2008: The upside of downward mobility

2008: The upside of downward mobility
By Craig R. Smith
CEO, Swiss America
Dec. 19, 2007

The outlook for growth of the American Dream next year is not looking too bright right now. The key to finding true happiness in the year ahead may be in learning how to embrace the upside potential of downward mobility.

Recent polls show the economy is fast becoming the number one issue for American voters in the upcoming presidential election, and rightly so. Even former Fed chairman Alan Greenspan is now warning of the stagflation and recession risks threatening our future.

Studies show Americans have lost trust in their president, Congress, government spending, etc., no big surprise there. But news of the leading nations of the world losing faith in America’s credit system and money system is a bit shocking to most, given the U.S. has had the strongest and most resilient economy on earth.

Now the U.S. is suffering from a chronic debt-addiction of monumental proportion. We’ve now amassed $900 billion in bad mortgage debt, $900 billion in weak consumer credit card debt and $9 trillion in government debt, just for starters.

"Retailers Stake Hopes on Last-Minute Shoppers," reports AP. "Shopper are more frugal and cost-conscious because they have less money to spend." Perhaps 2007 will mark the last hurrah of American consumerism as inflation begins to take its toll on pocketbooks.

The "Buy now - pay later" mantra of the last 40 years has put a heavy burden on our economy, our communities and our families. The modern disintegration of the family, rising divorce and bankruptcy rates are but a few of the visible casualties of our modern credit system.

The Federal Reserve must keep cutting interest rates in 2008 to help save the housing market from a hard landing and the economy from entering a deep recession. President Bush recently offered "Hope Now," a plan to help subprime mortgage borrowers avert foreclosure. But these are just quick-fixes and don’t solve the root issue of debt-abuse.

U.S. house flipping flops

The housing market bubble of the last five years is now officially over, leaving millions of Americans living on borrowed time and money. Having forgotten the lessons of the past, we’ve borrowed from the future in order to live beyond our means in the present.

The latest gloomy forecast to come out about house prices is from Citigroup, which reckons prices will fall by 10% over the next three years. And that may be optimistic.

"Banks are seeking to crack down on mortgage fraud as evidence mounts of a rise in the number of fraudulent borrowers,” reports the London Financial Times. Banks are now worried they’ve been left holding the subprime mortgage bag by relying on over-stretched borrowers to maintain payments they can’t afford on homes that are now losing value.

The Wall Street Journal reports, "A mortgage-relief plan being pushed by the government is supposed to help debt-laden homeowners across America. But it's creating dashed hopes and fresh tensions in Southern Calif. where home prices mushroomed during the subprime-lending boom. Pete Nyiri, a real-estate broker in Corona, says he's been amassing bank-owned listings like never before, giving his corporate motto an ironic ring: 'Selling the American Dream since 1969.'"

Greenback fails "true money" test

In addition to ‘in housing we trust’ going bust in 2007, let’s not forget the almighty symbol of the American Dream, the greenback, has also been sinking in an ocean of debt since 2001.

The U.S. dollar, which has recently been oversold due to wild speculation, firmed against the other major currencies of the world just in the last week. However, the prospects for the buck in 2008 are dim unless the Fed stops cutting interest rates.

The old saying used to be; "as sound as a dollar", but today its; "as soft as a dollar". The dollar has been the leading reserve currency for more than 60 years, but never in history has the guardian of the world's reserve currency also been the world's biggest debtor.

"The dollar is slowly becoming an I-O-U nothing," former Fed economist John Exter once told me. Why? Because true money must be derived from a commodity, or it will eventually become fraudulent money.

The gradual devaluation of the dollar during the 20th century reflects a more subtle transformation. Americans have abandoned the morality and sound economics of our Founding Fathers which defined a "dollar" as a weight-measurement of gold or silver.

True money must have four basic characteristics: It must be; 1) Scarce 2) Portable 3) Divisible, and 4) a Store of Value over time. (Here’s where the dollar fails as "true" money).

Gold’s public era arrives on time! I’m convinced that in 2008 the world will witness a gold price explosion, propelling the shiny yellow metal into the next and perhaps most exciting stage of this bull market.

In January 2007, when gold was still near $600/oz., we reported that this would be the year the 21st century gold rush hit the mainstream and gold prices would rise to between $750-$850/oz. And so it has!

"The rise in gold prices to this point has been steady and sustainable. For much of its rise, gold has been in a stealth bull market. But the gold price advance is no longer stealth. The chart says it wants to go parabolic," reports The DailyReckoning.

Since the new century began I’ve been proclaiming the new gold rush, but mainstream America has been slow to listen. Since we first released Rediscovering Gold in 2001 we’ve added a new chapter each day online at www.swissamerica.com and a new summary every year with our annual Real Money Perspectives newsletter.

For over a quarter century we’ve produced newsletters and CDs free to the public. In 2007, to help celebrate our 25th anniversary, we released a new TV special Gold 101, designed to compact 25 years of experience into 25 minutes (if that’s possible).

There is no longer any excuse for NOT owning gold today. Even if you are financially stretched you can still protect your retirement funds by converting your IRA into precious metals; without any new contributions required!

If perchance you need more information about what’s behind this 21st century gold rush, request a free copy of our new GOLD 101 DVD with Pat Boone. Consider it a holiday gift from the Swiss America family... to your family.

Hopefully in 2008 millions of Americans will learn these four economic truths;
1) A prudent man (or woman) should live within (or below) their means,
2) A home should not to be used as an ATM machine to fund consumption,
3) The buck may symbolize the American Dream, but in reality it’s just an IOU,
4) Gold is trustworthy money, accepted worldwide, and grows in value over time.

Conclusion: True wealth not measured in dollars

The story is told of the compassionate little boy who sees the struggling butterfly attempting to shed his cocoon and decides to help the process along by prematurely cutting open the cocoon, only to discover his shortcut may cost the butterfly his very life.

Sometimes I feel like that little boy when I see those struggling through some of life's toughest challenges, financial or otherwise. The economic law in God’s universe of “sowing and reaping” should not be altered nor ignored by individuals or governments. The reason: the possibility of failure is essential for human growth.

There are times when true love means we must temper our compassion for other needs, with our trust in our Creator’s ability to meet those needs. If we've sown bad seeds in the past we should not be surprised to find our life, or economy, is now full of weeds.

The upside potential of downward mobility is that sometimes life’s economic challenges force us to look in the mirror and start redefining our life goals. The self-centeredness and greed so characteristic of the last two decades must now change. In it's place I hope we witness a rebirth of concern for true wealth.

True wealth is not measured in dollars, but in our contentment level, our relationships and the legacy we leave to the next generation. Embedded in this growing need for contentment is an appreciation of our unique American heritage.

Americans tend to reconnect with their roots during hard times; they also begin to think more inter-generationally. Instead of living beyond our means, Americans will soon discover true wealth is not measured by the abundance of our 'things', but rather, by the fewness of our wants and a willingness to sacrifice. -CRS

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