-January 29, 2015
The world is going through tough times; this bit should be clear to everyone. We are living in a tempestuous environment, and geopolitically we are witnessing terrible situations of the magnitude which are unparalleled in history, with cruelty manifesting itself in several forms, all thanks to the rising number of radical terrorist organizations that have made it their business to target the civilians instead of taking on the establishments head on. As wars continue to ravage the Middle East (Iran, Iraq, Syria, Palestine and Israel) with several countries overtly and covertly engulfed in it, and more preparing to get embroiled in it, we, in all probability, could be staring at World War III. Adding to this doomsday like prediction is the geopolitical scenario which is anything but stable which in turn are creating economic instabilities for even those that are far away from the epicenter of destruction.
Hostilities are also raging over the South China Sea where the South East Asian countries like Philippines, South Korea, Japan and Vietnam are accusing China of hegemony. But this is not some regional supremacy bordering on national pride; the South China Sea is extremely lucrative for gas and mineral explorations and China has shown open aggression for anyone challenging its rights. The United States has offered protection to the restful South East Asian region but it cannot afford to get into any more wars, particularly with China, and this reluctance would eventually lead to a loss of opportunity for USA because instead of competition, it would lead to a stifling monopolistic environment that would put China at the top of the ‘oil chain’, which is unacceptable to all the South East Asian countries along with India, USA and the rest of the restive South Asia. If that was not enough then the list of woes also includes the Ukraine-Russia dispute, China-India border dispute and the terrorist supremacy in Pakistan and Afghanistan.
But it is also true that it is not just Asia that is alone burning; today even European countries are witnessing a sudden spurt in the number of right wing activists that is putting a question mark on the stability of the once envied European Union. It is therefore a little unnerving to assume that the economy, even when the politicians say so, is not fragile considering that almost all the barometers of economic-well-being speak of an unsurpassable annihilation in the near future! The situation has come to this that now even Donald Trump has rung the alarm bells asking people to sit up and notice the red flags as far as the economy of the USA is concerned. Before deducing anything let us be clear on one thing; USA today stands in a world that is certainly not peaceful, certainly not stable and certainly not looking up to the soaring ‘Bald Eagle’ as the de-facto superpower.
Also, it is better to remember that the USA is no longer a ‘rich’ country anymore and has in fact become a country that could soon be swimming in a debt of no less than $16 trillions. Trump has already tried to thump the USA out of the slumber by pointing towards the ballooning debt and the credit downgrade that could just be on the horizon. This may seem a highly negative overview of the American economy but if we see closely then it is actually the entire world economy at large, which is facing problems today, and USA will not remain unscathed either. Some of the credit for the current state could be given to the ill-advised politicians who refuse to see the writing on the wall; as Argentineans are today witnessing to their horror. Their country is now refusing to pay the hedge funds $1.5 billion in interest; it is the money that the country owes now for the amount it borrowed from hedge funds in the year 2001.
Now, this may seem a minor irritant, but it does speak volumes about the way the political class is busy in doing unnecessary deeds and telling the world that any country can default at whim and jeopardize the entire world economy. Countries like Greece, Spain and even Italy are already facing economic blues with no hope in sight. Considering such a bleak economic scenario along with a potential major war knocking at our doors, there is a high probability that by the end of 2014 we may witness a major dollar collapse. The reasons are ostensibly quiet clear but they certainly need to be seen in the way government is handling it.
The current government has short term loans and if it goes up by even a small fraction of a point, then USA could be in trouble, in some serious trouble. And this trouble will take years to wipe itself clean off the heads of Americans as well as the rest of the world. What adds to the fears is the widespread unemployment, increased burden on resources due to aid given to countries like Pakistan and others, and the raging wars in Asia which means that the United States is actually stuck so much in politics and never-ending wars that the economy is somewhere on the back-burner.
But there is also a significant point to consider here which is aggravating this situation and that is that the US government cannot force a large number of treasury bonds on other countries unilaterally which means that we are entering a deflationary period and that the dollar downfall is imminent. It does not help that the ‘oil’ woes would rip a consumer in near future and that the prices of common goods would hit the roof, ultimately reducing the dollars to just a piece of paper.
In short, keeping money in dollars may not be entirely beneficial in the near future. So what other options could an investor turn too? Real estate market is still recovering but it is rickety as of now, if dollar value nosedives then expect the land prices to go down too and be prepared to witness similar scenarios for other currencies like the Euro as well.
But there is a glimmer of hope and that comes from the shiny yellow metal (gold) and pristine white slab (silver). Historically, these two have never failed the mankind. However, it is imperative to keep in mind that these are not a ‘tool to make money’ but are actually there to keep ‘the money safe’ and the keeper ‘afloat’ when the fiat currency becomes redundant, which it will considering the current scenario.
If the US Dollar fails, then the entire world economy along with other fiat currencies will fail too and in such a case an investor would prefer to put his money where it would hold at least some value and it is here that gold and silver would turn out to be best bets. It is also important to keep in mind that gold and silver have not been entirely bullish in the last decade or so. But the prices may sky rocket as people see these metals as a ray of hope today, however going by the current market trend the bull-run in this market is at least three decades away. Plus, unlike fiat currencies, these metals are actually worth something at ‘all times.’ Any person and any investor at this time would like to seek safety and these metals provide them tangible values that can be traded or bartered with ‘real’ value goods. Hence, buying gold and silver at this stage before the coming collapse is a good idea to bet on. You can read our article on Investing in a Gold IRA: A great hedge against inflation here.