TO WORK OR RETIRE?
The Demise of the Dollar ... And Why It's Great for Your Investments advises on reaching retirement
BY DOUG FRENCH

America's population is aging rapidly, with 8,000 people per day turning 60. As these baby boomers enter their golden years, dreams of days to be occupied with golf, bridge and traveling fill their heads. They've worked hard all of their lives and now they believe they deserve to take it easy. Maybe a few have even done all the right things, putting away some of every paycheck into an IRA or 401(k). These folks were born after the Great Depression. They have never seen hard times. Yet. 

But, while the government worries about fighting terrorists, the federal debt is growing. The trade deficit continues to expand. Oil prices keep rising. Mortgage debt climbs. Productivity is waning. Wages are flat. And the value of the dollar is falling. 

Unfortunately, what most every American retiree has saved are dollars or dollar-denominated investments like stocks and bonds. And, the dollar is sinking and will fall even further in value in the years to come, according to Addison Wiggin in his book, The Demise of the Dollar ... And Why It's Great for Your Investments. 

Of course Wiggin doesn't mean the investments most people currently hold. He believes stock prices will plummet when foreigners start dumping U.S. shares when the dollar starts its free fall. The author also lays the blame for job losses to overseas firms at the hands of the Federal Reserve. The pushing down of interest rates has allowed Americans to buy foreign goods and has caused price inflation, but since jobs have been sent overseas by this weak dollar policy, wages domestically haven't grown at all. Increasingly, Americans will see exploding gas prices, increasing monthly payments on their adjustable rate mortgages and fewer cheap credit card special offers to move money around with. 

The author emphasizes: "As the value of the dollar begins to fall, a corresponding and offsetting rise in value of commodities, raw materials, and tangible goods will occur." Wiggin believes there is a growing gap between the amount of oil being discovered and the amount that is being consumed, giving investors an opportunity to profit from the stocks in oil producers, drillers and suppliers.

Gold is the ultimate dollar hedge, and the author lists a number of ways to participate in the gold market. Investments outside of the United States in countries producing natural resources are also recommended. For those who have the stomach for more speculative ventures, Wiggin recommends betting that the stock prices of government sponsored mortgage pools - Fannie Mae and Ginnie Mae - will fall with the use of put options. He recommends buying call options on companies engaged in any natural resource business so as "to control large numbers of shares rather than buying shares directly." 

However, because options have a relatively short-time horizon, an investor does not have the luxury to wait a long period to see if his bet is right, making options much riskier than buying the actual shares. 

Wiggin spends a lot of time addressing how to sell the dollar. He stresses that this is not the first time America has gone through a dollar devaluation. The dollar was weak from 1972 to 1978, was strong from 1979 to 1985, fell again from 1986 to 1995, strengthened from 1996 to 2001 and has been falling since 2002, and Wiggin believes the dollar bear market has a number of years to run. 

"There is no way the United States can possibly pay off its creditors, should they decide to cash in their IOUs," Wiggin writes. "Right now, the United States holds only $87 billion in reserves against its obligations. That would last about three minutes should creditors begin to sell the dollar, rather than try to support it."

The average American cannot conceive of the financial risks that lurk. As Marc Faber points out, America is a large domestic market and its citizens think parochially as "90 percent of the people don't have a passport and therefore know little about what is going on outside their own continent."

"The dollar is the single biggest element of risk in the world of finance today," Wiggin explains. "Rearrange the current system of world finance ever so slightly, let confidence in the greenback falter, and the mighty dollar could go up in flames."

The still sharp, 92-year-old Sir John Templeton also believes the dollar will fall 40 percent and that stocks, bonds and residential real estate should be sold. 

Those who don't heed these warnings will be working rather than retiring. LW

Doug French, associate editor of Liberty Watch: The Magazine, is an executive vice president of a Nevada bank. He is the 2005 recipient of the Murray N. Rothbard Award from the Center for Libertarian Studies.