One of the great long-term economic fears I have about the American economy is inflation. The Federal Reserve has done a fantastic job over the past 30 years at taming inflation, but the relevance of the Federal Reserve will decline over time. So many dollars are floating around outside of the United States that it is inevitable that a country will be able to crash the dollar despite any action by the Federal Reserve.
China has foreign currency reserves in excess of US$1 trillion. A huge trunk of that amount is in dollars. They have so much money that the country is determined to diversify their investments. The latest diversification was an investment in the Blackstone Group, leverage buyout firm. But China isn’t necessarily the country that will tank the dollar. There are other factors. As the dollar weakens against the Euro and other currencies, commodity-based economies who normally sell their commodities for dollars, are increasingly looking at non-dollar currencies to sell their goods. As non-dollar denominated contracts proliferate, the value of the dollar decreases.
What then, should a small-time investor do? Invest in foreign markets, invest in real estate, and invest in U.S. companies that large chunks of their revenues coming from foreign countries. But it’s easier said than done. Try buying stock in LG or Samsung. Try buying any stock in Vietnam. Try buying Russian oil stocks. There is a business to be had here… a brokerage that can help small investors invest internationally as easily as we invest domestically.