Staying High and Dry in a Recession

Robert Kyosaki is one of my favorite writers for the Yahoo! Finance webpage. He is really able to take a difficult concept and explain it so that even the unlearned person can understand it. Here he talks about the fact that we have an over supply of US dollars in the world today and our purchasing power is decreasing because many nations do not want any more of them.

He suggests that a prudent investor would go and buy silver and / or gold in order to have what he terms as international currency that can be traded for nearly anything at anytime because the demand for those items will remain high no matter what the dollar does.

I agree that this would be wise since the value of the dollar has fallen and the value of silver and gold has really escalated in the recent past and if the reverse ever happens, gold and silver are easily traded back to dollars with relatively no problem at all.


Dr. Tufte said...

He's right about the excess supply of dollars.

I'm not sure about the recommendation to buy gold or silver. These are only really useful if you're involved in trade, or you expect the sky to fall. But, if you're involved in trade, you probably already have access to other currencies.

Why do we have an excess supply of dollars? Well, either we're putting too many in circulation, or foreigners don't need them. If it is the former, we should have more inflation. This points to the latter. The major reason that foreigners want U.S. dollars is to make financial investments here. This suggests that the mortgage/housing/banking bubble is scaring them away.

Gavin said...

Extra credit - Dr. Tufte
The excess supply of dollars does suggest that the mortgage/housing/banking bubble is scaring away foreign investors. Robert Kyosaki understands realestate, this article oversimplifies commodity trading.

Dr. Tufte said...

Kiyosaki has been proved right, but for the wrong reasons.

I stand by my claim that gold and silver aren't that hot.

But, we have seen a broad run up in commodity prices over the last 6 months, because these have turned out to be a better investment than other financial assets.

So, it isn't just gold and silver, it's coffee, rice, oil, tin, and so on.