Asset protection is not about investing. Rather it is about wealth preservation. Throughout history there are times one should be more concerned with the return of your money rather than the return on your money.
The question today is whether we are approaching a period of time where it is prudent to focus more on preserving wealth rather than growing purchasing power.
Recent news out of China from Bloomberg that more than 15 billion in gold back loans were falsified may be another warning sign. This is in addition to an ongoing investigation into fraudulent commodities financing transactions involving copper, iron ore and soybeans. There are also new challenges to the USD’s status as the world reserve currency. While the story is not being followed very closely by the U.S. media, more and more global transactions are bypassing the USD. Buried deep in the WSJ several weeks ago was an interesting related article castigating U.S. monetary policy. The article was by Lawrence Parks who is the executive director for the Foundation for the Advancement of Monetary Education. While we were not familiar with Mr. Parks or the organization, we were surprised to see this type of criticism in the WSJ:
With neither debate nor anyone voting for it, the dollar has been transmogrified into an ethereal concept of money without any tie to the physical world, created of nothing, and forced into circulation with legal tender laws. As Australian comedian Michael Connell so brilliantly put it, what we used to call money has been transformed into ‘the idea of money.’ Mr. Connell’s metaphor is that its like playing musical chairs, but instead of chairs there is the idea of chairs. It is absurd.
There are a number of reasons that the USD is expected to strengthen against other currencies in the medium term (24-36 months). However, given the long term U.S. debt level, the perpetual trade deficit, and the likelihood of more quantitative easing, storing your excess purchasing power in USD over the longer term (5 years or longer) may not be the best way to preserve wealth.