2,500 years of Wealth Preservation -- Decadrachmae Redux ?

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First the American Peso, then "The New American Yuan" ?

Swan Dive for the Dollar? -- Or Black Swan Dive ?

Return of the U.S. Trade Dollar ? -- backed by Silver & Gold? Or oil? -- anything physical will do

A two-tiered Treasury Bill Market ? -- Americans as Common Treasuryholders, and Foreigners as Preferred Treasuryholders ?

The Hard-Asset Standard -- a la the Gold Standard -- The New Duro -- "legal tender for all debts public & private"


Why the name DekaDrakma Investments™ for this blog ? Decadrachmae were ten drachmae (or drachma, drachm) coins minted in Sicily and Greece from around 465 BC to 200 AD. Most decadrachmae are made of silver, but some were also produced in gold. Certain decadrachmae from Syracuse, Sicily, are still considered by many numismatists to be the most beautiful coins ever produced in human history. For the past 2,500 years, decadrachmae have been an infallible store of value requiring payment of no management fees and no investment "succession planning" or shifting from one investment vehicle to the next over time.

Hence the name of this blog and our intergenerational wealth advisory firm.

"One generation passeth away, and another generation cometh: but the earth abideth for ever." -- Ecclesiastes 1:4. And likewise gold and silver abide or last forever.

Modern-day investment paparazzi in glossy magazines or on ephemeral web sites love to quote how one imaginary U.S. dollar invested in American stocks or bonds 100 or 200 years ago would have magically grown today to be a portfolio worth 10s or 100s of thousands of dollars, as if Peter Lynch (Fidelity Magellan) and Bill Gross (PIMCO) were among the Founding Fathers of the United States of America and had miraculously lived the past 100 or 200 years to shepherd along this imaginary dollar through 5 or 10 or 20 generations of stock and bond vehicles to arrive at today's magically large tally. These comparisons of paper-investment returns to returns on investing in gold or silver are specious, disingenuous and bogus.

Besides gold & silver as millennial stores of value, only raw land (not buildings) offers similar convenience of ownership and permanency of value across the generations.

So what is the future of paper investments and the fiat U.S. Dollar, which has not been backed by gold since 1971 ? Can you say "American Peso" ?

The Obama Administration's borrowing and/or printing of trillions of dollars for deficit spending signals the imminent swan dive of the Dollar. The composite U.S. Dollar Index®, now at 84 today will, I predict, follow this trajectory downwards:

-->> Year-end 2009 = 75

-->> Year-end 2010 = 65

-->> Year-end 2011 = 50

You can find the daily value of the U.S. Dollar Index in the lower right-hand corner of this web site:

-->> http://www.kitco.com

However, this swan nose-dive above, as Curtis Hesler of Professional Timing Service wrote last year, assumes "an orderly lynching" of the Dollar. But should a Black Swan event occur, the Dollar could plummet much faster towards its ultimate destiny with Eternity -- zero. You can read more about Curtis Hesler's remarkable predictions here:

-->> http://www.protiming.com

As the Dollar continues to lose value over the next several years, foreign investors holding U.S. Treasury bonds will be sucking more and more swamp water and calling for U.S. Government intervention to support the value of the American Peso. U.S. Government agency bonds will lose their triple-A rating and gravitate towards junk status.

Burned foreigners will be reluctant to buy Treasurys unless rewarded with higher interest rates to compensate them for their risk. Selling and speculating on Credit Default Swaps on U.S. Treasurys will become a big business -- unless the U.S. Government makes it illegal ! Higher interest rates on Treasurys will, of course, force all other market interest rates up, killing any stock market rallies and any resurgence of the economy and the flaccid American consumer.

Despite higher interest rates that should support a relatively "stronger" Dollar, America's trading partners will be reluctant to accept IOUs or payment for goods and services in Dollars. Rather, as the French Government under Charles de Gaulle wisely did in the late '60s and early '70s, they should or will insist on payment in gold.

