As the success of "Dollar Dump" diaries by
LondonYank,
philinmaine, myself or others shows, many of you around here are (rightly) worried about what to do to protect yourself when the inevitable economic shitstorm created by Bush's and Greenspan's policies and made most visible by the fall of the dollar hits shore, and the threads in these diaries inevitably turn on investment advice.
So here is a short list of simple things that you can do to avoid the worst.
As has been explained previously, the main economic consequences of the falling dollar are likely to be the following:
- increased oil - and gasoline - prices as the oil producers try to keep the value of their oil in the currency they actually use to buy stuff, the euro
- higher interest rates, as the foreigners that finance the US current account deficit (remember the US needs an additional 2 billion dollars per day) require a better remuneration to compensate for the likely losses on the vlue of the dollar,
- more inflation, as imported products cannot immediately (or at all) be replaced by domestic production.
Of course, ultimately, all the phenomena are indirect signals to tell US consumers to STOP CONSUMING SO MUCH, and they all point to lower purchasing power.
So what should you do to make this as painless as possible?
The one thing which is going to get more expensive is debt, so you should first of all put some order on that side of your personal finances:
- interest rates are going to go up, so avoid variable interest rates as much as you can. No ARMs, no credit card debt (if you can, refinance it with a fixed interest personal loan), and no borrowing to spend;
- on the housing side, the consequence of higher interest rates will be to depress prices somewhat (more expensive debt means that buyers have less to offer). Make sure that you are not caught between falling prices and an increasing debt burden. Get out of ARMs, avoid speculative house buying fuelled by debt, and make sure that you can cover your monthly payments for mortgage or rent from your regular revenues (and not by putting normal spending on your credit card);
- it might make sense to invest to lower your energy costs, if you can: get a car with a better mileage, isolate your house better, look into electricity self-production (solar panels and the like), try to do more activities by wlaking or using public trnasportation if it is possible;
- on the investment front, it is likely that both shares and bonds are going to suffer, so try to lighten you investment portfolio (bonds are okay if you care only about having a stable income stream and not about any capital gains on them, because their trading value is likely to drop). Companies like utilities and energy companies, mining stocks, companies with a strong presence in Europe, are likely to do better than others. Bank deposits with minimum interest rates are probably the safest thing today (but make sure you are below the federally guaranteed maximum bank deposit or that you are not banking with one of the big 5 banks heavily exposed to derivatives);
- don't worry too much about the falling dollar rate against other currencies in your daily life. The US economy is still pretty much self-sufficient (despite all the doom around here, don't forget that imports represent only 10% or so of your GDP) and US dollars will keep their value domestically. Buy a few euros in cash only if you want to speculate on currency movements, but do remember it is speculation and the dollars could go up, even if only temporarily. I know that many people around here tout Everbank [Edited from Evergreen bank], but I suppose that this is for the more active portfolio managers.
Most important of all - get rid of the senseless budget deficit, put pressure on your representatives to worry about balancing the budget, and stop wasting money in Iraq and on fancy high tech military toys that do not work... so
let's increase the strength of dKos to increasingly influence (y)our representatives and US policies