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international investment philosophy

International Investments - Who Says the US is Bankrupt
By Gary Scott

international investment philosophy

* International Investments – Who Says the US is Bankrupt

* Natural Health Tip – Cool DeBuggin Again

* Ecuador Real Estate – Rock and a Hard Spot

Recent messages have looked at the consequences of America’s fiscal policy and what might happen if the US dollar collapses. Can this create serious inflation? If so, what can we do to gain from these facts?

Various rallies of greenback strength suggest that many investors question whether the US really has a debt problem. This poses the question, is the US really in bad economic shape?

So I read the note below from an astute reader with interest:

“Dear Gary, What is most surprising about this article is that it has been published in the St. Louis Fed July/August Review. As you know, this branch of the Fed is one of the most esteemed. Warm regards, Craig”

This article by the Fed begins:

“Is the United States Bankrupt? Laurence J. Kotlikoff

“Is the U.S. bankrupt? Or to paraphrase the Oxford English Dictionary, is the United States at the end of its resources, exhausted, stripped bare, destitute, bereft, wanting in property, or wrecked in consequence of failure to pay its creditors?

“Many would scoff at this notion. They’d point out that the country has never defaulted on its debt; that its debt-to-GDP (gross domestic product) ratio is substantially lower than that of Japan and other developed countries; that its long-term nominal interest rates are historically low; that the dollar is the world’s reserve currency; and that China, Japan, and other countries have an insatiable demand for U.S. Treasuries.

“Others would argue that the official debt reflects nomenclature, not fiscal fundamentals; that the sum total of official and unofficial liabilities is massive; that federal discretionary spending and medical expenditures are exploding; that the United States has a history of defaulting on its official debt via inflation; that the government has cut taxes well below the bone; that countries holding U.S. bonds can sell them in a nanosecond; that the financial markets have a long and impressive record of mispricing securities; and that financial implosion is just around the corner.

“This paper explores these views from both partial and general equilibrium perspectives. The second section begins with a simple two-period life-cycle model to explicate the economic meaning of national bankruptcy and to clarify why government debt per se bears no connection to a country’s fiscal condition. The third section turns to economic measures of national insolvency, namely, measures of the fiscal gap and generational imbalance. This partial-equilibrium analysis strongly suggests that the U.S. government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds.”

This article though it contains some nasty mathematic formulas (guaranteed brain scramblers for me), is a must read considering its source. You can read it at http://research.stlouisfed.org/publications/review/06/07/Kotlikoff.pdf

So what can we do? Yesterday’s message shows five ways to survive and prosper from a falling dollar.

See www.successguidelines.com/ecuador_real_estate_93.htm

These five steps are Inflation Fighting Option #1: Start now buying real estate and living where the cost baseline is lower.

Inflation Fighting Option #2: Another way to fight inflation is to invest in equities on countries of high growth (ie emerging markets). See spottingtrends.com/stock_markets/stock_markets_24.htm

Inflation Fighting Option #3: Buy real estate now with as much debt as you can manage to afford.

Inflation Fighting Option #4: Invest in non leveraged commodities or leverage such investments as much as you can afford to protect.

Inflation Fighting Option #5: Start your own global business now. Be economically able to leave your homeland business wise at least and still earn income. See http://www.garyascott.com/catalog/ibez.html

Regarding Option #1 and #3, you do not have to leave the US to do this. There are areas where real estate offers good value. I live in one of those areas, Ashe County. See why at successguidelines.com/retirement/retirement_7.htm

The listings from our friend, Trey Morrison, below suggest that there are still great values here.

This first listing is a 2 bed 1 bath Condo is in excellent condition-just recently renovated & has practically new appliances throughout. The Unit has one of the best views of Ashe Lake. It would make a great weekend getaway or rental. Furnishings can be purchased if anyone is interested. $69,425.

Merri and I looked at a property on this lake and though we did not buy I feel that this area is one of North Carolina’s best kept secrets. This is a beautiful little lake near us and we did not even know it exited for seven years!

$69,425 is certainly a low baseline to begin with!

This next property is just a couple miles from our farm. The 47 acres has old home place on it that looks pretty rough. However the mountain & pastoral views plus two small creeks and 150' of road frontage makes the $369,749 a not too bad price to start negotiating from.

Ditto for this 17 plus acres on Big Horse Creek with 2 bed 1 bath house. This has about 1/8 mile frontage on the creek which makes the $138,500 a good place to start negotiations.

These prices seem in range because the area has a lot of confusion and conflicting pricing right now. Some prices seem too low (the Ashe Lake property above) and yet others are quite high like this 10+ acre tract of land with views of the New River. It has no home at all and yet the acreage price at $169,000 is much higher.

Such confusion shows that the market is rising but bargains are still available.

Until next message, may all the bargains you find be good!

Gary

Join Merri, Thomas Fischer of Jyske Bank and me at our last International Business and Investing Made EZ course in North Carolina this year. Review where to invest and do business now and learn which markets and currencies may be strong in the year ahead. Meet Steve Marchant, our man in Ecuador, and learn about products to export. Go to http://www.garyascott.com/catalog/ibeznc.html

List of articles on this web site

international investment philosophy
July, 2006
international investment philosophy

 

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