Freedom Lawyers of America

Discussions of the consequences of a weaker dollar are no longer
theoretical. Foreign investors are actually starting to sell U.S.
dollar-denominated assets.

The reason for this paradigm shift, this watershed moment in history,
centers on a nasty, four-letter word: debt.

When America's 2003 fiscal year ended Sept. 30, it was reported that the
deficit had reached $374.2 billion. That's more than twice the published
2002 figure, and it shattered the previous deficit record of $290 billion
set in 1992.

But that's nothing compared to what lies ahead. The White House is already
projecting a $480 billion deficit for fiscal year 2004. And that doesn't
include all of the "off-the-books" spending going on.

Warned Warren Buffett: "The deficit has greatly worsened, to the point that
our country's 'net worth,' so to speak, is now being transferred abroad at
an alarming rate."

But what's even worse than record-breaking debt is our cavalier attitude
towards it - both on the federal and individual level - that virtually
assures the continuation of monstrous deficits for the foreseeable future.

Given the planet's dependency on the greenback (up to this point at least),
given the fact that no economy has come close to rivaling that of the U.S.,
Washington has seemingly operated under the smug belief that it could let
debt run rampant without significantly risking the dollar's supremacy.

But that's one smug belief that may prove monumentally foolish. After over
20 long years of mounting deficits (the trade deficit has more than tripled
since 1990), our debt is getting to be pretty old business in the world
community. In addition to foreign angst over North America retaining the
title of "The World's Debtor Nation," there have been other shocks to the
global economic system. These include:

* The collapse of the dotcom market in March 2000.

* The terrorist attacks of Sept. 11, 2001.

* The serious scandals on Wall Street.

* The impact of the war with Iraq.

* The sluggish U.S. recovery.

None of this has occurred in a vacuum. There continues to be worldwide
consequences, under-reported as they have been, to these traumatic U.S.
circumstances.

Euro on rise

For one consequence, the euro is looking more and more attractive to
foreign investors. From an all-time low of $0.83 in October 2000, shortly
after the currency's introduction, the euro recently hit a record $1.1977
(topping the previous May 12, 2003, record of $ 1.1558).

This is significant because a rising euro directly threatens the dollar's
enduring role as the world's defacto reserve currency (specifically, nearly
70 percent of official exchange reserves are held in dollars).

Possessing the world's reserve currency, it should go without saying, has
been a critical advantage to the U.S.

"The U.S. can run large trade deficits because the cost of producing an
American dollar is far less than what can be bought with it, giving the
U.S. an advantage over other countries that must pay for American dollars
with their own goods and services. Normally, a country that ran significant
trade deficits would face downward pressure on its currency. The dollar's
status as the world's reserve currency protects the U.S. from this,"
reported Mapleleafweb.com.

But that sweet advantage is now being threatened. That's because the
spigots of world investment in the U.S. are beginning to shut off.

According to respected analyst Stephen Roach: "In data just released,
overseas portfolio inflows into dollar-based assets totaled only $4.2
billion in September 2003 - far short of the $64 billion average inflows in
the first eight months of the year and the $46 billion monthly bogey
required to finance the U.S. current account deficit at its prevailing
rate."

Regarding this dramatic decline, ABN Amro Analysts warned, "Given the
U.S.'s $45 billion a month current account deficit, this lack of flows
(i.e., declining purchases of government securities) in a month when U.S.
bonds and stocks both rallied raises questions about the financing of the
trade deficit next year."

Which comes as particularly ominous news since it has largely been the
foreign buying of Treasury and Wall Street securities that has kept our
U.S. economy afloat. But, as bad as declining foreign investment is, it's
not the only scary news.

Oil in euros

According to Mapleleafweb.com, "In April 2002, a senior OPEC representative
gave a speech openly considering changing the denomination for oil
payment." In other words, the petroleum exporting countries are looking at
euros over dollars.

Evidently, this isn't just talk. Mapleleafweb.com also reported that, since
2002, Iran has been shifting the reserves in its Central Bank from U.S.
dollars to euros. According to respected analyst,Richard Russell, Russia
has also stated that it is thinking of selling its oil in euros instead of
dollars. Saudi Arabia would soon follow suit, he believes. Then Russell
added:

"There are elements in Europe that would like to give the U.S. its
'comeuppance' ('knocking America off its throne,' in other words). This is
impossible from a military standpoint, but not from an economic standpoint.
Remember, the reason our nation remains relatively prosperous is that the
U.S. owns and creates the world's 'reserve currency.' This allows America
to get away with 'economic murder' by paying off its debt with paper that
it prints at will and at no cost."

The universal hedge to the dollar

According to Stephen Roach: "I fear there is a tear in the fabric of
confidence that underpins the special role of the dollar - a tear that is
now getting larger under the stresses and strains of an unbalanced world."

So . how do you personally hedge against this tear in the fabric of
confidence? How do you preserve your all-important purchasing power in a
changing economy?

Consider these opinions.

* Jay Taylor, editor of J. Taylor's Gold and Technology Stocks
newsletter, reported, "People should really be owning gold because it is so
negatively correlated to equities and bonds and the dollar, even more than
real estate. We make no apologies for our 40 percent allocation to gold and
gold stocks."

* "Gold," said fund manager Alfred Wong of UOB Asset Management, "is
historically found to be negatively correlated with major assets like the
U.S. dollar, stocks and bonds. The asset of last resort is gold."

* Peter Urbani, investment strategist at The Fairheads International
Group, one of the world's most distinguished money management firms, said,
"Investors seem to have rediscovered gold as an alternative asset class,
which appears to be negatively correlated with the U.S. dollar."

* "Gold is the only asset class that is negatively correlated with
other asset classes, so its price tends to move in the opposite direction
to U.S. stocks, Treasury bills, bonds and the U.S. dollar," reported
Asiaweek.com.

Richard Russell has a specific example of this negative-correlation:

"The S&P 500's 20-month moving average has crossed down through its
40-month moving average, thereby indicating that stocks remain in a primary
bear market.

"But look at the picture in the gold market. The picture is a mirror
image of the stock market. The 20-month moving average of the gold price is
crossing up through the 40-month moving average, which shows that gold is
in a primary bull market.

"Gold is now in the accumulation phase, moving to strong hands from
weak hands . $556 per ounce is the first target."

But you don't have to be a "gold bug" to see the wisdom of diversifying
your stock-based portfolio with at least some gold. That's especially so as
the situation with the dollar plays out. Put in perspective, consider how
lucky we are to have any asset at all that moves contrary to the direction
traditional investments are heading.

Given that key advantage, we should avail ourselves of "the only asset
class that is negatively correlated with other asset classes," as
Asiaweek.com reported, and diversify our stocks, funds and bonds at this
dramatic junction in history. This is, after all, no time to have all of
our hard-earned assets in the same dollar-denominated basket.

* Lear Financial is making available free information on investing in
precious metals.
http://etools.ncol.com/a/jgroup/rd_lear_wnd_15.html

With more than 20 years of industry experience, Kevin DeMeritt is president
of Lear Financial, one of today's fastest growing and most successful
precious metals investment firms.