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Safe-Haven Currencies: If You Want to Flee the U.S. Dollar, Here Are Four Places to Hide

As a young British banker in the inflation-ridden 1970s, I got used to carrying large amounts of German deutsche marks, Swiss francs and Japanese yen in my wallet - to have some security against the lousy performance of the British pound sterling.

While paying for a pizza in London with this foreign cash was difficult, having those "safe-haven" currencies in hand helped me sleep at night.

We've reached that point again. In light of the escalating debt-ceiling debacle that's unfolded in Washington, the potential for a U.S. credit-rating downgrade no matter the outcome, and the likelihood that a long stretch of dollar-killing stagflation is headed our way, it's time to take refuge in today's safe-haven currencies.

And I'm going to show you the safest of those safe havens.

The Battle-Damaged Greenback

I know that many of you are extremely worried about what will happen if Standard & Poor's downgrades U.S. Treasury debt from its top-tier AAA credit rating.

But I'm telling you that there's a much bigger cause for concern. While I concede that having our federal debt lose its top-tier credit rating wouldn't be good, the bigger cause for concern is what happens to us if the U.S. dollar stops being regarded as AAA - meaning it's no longer good for settlement of all international transactions.

If that happens, you have to ask yourself two questions:

  • What would be the impact on the U.S. and world economies?
  • And, even more importantly, what would investors like us need to do?
The answer to the first question is clear: The fallout will be worse than you imagine. And that means that, even now, you need to be searching for refuge in the very best of the world's safe-haven currencies.

With the Aug. 2 deadline for raising the debt ceiling approaching fast, the U.S. dollar took another beating and fell against safe-haven currencies yesterday (Monday), after Washington failed to reach agreement on the nation's $14.3 trillion debt ceiling. The Swiss franc actually reached an all-time high against the dollar, which has slipped 25% against that currency in just the last 12 months.

What a lot of folks don't realize is that the fate of the U.S. dollar is closely tied to that of U.S. Treasury bonds. If U.S. inflation takes off to serious levels - as I'm almost certain it will - both Treasuries (except Treasury Inflation Protected Securities, or TIPS, which are inflation-protected) and the dollar will tank simultaneously.

After all, the United States has been running balance-of-payments deficits of $500 billion or more for almost a decade now - much longer than the country has been running $500 billion budget deficits.

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