar collapse/iranian oil bourse" conspiracy, and I agree the yahoo! article in the link is unreliable, but it's probably a good idea to hedge against a small correction in USD in the medium term.

Reply to
brogliacarlo

I think you are slightly confusing cause and effect.

The UK and US (and Spain) are running consumer spending booms, backed by rapid rises in house prices.

If an economy invests (including in houses) more than it saves, it runs a current account deficit.

The only way for it to finance that is for foreigners to hold more of their assets in that country's currency: which is achieved by offering them a higher expected return.

Just to confuse the issue, many of the US' major bondholders (and trading partners) specifically China, SE Asia and Japan, have a national strategy of promoting export led growth: in the Chinese case, by subsidising exports and not allowing the currency to appreciate against the US dollar.

This exacerbates the effect.

Eventually, those current account deficits will close: there is not an infinite world demand for US dollars. Whether it does so gently or violently is open to question (lots of examples of both out there)-- likely it will be achieved either by recession (eg a slump in the housing market), depreciation of the dollar (or the pound), or a combination of the above remains to be seen.

planning newsgroup.

Just on that, I have a general caution about USD assets as a result

*however* I think US large cap (value tilted) have a relativelly high exposure to foreign earnings, and are not expensive on other measures.
Reply to
darkness39

Well, I do not fully agree Kiyosaki's view, but I do think there is a problem. For a long term, nobody, either an individual or a nation, can sustain by spending more than he makes.

The situation we are creating now is not a win-win deal. On one side, we have to continue borrowing from other countries heavily (if we don't change our behavior). On the other hand, other countries like China/Japan have to continue lending us money (otherwise we are unable to repay the interest and/or buy their goods). Though I don't think it will happen, but let's take an extreme case: what if China tomorrow announce it will stop lend US money and spend its $1,000 billion USD reserve on buying US assets???? -- again the bottom line is nobody can sustain long-term by endless borrowing, in which case, both the borrower and the lender will be hurt.

Many of us, I think, are somewhat blindly believe US will be regardlessly the most powerful country forever, or at least before we die. However if history tells anything, it may or may not be the case

- it takes just dozens of years for a country to rise or declien. 300 years ago, China + India's output was about 80% of world's total output (well, it's from historian, which may be arguable). It took less than

50 years for Holland to become a maritime super-power and then decline. British Empire only existed for less than 100 years. It took just ~50 years for Japan and Germany to become #2 and #3 from a post-war rubbish. For US itself, it's not the #1 until the World Wars. The question is if it only takes US dozens of years to be number 1, why it's not possible for another country take this glory in another 50 years?

I am not trying to paint a doomy picture, and I still think US is a great country with prosperity. But we must cut our deficit by behave responsibly as a nation.

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Reply to
My interest

Too late, I've channel-checked across her...

-Will

Reply to
Will Trice

Following up on the original query, I think that one way to hedge against a falling dollar would be to buy an index fund or exchanged traded fund that tracks a diversified index of international equities. I like Vanguard's VDMIX or the EFA exchange traded fund, both of which track the Europe Australasia Far East (EAFE) Index. The companies in this index are all successful, large cap names in countries with good legal systems and accounting standards. If you're pessimistic on the prospects for the U.S. economy and U.S. companies, these stocks are a nice hedge. Moreover, if you think the dollar will fall you'll benefit from the exchange rate difference when their earnings are converted into dollars.

Reply to
Paul Michael Brown

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