Reference:

-->> http://www.time.com/time/magazine/article/0,9171,840572-1,00.html


How will the U.S. Government solve these myriad fiscal challenges and viagrafy the ever limper U.S. Dollar? Here are some novel speculations:


(1) Bring back the Trade Dollar of 1873-1878: Institute a silver- or gold-backed dollar for international commerce, which would exist only in electronic form, of course, that could be redeemed for payment in physical metal.

-->> http://en.wikipedia.org/wiki/Trade_Dollar_(United_States_coin)


(2) Two-tiered or bifurcated Treasurys market -- domestic & foreign:

To encourage foreigners to take the currency risk of owning American debt, we should pay them a higher interest rate than American citizens holding the same debt instruments. Foreign holders of Treasurys could, for example, be paid 10 % interest, and American investors only 5 %. American investors could be compensated for the lower rate by special tax treatment on the coupon payments. The lower domestic rates on Treasurys should not push up other domestic interest rates for consumer and housing loans, and thus not depress economic activity in America.


(3) Foreign currency-denominated U.S. Government Bonds ?

-->> U.S. Government Samurai Bonds ?

-->> U.S. Government Peking Bonds ?

-->> U.S. Government Taipei Bonds ?

-->> U.S. Government Arabia Bonds ?

-->> U.S. Government Euro Bonds ?

-->> U.S. Government Timbuktu Bonds ?

-->> U.S. Government Singapore Sling Bonds ?

-->> U.S. Government Bloody Mary Bonds ?


Well, you get the picture. Such U.S. Government bonds denominated in the foreign currencies of nations with historical positive balances of trade would put the risk of a devaluing U.S. Dollar on the U.S. Government (the debtor) rather than on the foreign investor (the creditor). Which only makes sense.


(4) The Hard-Asset Standard -- a la the Gold Standard:

Institute a new global currency (pick any name -- the Duro?) backed by a basket of Durable and valuable commodities whose physical supplies are limited. The Gold Standard was restrictive because planet Earth contains so little physical gold. Even a fractional Gold Standard might prove problematic. The solution ? -- institute a basket comprised of:

-->> Gold, silver, platinum & palladium

-->> Oil -- deliverable anywhere in the world, not just Cushing, Oklahoma.

-->> Add in any other hard asset of universal strategic value in global commerce such as indium, nickel, tungsten, etc.

As you see, under a Hard Asset Standard, a "surplus" of any of the constituents of the basket would not depress commodity prices, but, rather, lead countries to store or hoard/save the asset. In short and as a concrete example, the U.S. Strategic Petroleum Reserve would become a 2nd Fort Knox. But the gold would be black and liquid instead.

The units of the Hard Asset Standard or Duro would be "legal tender for all debts, public and private". Sound familiar ? -- this is the marketing slogan printed on all U.S. currency.

The beauty of the Hard Asset Standard ? -- if any country insisted, any debt could be paid for with the physical assets in the basket. Or any equivalent combination or subset of them. Thus, Middle Eastern countries could trade or pay debts principally in oil. The U.S. with silver and gold. Russia with oil, natural gas and nickel. And so on. In sum, world trade would return to a barter economy based on a unit of measure backed by real value -- hard assets that are already in inventory, or which could be produced quickly to settle a debt (e.g., oil); and


(5) Add your own imaginative and speculative economic Deus ex machina here.


To sum up, Hard Times are coming. And only hard solutions will save the U.S. economy, the U.S. Dollar, and your dollar-based investments. And if we shirk the fiscal purge needed, what then? -- Then our children and grand children will live a bitter and sullen debtor's life, ruing the malignant karma that made them be born American.


DekaDrakma Investments™ -- Hard Assets for Hard Times.


To learn more about DekaDrakma Investments™ thinking on the current investment environment and the outlook for the next 5 - 10 years, please contact:

David A. Palella
Co-Founder
DEKADRAKMA INVESTMENTS
San Diego, California

tel: 858-793-0741
email: dpalella@san.rr.com
http://dekadrakma.blogspot.com

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