The U.S. Dollar Is Doomed: How to Protect Yourself

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Includes: GLD, IPE, LTPZ, STPZ, TIP, TIPZ
by: Rob Viglione

Now is the time for patriotism and embracing the American dream of becoming overly indebted! Consumer debt won't cut it. If you think modern patriotism is heading to the mall and furiously swiping plastic for big screen TVs, iPods, iPads, iPhones, and other iJunk (not a hit on Apple (NASDAQ:AAPL), just got a little too poetic), then you're way too old fashioned. Think bigger...

The U.S. dollar is in a death spiral. Sure, we have had temporary respite from USD declines relative to other currencies, but relative to gold and general purchasing power, the dollar is doomed. Since 1920, the dollar is down 94% in purchasing power: (Click to enlarge)

That's just the start. As of March, 2010 the revised 2009 federal budget deficit measured in GAAP accrual accounting methods reached $4.3 trillion. Total GAAP-based obligations for the federal government (at the end of 2009) totaled $71 trillion. ShadowStats estimates a looming $9 trillion real federal deficit in 2010. For how much longer can the government spend trillions of dollars they don't have? The only future recourse will be to create lots and lots of new dollars to pay the bills.

There are far more eloquent advocates of hyperinflation than I, so that's as far as I head down that path. Rather, let me merely suggest that its risk is sufficient to consider hedging.

Traditional inflation hedges include gold, silver, commodities, Treasury Inflation Protected Securities (TIPS), and corporate equities. I briefly touched on each of these in an earlier article: What If You Don't Trust The Government With Your Portfolio?

While advising a client today on whether or not to buy an investment property in Manhattan Beach, CA, I caught myself explaining the benefits of a fixed rate mortgage as a hyperinflation hedge. The light bulb in my head clicked and I quickly realized that everyone who can afford it should take on a good amount of fixed rate debt while rates are low. Despite real estate prices in Manhattan Beach continuing a prolonged downward trend, the asset diversification and hyperinflation hedging potential of a tax-subsidized, income producing property in a high demand rental location had its merits.

It is sad that one of the best reasons I can come up with to buy real estate now is to protect yourself from the scourges of Keynesian-Kool-Aid-Drinking politicians and their collaborators heading up central banks around the world! While they destroy the world's major fiat currencies (and our savings) one of the best protections is to hold a fixed rate mortgage that can one day be paid off for the price of a loaf of bread.

Disclaimer: Make sure you can afford the mortgage! If not, at least pawn it off on taxpayers (the few that remain) and hole up until the county sheriffs show up to execute the eviction.

Disclosure: GLD