TAKING STOCK: A tale of two dollars

Dear Mr. Berko: During the past 21 years, my wife and I have owned a successful small business. We worked hard, purchased our trucks and building, reinvested in new equipment, and have 18 employees. We're concerned about the future of the U.S. dollar and the government's addiction to deficits and continuing to spend money the country can't repay, and there seems to be no end in sight. Our big concern is our company's $7.2 million retirement plan, which is conservatively managed by me, with an average 6.1 percent return since 1998. From numerous inconsistent and contradictory economic data reported in the media almost daily, I think another economic slowdown is coming soon. Several of our business colleagues and competitors agree. We think that this time will be worse and that Congress will go overboard flooding the economy with what you called "toilet paper dollars." Now I'm convinced that the results will be bruising inflation and a slow business environment. The reason for this long narrative is to ask where I can put some of this retirement plan money to protect it against the certain decline in the value of the dollar. RS, Springfield, Ill. Dear RS: Thanks for your words of common sense and good writing. A close acquaintance, a banana bender, whose blood was worth bottling, has finally had enough of our "toilet paper" dollars. He came here 21 years ago from Brisbane because he thought the Australian economy was too tame, that Aussie government policies were too benign and the country's politics too conservative. This immigrant may have been right in 1990, but before Christmastime, he and his ankle biters will return to Oz and 17 million kangaroos. He's had his fill of our "cowboy economics, crooked politics and regressive government programs." And he will convert his huge cache of U.S. dollars into Aussie dollars because he's certain as gravity the U.S. dollar is "fading to hell in a handbag." Dan is his name, and he has a Ph.D. in labor economics from a university in Melbourne with a funny-sounding name. He recently sold his California business because "federal, state and municipal bureaucracies are business-abusive, because wages and benefit costs are stifling, and because state, county and federal taxes are murdering" him. Then he laments: "America's meat-and-bones middle class, the spine of your country, has been crushed by mercenary politics." And Dan may be right as a cold Schlitz, a lawn chair and a fishing pole. Dan believes that the European mess is infecting America's mess because our "government's solution to every social and economic problem is to drown it in money and hope it disappears." The deciding factor behind Dan's decision to return to Oz was his conclusion that neither the Obama administration nor future administrations ever intend to repay this debt. You're wise to be concerned because Congress, the American people and their labor union partners lack the will to change this failed economic course. Throwing money at problems rather than devising solutions has been genetically hard-wired into their DNA like generations of genetic clap. So you're wise to invest some of your retirement assets in one of the world's stronger currencies, such as Dan's Aussie dollar. Australia's public debt is 21 percent of gross domestic product (versus 109 percent for the U.S.), and its economy has emerged from the global recession practically unscathed. But best of all, the AD is a "commodity-based currency" backed by cattle, wheat, fruits, natural gas, iron ore, sheep, barley, gold and other products that China, Japan, India, South Korea and their emerging middle-class consumers demand. There are two exchange-traded funds that own Australian dollar bonds, each of which you might consider. WisdomTree Australia & New Zealand Debt Fund (AUNZ-$22.17), yielding a stinky 2.31 percent, and Australia Bond Index Fund (AUD-$102.19), a recent initial public offering managed by PIMCO. AUD is too new to pay a dividend, but its first annualized distribution may yield 3 percent. Though yields are marginally better than a whack on the nose with a rubber hose, Australia's potential currency appreciation over the decade looks like a solid hedge against a gaseous U.S. dollar. ---------- Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com. © 2012 Creators Syndicate Inc. Published: Mon, Aug 20, 2012