For decades we’ve been made to believe that Economics is a “science” that should be handled by a handful of intellectuals. After all, we shouldn’t worry much about the details! We should leave those in the hands of those that have the ability to analyze and make decisions. All too often I hear about the idea that man-made economics is far better than the free market economics. It’s been now more than 60 years that our economy had used the Keynesian man-made approach but does it really work? I wonder if man – as smart as he is – recognizes that sometimes the universe is bigger and more powerful than he is.
Reality is that economics directly affects our lives. Just because we never lived to experience an economic depression doesn’t mean we’re immune from such crises. The good news is that we can do something about it. All it takes is to be active on our financial affairs. We don’t need a PHD in Macroeconomics to understand that economics is the study of human action, which is sometimes rational, sometimes irrational, sometimes predictable, sometimes unpredictable. We also don’t need a degree to learn how credit and currency are created by the central bank or to understand how savings accounts vanish during high inflationary times.
Asset preservation is the perfect way to keep what we’ve worked so hard for. What we should know about assets is that there are basically two types.
Financial Assets, also known as paper assets typically lose value during inflation. Bonds, stocks, derivatives are all manufactured assets by Wall Street. That’s why Wall Street is biased towards this kind. If we’re wondering how come our stock portfolio is doing so well today, the simple answer is that this is the result of the money that was poured in by the government when tax payers have bailed out Wall Street. This rise in the financial sector market is artificial and so are the gains that show on our statement.
Hard Assets, also known as real assets generally keep up with inflation. Commodities (energy, agriculture, precious metals) and real estate are on the top of the list. Think of them this way. What do people need the most during a crises? Food to survive, a roof above their heads, heat, electricity, gasoline for their cars to get to work, and a sound medium of exchange when currency had been debased. And when it comes to real estate it amazes me to see people sitting on the fence when prices are so low and opportunities so abundant. Very few even know that they can invest their IRA in real estate. Very few know that gold can be added to their IRA portfolio.
I often wonder why the knowledge had not been spread out. Could it be just a coincidence that a majority of books on investments have been written by Wall Street? Just about any book on Economics taught in universities dedicates 90% of knowledge on investments in financial assets. “The one who has the gold makes the rules.” If this is true it means that they get to keep the gold, they make the rules, and we keep the paper assets. As far as I am concerned, I’d rather keep the gold, make my rules, and let them keep their paper assets.