Cash Crunch

It is darn hard opening a newspaper or magazine these days without seeing an article on debt. Be it consumer debt, state debt, corporate debt, or the looming federal deficit, debt has been a popular topic in this column.

But where is all this debt leading to? It certainly hasn’t led to a booming economy, and it certainly hasn’t led to job creation. In fact, the only thing it has led us to is living beyond our means. Americans are so caught up in their consumerism that they have turned a blind eye to the consequences. The federal government seems oblivious to the future impact of its wanton spending.

Gold has become the symbol of our collective failure to deal with debt and our inability to remain competitive. As we try to stem the tide of lost trade and even the loss of our competitive edge, the dollar sinks to record lows and gold rises. And it will continue to rise.

On one level, corporations and consumers have had it easy.

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Corporations have had low interest rates to deal with their borrowing. Combine low rates with layoffs and some serious fat fighting, and corporations have seen the ratio between debt and asset value change for the better.

Consumers have kept the economy alive with new home purchases and kept the retail sector alive with personal purchases.

In the past month, we have seen housing finally flag and heard some hints from the Fed that interest rates are going to move up… one day. Consumers and corporations can keep up with debt load today, but what about tomorrow? Can we survive higher interest rates with more job losses, with more imports than exports, and with a dollar that the world perceives as over valued?

The world’s economy has changed and will continue to change. Some of the key players in the world have realized that Americans are living on borrowed money. Their money. Will lenders continue to lend to us as a nation? Will they continue to lend to us and accept pay back with dollars that grow increasingly less valuable?

Here at PROFIT CONFIDENTIAL, we don’t think so. The dollar is in for some more “downside,” yet few are willing to imagine that with this reality America’s assets are worth less. That includes our portfolios, our real estate, and our cash holdings. Heck, that even includes us.

Let us remind you, dear reader, of some of the things that will keep their value. Gold, of course, is our favorite, but there are a host of other commodities that are seeing a boom. Silver is on a tear these days. Copper and zinc have also shown remarkable strength of late.

When the cash crunch comes, when all those borrowed dollars have to be repaid, make sure that your money will be worth more, not the same or even less. Commodities may see you through.