Editor's Note: The following is the third of a series of articles reviewing the possibility of a currency crisis in the U.S. The first article examined the latest currency crisis warnings from Ron Paul and the second article reviewed currency crises that have occurred in other countries.
The U.S. still considers itself a big bad superpower, but self praise is meaningless. What’s the reality? It depends on who you ask. Experts say there are some significant vulnerabilities in the economy that make a currency crisis in this country a real possibility, and some even say sooner rather than later. Yet there are those who continue to wave the flag, click their heels, and say "there’s no place like home," and believe the U.S. is too big to fail.
Truth is, there are no guarantees. The best you can do is prepare for the what ifs in life. Here’s a look at what the experts say about a potential currency crisis and the strategies that can protect you, just in case a crisis occurs.
A currency crisis in the U.S. in the near future is highly unlikely, says Leslie Bocskor, an investment banker and managing partner with Electrum Partners. "We’ve seen the complete credit collapse and asset price meltdown play out and the U.S. economy has in fact remained strong, at least as it relates to the rest of the world. Our economy is likely more elastic than it is brittle and as long as the rest of the world (EU, Russia, China) is having the challenges it’s having, the U.S. by comparison looks pretty good."
His optimism is not shared by all. "The U.S. will experience a currency crisis and we predict it will occur in the next 24 months," says Jim Angleton, president of Aegis FinServ Corporation.
There are many factors at play. Angleton says there is a currency war going on now between Russia, China and Venezuela. "They are running low on real money. Gold is not as bright and pretty as once thought. Silver has seen a decline in value. Bitcoin, digital currencies are not worth talking about. The U.S.’ currency is being challenge by BRIC groups. They want to unseat the dollar as the global monetary peg. U.S. T bills could be challenged by investor nations, corporations, and I doubt the Federal Reserve has the money to pay back everyone," says Angleton.
Joseph Jones, a partner and economist with Economic Hedge, a consulting and forecasting firm says the U.S. dollar will collapse due to the exponential growth of public, private and long-term liabilities due to fiscal mismanagement. "Low interest rates are causing asset prices like real estate and financial markets to rise to pre-bubble prices of 2001 and 2008. In addition, current low GDP growth is fueled by increased levels of debt that will balloon once interest rates increase," he says.
The experts can debate until the cow jumps over the moon about what will happen. Listening to the back and forth won’t help you. Instead, come up with an action plan to protect your assets.
"Open a non-dollar denominated bank account of currencies from smaller nations that aren’t heavily traded by institutional investors or heavily in debt. Make sure to comply with FACTA and FBAR reporting requirements," says Jones.
Turn to commodities. Purchase physical gold and silver. "Don’t worry if gold is declining now. Gold is priced in paper gold (ETFs) and the prices of paper and physical gold will decouple because paper gold isn’t backed as fully by physical gold," adds Jones.
The bullion as a business is built on the anticipation of a currency crisis, says Ross Hansen, CEO of Northwest Territorial Mint. "A dollar today is worth about 125th of what it was when the Fed was established in 1913 – that’s 2310.5% inflation, and that’s based on government figures. When currency is unavailable, hard money is easily recognized and may well become the currency of choice. We advocate owning physical precious metals, silver, gold, platinum, palladium. They serve not only as a hedge against inflation, but a way to preserve wealth," says Hansen.
Pay attention to asset allocation. "You want a balanced portfolio of different instruments like Treasury Inflation Protected Securities, gold, and diversification across the globe of the most stable and reliable economies of countries that have established rule of law," says Bocskor.
Stay on top of the news to understand what the future may hold and when change can be expected. "Proactive is better than reactive, always," says Bocskor.
For most investors and consumers, foreign assets are hard to own and hold directly, says Trevor Ewen, a blogger, for the financial site, pearoftheweek.com. "A much easier strategy is physical assets – like real estate and commodities.
Michelle Johnson, chief marketing officer for Obrella.com says, "While we are not close to disaster, it is highly intuitive to prepare now for a situation that might happen in our lifetime."