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The investment world that we live in has slowly changed over the past few years. The changes have been so gradual that to the casual observer there seems to be no significant change at all. People the world over go about their daily living and business routines never dreaming that the way they conduct their lives and businesses may well be at risk.

This lack of awareness makes the ongoing changes in the balance of economic power around the world all the more important for the investor to understand.

While the changes have been gradual so far there is a clear and present danger of a tipping point being reached. A rapid readjustment in the way international business and affairs are handled would be dangerous to all. For one thing a period of rapid readjustment would likely bring on a sharp fall in the value of the US dollar which would hurt many investors as US dollar denominated assets plunge in value.

The most dramatic changes that the world economies face are the redistribution of wealth that is now flowing generally from the primary oil and raw commodity consuming nations to the commodity exporting nations. The recent dramatic increase in the price of oil to a high of about $75 a barrel has accelerated this transfer of wealth as the US imports about 60% of it’s oil supplies and has no hope of changing that percentage without drastic conservation measures being taken.

Nations like the United States and Western European nations are transferring wealth to oil producing nations like Saudi Arabia, Iran, Russia and Venezuela at an alarming rate. The US is the nation that is at greatest risk of declining standards of living over coming decades as it has failed to make any progress at reaching a balance between producing more raw materials and finished goods for export than it consumes and acts like energy conservation is a dirty phase not to be seriously discussed.

Americans think that since they have ruled the world markets since World War Two that things will continue forever as they have been for the past sixty years. Yet even to the most uneducated observer it should be obvious that even a rich and powerful nation can not consume more than it makes forever, and that borrowing from the poor people of the world to cover trade deficits and fiscal deficits are unsustainable trends that someday will come to an unpleasant end.

The US has to borrow about three billion dollars a day just to cover the shortfalls in the trade and budget deficits. Most of these funds are borrowed from the Chinese and Japanese, which gives there countries considerable financial leverage over US affairs, a fact not discussed by American politicians. It is a great irony that the US is using a great deal of Chinese money to finance the war in Iraq and for other foreign adventures. Officially the Chinese are opposed to our involvement in Iraq and the Middle East, but when it comes to making money the Chinese are the worlds greatest capitalists. That is another amazing irony for a communist nation.

The Chinese are very clever in their dealings with the Americans. If present trends continue they will own a great deal of whatever is worth owning in American and gain considerable influence over American business enterprises.

Generally America has become a consuming nation of all sorts of imported products, both finished goods and raw commodities, and has allowed it’s manufacturing base to be hollowed out. This makes the United States trade deficit almost impossible to correct.

The transfer of wealth from West to East from the import of cheap consumer goods and the borrowing of money from foreigners to pay for those goods, and the transfer of money to commodity producing nations like Australia, Canada, Russia, and the surplus oil producing nations to pay for raw commodities, make the investment world today a real challenge, especially for Americans.

In general, one should be very careful with ones exposure to Dollar denominated assets as at some point the US Dollar will likely fall sharply. The imbalances in the trade and fiscal money flows in the US have gone on for years and may somehow continue for another few years. But the failure of the US to address these imbalances has caused an erosion of financial strength that will likely become all too obvious once some triggering event takes place. It is hard to see how the US can avoid a crisis and how that crisis could fail to spread to the entire world.

So what should the prudent investor do? As mentioned above limit your exposure to US Dollar denominated assets. Look to invest in currencies and companies in countries that have a strong commodity producing and exporting base and that manage their affairs well. This would include Canada, Australia, and perhaps Russia. Russia has recently taken steps to make the Ruble a fully convertible currency.

Remember that it is far better to be a producer than a consumer. That principal along should guide your investment policy over the coming years.

And of course, continue to buy gold and silver on every correction. The bull market in precious metals very likely has a long way to go. The recent correction has flushed out the weak longs and set the stage for what will likely be a dramatic rally this fall.

Stay tuned for more Investment World Today news and comments. In the meantime keep in mind that what is a disaster for one man (or nation) is an opportunity for another. The best plan for the moment would seem to be to become very liquid so that you can take advantage of the opportunities as they occur.

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