A look at investing in the 21st century from Howard J. Ruff. An excerpt on where Ruff thinks our economy is going and what will be valuable. How to Prosper in the Coming Bad Years in the 21st Century
is the updated version of a title of the same name which is said to be the bestselling financial book in history.
America is racing toward its greatest test since the Civil War--the rising price of oil and gas from unstable and often hostile sources, and a monetary inflationary spiral leading to a depression that will be remembered with a shudder for generations, and whoever is elected president of the United States in 2008 and presides over the collapse will be "the Hoover of the 2000's," and the opposing party will win against his party for the next fifty years. There's a better-than-even chance that we will be well into it even before the next election, in which case the next president will be elected president of the Titanic. And if he or she should escape it, it will get his or her successor for sure.
No one knows exactly where the breaking point is, but it's coming. As you read this edition of this book, America is truly on the brink, and so is the rest of the world, because when America sneezes the rest of the world gets pneumonia.
So what is likely in your future? A grisly list of unpleasant events--exploding inflation, probable price controls, shrinking of the purchasing power of your savings (possibly to nothing), soaring gas and oil prices, imploding home equities, a collapse of private as well as government pension programs (including Social Security), vastly more government regulation to control your life, the disintegration of the basic foundation of society--the traditional family--and eventually an international monetary holocaust that will sweep all paper currencies (especially the dollar) down the drain and turn the world upside down. Paper fortunes based on lending will implode, and a new kind of investment and financial planning morality will put some very unlikely people on the top of the heap. And you can join them there, if you know what to do before the heap turns over.
You don't have to be a genius if you can identify the basic trends and make some very simple decisions with your assets. You might be too early, but that's okay. Do it now, and wait. You'll be vindicated. And I'd rather be a year or two too early than a week or two too late.
Here is the most likely scenario:
In the next recession (residential real-estate is collapsing as I write), which will happen sometime after the publication of this book, deflation, recession, and unemployment will threaten the public welfare. Washington will react in its usual panic fashion to attack the problem by cranking up the spending machine to "stimulate" the Economy--"a bit of the hair of the dog that bit us." Job programs, matching funds, universal health care, guarantees, subsidies, loans, and social spending programs will be triggered by events, such as the need to replenish the state unemployment funds (most state unemployment funds will be broke even before the recession starts) and underfunded private pensions, and keeping major businesses from going bankrupt, to say nothing of banks, and bailing out broke cities and states. This will create a flood of newly created dollars, which is the engine of inflation. You will see a gradual accelerating inflationary spiral, probably followed by another government panic move--price controls.
Price controls will fail to stem the inflationary tide; they always do. These distortions in the economy, and the flood of dollars coming from "the printing press," to cover more than $50 trillion of unfunded liabilities, will cause Americans to distrust their own paper money and start to get rid of it as fast as they can in an orgy of spending, similar to what happened in Argentina when their inflation was running at 800% a year and Argentineans were buying everything in sight as inflation hedges.
Sooner or later, the American dollar will no longer be a dependable means of exchange (it is already no longer a store of value), creating chaos in the marketplace. In the final stages, the government will probably make one or two abortive attempts to issue a new currency by "fiat" (official order), and this "fiat" currency will be rejected because of lack of trust. All currencies depend on confidence. After all else fails, the government will finally be driven by desperation to reestablish a gold-backed currency, but because it has already sold much of its gold hoard, gold will have to be revalued upward to a price adequate to back the new money--perhaps thousands of dollars per ounce (the international free market will have already done that). This will be the only way to establish a means of exchange and a store of value that people can trust.
A tiny minority who have no need for a means of exchange during this chaotic period (who have already bought several months' supply of all the things they will need, such as food, clothing, candles, medicine, toilet paper, batteries, diapers, soap, automobile parts, etc.; see chapter 7) will get along fine. Those who have no acceptable means of exchange or store of value, and no advance storage program, will suffer. But eventually (we hope) order will be reestablished, and painfully the nation will climb back out of its pit, hopefully chastened and prepared to avoid the mistakes of the past 50 to 100 years, but "net-lenders" will have been wiped out and paper fortunes will have disappeared.
If you're still with me after this rather scary prognosis, I will tell you: 1) how we came to this brink; 2) why this is the most likely scenario; and 3) what you can do to get through it, and even get wealthy. I will unfold the plan piece by piece in part III, after I've depressed you in part I. Then I'll summarize it for you in the last chapter.
This is no "bail-out-of-civilization-and-head-for-a-retreat-in-the-
Rockies-with-a-machine-gun-turret-on-the-roof" plan. And this program is not just for the rich. There are obviously some things that you can't do if you don't have enough money, but the basics will substantially raise your odds on personal and financial survival and can be implemented by nearly every middle-class family.
So the program is simple in concept:
- Identify the trends, the pitfalls, and the opportunities in advance.
- Survive the ensuing difficulties in good health.
- Make the right moves ahead of time that will preserve or enhance your purchasing power, and that's not as hard as it may seem. I will give you a total strategy, a plan that should get you through to the other side in enhanced financial condition.
Excerpted from How to Prosper in the Coming Bad Years in the 21st Century by Howard J. Ruff, published by Berkley Trade in 2008.