Jonathan Campbell
Research for Empowerment and Survival

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Bad Moon Rising Economic Alert #1a - update
June 25, 2008

Contents

1. Welcome to Economic Alert
2. Predictions from the experts
3. Ben Bernanke Bluster
4. Quick things to do
5. Focus on the Euro as a short-term investment for small savings accounts – an item from Bad Moon Rising Survival Guide, planned publication July 20, 2008

Welcome to Bad Moon Rising Economic Alert! It is my hope that by providing information about the real state of the economy and what lies ahead (according to some of the best academic researchers who focus on “predictive” economics and finance) I can help thousands of people – and, if I’m lucky, millions of people – to survive the coming turmoil.

Predictions from the Experts (GlobalEurope, James Turk, Banking Times, others)

Recession – a long-term recession is now underway and shows no signs of letting up. Some bankers in Europe believe the crisis may get much, much worse, openly talking about economic depression on the scale of the Great Depression.

Capital outflow resulting from economic globalization (outsourcing, moving of factories and service industries to low-wage countries) has undermined the ability of the US to balance its international payments. The result is that countries all over the world hold so many dollars they don’t know what to do with them. The likely result: devaluation of the dollar as compared with the euro and other more stable currencies.

Residential and commercial real estate are losing in value and, according to one reliable source, residential real estate is a “bottomless pit.” Neither are predicted to return to current values.

Ben Bernanke Bluster – the last-ditch effort to the stop the dollar’s slide against the euro. Earlier this month the Federal Reserve Board trotted out its esteemed chairman, Ben Bernanke, to tell the world that he would protect the dollar and the U.S. economy against devaluation and inflation with the threat of raising interest rates again. Today, June 24, we had a repeat performance of the same rhetoric.

Given the current credit crunch caused by the sub-prime mortgage fiasco, an interest hike would likely stifle the economy even more rapidly than its current downward spiral and/or push the banks and brokerages The Fed is lending to over the brink, and Bernanke is fully aware of this. So it was either all bluster, or he is even loonier than most grounded economists (those with their feet on the ground and their head on straight) think. So for now it appears to be all bluster and hot air. The tale changes daily.

The most amazing thing, though, is that many people in the markets actually believe him when he speaks, and the dollar rises against the euro – for about two days – and then continues its downward slide again. I suppose some people like to make money from this kind of propaganda and spin.

What To Do?

If you are considering selling a home, or especially a condo, it’s probably not a good idea to put any money into it for the sale. It will probably be very difficult to sell, especially if it is a condominium. Prices are in a downward slide, and the slide is going to steeper.

If have a pension fund that is based on stocks or bonds and you can move the investments in it, you might consider moving them to safer ground.

Focus on the Euro

Start saving money now if you can. If you are looking for a very long term hedge against (rather inevitable) inflation and devaluation, gold and other precious metals are likely to be a safe bet. GEAB and other analysts suggest that precious metals are among the very few investments which will retain their value over the long haul.

But gold is very volatile right now, and appears to be manipulated to stay between $880 and $900 per troy ounce, with the other metals following the same pattern. If you need a short-term hedge - a safe haven for small savings accounts - that will maintain their value when the dollar slides, Euros are likely to be safe, and they can be exchanged at many branches of the larger banks, especially in city branches.

For small savings accounts ($2500 or less): If you decide to use Euro notes in this way, you can legally avoid paying federal taxes on the currency exchange gain (if the dollar falls against the Euro) by obtaining and then exchanging 50-Euro notes. Current IRS rules specify that there is no tax on exchange of “non-functional currency” if the exchange is for personal expenses (not for business expenses) and the amount of each exchange is less than $200. (For larger transactions, you are taxable at your usual personal tax rate on currency gains, that is, the amount that you have gained by exchanging to Euros and back again to dollars.)

To get the best exchange rate, establish a free checking account at a branch of one of the major multi-state or multinational banks that offers dollar/Euro currency exchange. Be sure to keep the Euro notes in a small safe deposit box at the bank; never store currency at home. Use your checking account to make the exchange – deposit money into it from other checking accounts or from your employment check – and keep all your transaction records, including where all of the money came from. Then, when you need to use it, take out 50 Euros at a time if you want to avoid taxation on it. If a bank employee asks you what you are doing with Euros, just be honest: say that you are exchanging dollars to Euros in case the dollar falls in value.

The reason for all this record keeping and formal storage in a safe deposit box is that large amounts of cash – of any currency – is considered suspicious by drug enforcement officers, and you can have your money seized and tied up for months or even taken away if you don’t maintain proper records. For the same reason, even if you plan to pay taxes on the gain, don’t take out more than $1000 at a time. All large money transactions involving cash are also considered suspicious. By the way, what you store in your safe deposit box is completely private, so no one really needs to know that you are storing your Euro notes there.

For exchanging larger savings accounts (more than $2500), please see Alert 4 - Euro bank accounts.

References:

Banking Times, 06/09/2008

Global Europe Anticipation Bulletin #25, May 16, 2008

Global Europe Anticipation Bulletin #26, June 16, 2008

The Collapsing Housing Bubble and Resulting Financial Fallout, Dollars & Sense, 4/1/2008

Weimar Inflation in America, James Turk, may 26, 2008

Taxability of exchange gains: US Federal Code Title 26, 988

Alerts

The Storm Rages On

The Storm Has Begun, Takeover of Freddie and Fannie

The Calm Before The Storm

Jedi Mind Tricks

The Meltdown Continues, IndyMac, $100,000 FDIC Limit

The Meltdown Has Begun

Welcome, predictions, Bernanke Bluster

Tips on Buying Gold

Avoid Foreclosure

Standard Disclaimer: The information above, Bad Moon Rising Alerts, and the Bad Moon Rising Survival Guides do not constitute financial advice, but are condensations and distillations of the work of others and a few words of what I believe to be common sense. Please seek out an independent licensed accountant or financial advisor to review the information and references I have provided as well as their own expert knowledge, in order to tailor a financial plan to your circumstances. I cannot be held responsible for the consequences of decisions made based on the information I provide. If I suggest that you stop playing the lottery to save money and your number comes up, don't blame me.

©Graphics, Web design, and content Copyright 2003-2008 by Jonathan L. Campbell.

Jonathan Campbell
Research for Empowerment and Survival
43 Boynton Street, S. 2R
Boston, MA 02130-3263
EconomicAlert: http://www.cqs.com/economicalert

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