Can We at Least Agree on This?
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- Published on Thursday, 04 October 2012 13:46
- Written by Sara Nunnally, Editor, Inside Investing Daily
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I spent an excruciating two hours watching the debate last night -- as millions of other Americans did.
And the only thing I walked away with was a sense of aggravation. I didn't hear anything new or of real substance that will help our country pull itself up by its bootstraps.
I am astounded by the campaign spin after the debate ended... If the office of the presidency were only about style points and not about actually telling the American people what your plans are, Romney was the clear winner last night.
But President Obama's performance was no better -- with talk of all these popular programs that fix college loans and give schools more money and all the rest. But there was a failure to address the elephant in the room: trillion-dollar deficits in the last three years that he can't blame the Bush administration for.
So it seems to me that we can at least agree on this: The economy sucks, and neither candidate has put forth a viable solution to the problem.
What we are left with -- and what we'll still see on Jan. 20, 2013 -- will be trillions upon trillions in debt and an economy in a tailspin, no matter who takes office.
And you know what we'll see in 2016?
The same thing -- no matter who takes office.
Let's face it... our politicians don't have the guts to make the hard decisions, the necessary decisions that will get us back on track.
They're too worried about getting elected to do anything of real substance.
But what we do know is this: It's time to batten down the hatches.
Will our economy and society implode? Will this election be the end of America? No. That's hyperbolic and fear-mongering in its most compelling message.
Consider this.
Congress started issuing bills of credit in 1775. They were called Continentals, and in the four years after their "birth," Congress had issued $225 million worth of them.
Today, that doesn't sound like a lot. So let's put this in perspective, because this is an extraordinary sum, compared with the American economy at the time. In 1700, Carolina rice production added about 1 million pounds per year to the British Empire's GDP. In dollars, that's roughly $1.5 million (using modern-day exchange rates), equating to 170 years' worth of Carolina rice production!
This, of course, caused inflation, which made prices climb tenfold between 1779 and 1781. In order to staunch the bleeding, Congress revalued its Continentals to a mere 2.5% of their face value.
That's an amazing figure... Some might say devastating. For years, the American economy was on the verge of collapsing.
Indeed, in 1785, our government stopped paying interest on our debts to France. In 1787, we stopped paying the principal, too.
Make no mistake -- both the government and the people were drowning in a cesspool of inept financial administration. In John Steele Gordon's An Empire of Wealth, he writes, "In 1789, the United States had been a financial basket case, its obligations unsalable, its ability to borrow nil."
That's right. The U.S. couldn't sell its bonds.
But that wasn't the end of the United States. Our newly won independence didn't crumble. Our government established Alexander Hamilton's program to fund the national debt with a flexible monetary supply. Gordon writes, "By 1794, [the U.S.] had the highest credit rating in Europe, and some of its bonds were selling at 10% over par."
Our country and our economy did turn itself around... and we will again.
Yet no one in their right mind is going to say that'll be as easy as closing some tax loopholes -- be they in the corporate tax code or in your own line-item deductions. It's not that simple or painless.
You, my friend, could be in a world of hurt for the next four years, and sugarcoating that with popular programs or patriotic individualism isn't going to make one iota of difference.
Yes, it's time to batten down the hatches. The swells of debt are rising over our heads, and most of us are armed only with buckets.
Here's what you can do about it.
Make yourself non-inflationary. Buy gold and silver, fine wines and good art. Even consider some real estate in a growing economy overseas (like these options in Nicaragua). Hold currencies climbing against the dollar (like these), and look into some pre-tax investment vehicles like a Roth IRA (as Aaron has shown you on more than one occasion.)
These choices won't make you impervious to the swirling debt crisis, but they might help you weather the storm.
Happy Investing,
Sara
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