Preparing for a Lengthy And Unpredictable US Dollar Crisis!

• Preparing for a Lengthy and Unpredictable US  Dollar Crisis! 
  By Eric Fry, http://dailyreckoning.com/ 
  “On the threshold of a crisis,” we observed in our essay “Investing Ahead of the Curve” in the July 19, 2011 edition  of The Daily Reckoning, “a fertile imagination can be an investor’s  most valuable asset.”
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  “During normal times,” we continued, “investors can focus only on buying  quality stocks one by one from the bottom up, without also trying to envision  what tragedies might befall them from the top down… But it may be time to begin  imagining the unimaginable.
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  “It may be time, in other words, to begin considering that the next phase of the global monetary system might not include the US dollar as its reserve currency…or that the next two decades of life in America might not look anything like the last two decades.”
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  Here in the US of A, life is still pretty good, even if the economy isn’t  perfect. A true crisis seems unimaginable. After all, even the 2008 crisis  wasn’t that bad. Today, the Apple store in the mall is always packed,  most of the restaurants in town are full…and the dollar is still strong enough  to buy a nice vacation almost anywhere in the world.
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  A currency crisis that triggers an economic crisis — or vice versa — just  feels like a bunch of wacky doom-and-gloom stuff. And it may well be. In the  context of America’s legendary resilience and economic might, a catastrophic  currency crisis seems almost unimaginable… But the time has arrived to begin  imagining it…not because it is certain, but because it has become less  unimaginable.
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  The best way to defend against a currency crisis is as obvious as it is  emotionally difficult: Don’t hold the currency that is hurtling toward a  crisis. There is nothing mechanically difficult about this remedy, but it can be very  difficult emotionally…and tactically. An individual who trades dollars for some  sort of “safer” currency, for example, risks looking like a fool for a long  period of time. Not even gold is a sure bet over short-to-medium-term  timeframes. This safe-haven asset tumbled about 40% against the dollar during  the 2008 crisis.
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  In short, being “safe” can sometimes feel very dangerous…and foolish. And no  one wants to look as foolish as Noah building his Ark…unless, of course, it  starts raining.
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  When the rain started falling on Brazil in 1990…or Thailand in 1997…or Russia  in 1998, investors who had traded their local currencies for US dollars or gold  were able to sail through the crises relatively unscathed. As their economies  tumbled into deep recessions and asset values collapsed, the folks who had  parked their wealth in dollars or gold were able to preserve their wealth…and  also to take advantage of the resulting bargains.
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  But these folks had to be both forward-looking and patient if they were to  succeed in protecting their wealth. Even so, their mission was infinitely easier  than the one we Americans face today.
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  Throughout the serial currency crises of the last several decades,  individuals everywhere throughout the world knew they could protect their wealth  simply by trading their local currencies for US dollars. They didn’t even have  to think about it. Just a wee bit of imagination enabled some investors to steer  clear of these crises. The dollar was a sure thing.
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  But now that the “sure thing” itself is the thing that is becoming less sure,  the appropriate course of action is very difficult to determine. Today, the  looming potential crises are not unfolding in banana republics or in chronic  economic basket cases, but in the world’s largest economies.
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  Investors required almost no imagination to envision the Argentine currency  crisis of 2002. Argentina, Brazil and Russia all possessed a rich history of  monetary incompetence and chicanery. Today, however, investors will require an  imagination so vivid and wild that it would border on hallucinogenic. They must  not merely imagine that an Argentina might have a currency crisis…again…but they  must try to imagine that the euro might splinter apart…or that the dollar might  suffer a disastrous hyperinflation.
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  … read more!

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