Folks -- My wife and I are the proud parents of a newborn girl. Her grandparents (my parents) have given her $100 to be deposited in a savings account for her college education. $100 isn't much, I know, but she has 18 years to go before she'll begin to draw on it, and, circumstances permitting, we'll add to the pot as time goes by, so time is on her side. Unless... I deposit the $100 in a US dollar-denominated savings account (we live in the United States, by the way). In that event, she is likely to experience the dubious pleasures of massive currency devaluation. Why? Because a sinkhole of debt swallows our economy. Soon, there will only be two ways out -- default or devaluation. Our policymakers will choose door number two. I have reason to believe that I know whereof I speak: I spent 10 years in Washington, D.C. as a national political reporter, dealing on a one-on-one basis with those fine headliners who make the laws of our land. Yes, these are the same very famous people you might imagine them to be. What you might not imagine (or perhaps you might) is how many of them -- after hours, off-the-record -- will concede this very point: The US Dollar is toast. So, back to the subject of my own narrow self-interest -- or, really, my daughter's. I have $100 to deposit in a savings account. What denomination should I seek? I realize the Euro has some sheen at the moment, but I'm even less sanguine about Europe's long-term potential than I am about the United States'. So, Swiss Franc? Yen? Yuan? How about the Ruble? With its stupendous natural resource base, and evident interest in reinventing fascism for the 21st century, Russia has the potential to become one mighty gangster state. Thanks, in advance, for your thoughts on the subject.
If the USA defaulted no currency would be safe. The world economy would crumble. A man as astute as a political reporter should be aware of such implications. BTW, according the the WSJ on Friday the USA was one of a few nations with net inflows of capital in 2006. The cheap dollar is good for now. I truly wonder is the same folks that think the USA is gonna collapse were thinking the USA would rule the world when the DX was at 1.20 in 2001 or at 1.28 in 1985? Economies cycle and this too shall pass. Bah...
If you reread my post, you'll note that I stated my belief that policymakers would choose deflation over default. Not sure if I'm particularly astute, but I am a good listener...
Gotcha. I would add to answer your question. Diversify. No reason to hold it all in one issue. You have some good ideas. i e Russia. Personally I think Australia is the place to be for resources.
I see you've added to your post....I can't speak to 1985 (wasn't there), but I can speak to 2001: And, for the record, they were saying the very same thing in 2001.
things change, cycles change, trends end... predicting what will happen 18 years from now is almost as smart as trying to predict who will win the 2025 world series.
My own personal opinion is that economic outcomes are not normally distributed the way, say, the outcomes of World Series are divided between National and American League teams. But, again, that's just my opinion. Beyond that, it's not about predicting, it's about hedging. As a U.S. citizen living in the United States, I'm naturally quite dollar-heavy. Under the circumstances, is that prudent?