CON TINUED FROM FRON T FL A P $29.95 USA / $35.95 CAN PRAISE FOR In Part II, you’ll discover how to apply these lessons to your personal fi nances. Merk highlights that S U S T A I N A B L E W E A L T H everyone should be challenging the conventional wisdom. He then illustrates how to save, spend, T he world has endured an economic crisis of and invest in a volatile world, providing clear, epic proportions—the biggest since the Great straightforward advice should you and/or the Depression. Trillions of dollars in accumulated economy be faced with a crisis. MERK “Finally an easy-to-read but very comprehensive study on investments in a world where wealth lost, gone forever. That crisis reminded us once again how quickly economic crises can sadly common sense is no longer so common—and short-term profi t ‘temptations’ Filled with in-depth insights and practical advice, strike and how bad they can be. Sustainable Wealth: overwhelm the discipline of building sustainable wealth.” (cid:127) Reveals why “staying the course” when —Marc Faber, Editor, Gloom, Boom & Doom Report You’re a wealth builder. You work hard, and you governments or markets change the rules may want to have something to show for it some day. be hazardous to your wealth “Maybe had Congress gotten this book before this fi nancial crisis, we wouldn’t be in this S You want to send your kids to college, to plan a (cid:127) Coaches you on how to recognize major comfortable retirement, to sleep comfortably at crisis. But alas, we are, and alas, there’s hope. Axel Merk not only shows Washington the economic trends before they happen U night, and to achieve fi nancial peace of mind. You (cid:127) Offers a plan to spend, save, and invest wisely way out, but more importantly, the rest of us too. Not with a lecture, but a plan, and a damn want to use debt prudently, if at all, and have the S in the face of an uncertain world, build a good plan, without the bull and without the jargon. It’s why I love this guy. He really means S U S T A I N A B L E ability to do what you want—fi nancially—come fi nancial legacy, and achieve peace of mind it when he says he’s looking out for the rest of us guys. In Sustainable Wealth, he proves it.” T hell or high water. —Neil Cavuto, Sr. Vice President and Anchor, Fox News Channel A As you read Sustainable Wealth, you’ll quickly be and Fox Business Network What should you do to ensure that the next fi nancial able to understand—and adapt to—today’s erratic I calamity stays clear of your backyard? That’s where and rapidly changing markets. Financial peace of N W E A L T H Axel Merk’s Sustainable Wealth comes in. “The right fi nancial decisions are always essential, but become particularly important in mind. That’s what this book is all about. today’s turbulent times. Preparation and knowledge are required to protect you and your A Over the course of his successful fi nancial career, AXEL MERK is the President and Chief Investment family, and this book provides everything you need to develop a sound plan for the future.” author and fund manager Axel Merk has led the Offi cer of Merk Investments LLC, an SEC registered B —James Turk, founder and Chairman, GoldMoney.com way in identifying major economic trends before investment advisory fi rm that manages mutual L they occur. Most importantly, he has been a guiding funds specializing in currencies. He has published light for investors and individual wealth builders “It’s hard to accumulate wealth without making many costly mistakes along the way. That articles describing complex economic phenomena E to navigate economic crises like the recent global in understandable terms and is a frequent expert has never been more true given the enormous fi nancial risks we see today. This book may recession. Now, with this timely new book, Merk presenter and moderator at conferences. Merk is help you avoid them.” puts your fi nancial decisions in a global context, W a sought-after voice in fi nancial news, known for —Bill Fleckenstein, Fleckenstein Capital ACHIEVE FINANCIAL SECURITY IN showing you how “big picture” factors can infl uence his understandable advice and uncanny ability to your fi nancial well-being. predict market movements. He is a regular guest E “Axel Merk’s Sustainable Wealth is a storehouse of historical and current investment A VOLATILE WORLD on CNBC and Fox News, and is frequently quoted information—clearly written and packed with valuable information. I recommend this A Part I of Sustainable Wealth helps you understand in Barron’s, the Wall Street Journal, Bloomberg the dynamics that drive this world and how they News, USA Today, and the Financial Times. book without reservation.” L OF DEBT AND CONSUMPTION may affect your fi nances. Here, Merk skillfully —Richard Russell, Publisher, Dow Theory Letters Learn more and subscribe to the free eNewsletter and T discusses the world we live in, by highlighting the Sustainable Wealth blog at www.sustainablewealth.org temptations of our society: the temptations of credit, JACKET IMAGE: © JUPITER IMAGES H A X E L M E R K consumption, policy change, and complacency. Rather than be left scratching your head about the meaning of the last Fed decision, you’ll learn how P R E S I D E N T , M E R K I N V E S T M E N T S the world really works and what it really means for you and your wealth. F O R E W O R D B Y W I L L I A M P O O L E CON TINUED ON BACK FL A P O V E R A L L M A T T E F I N I S H ffffiirrss..iinndddd iiii 99//77//0099 99::1199::4466 AAMM Sustainable Wealth ffffiirrss..iinndddd ii 99//77//0099 99::1199::4466 AAMM ffffiirrss..iinndddd iiii 99//77//0099 99::1199::4466 AAMM Sustainable Wealth ACHIEVE FINANCIAL SECURITY IN A VOLATILE WORLD OF DEBT AND CONSUMPTION Axel Merk Foreword by William Poole John Wiley & Sons, Inc. ffffiirrss..iinndddd iiiiii 99//77//0099 99::1199::4466 AAMM Copyright © 2010 by Axel Merk. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 646-8600, fax (978) 646–8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, via fax at (201) 748-6008, or online at www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a qualified professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. This book reflects the opinion of the author as of the time of writing. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any investment security, nor constitute specific investment advice. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993, or via fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our Web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Merk, Axel. Sustainable wealth : achieve financial security in a volatile world of debt and consumption / Axel Merk. p. cm. Includes index. ISBN 978-0-470-49658-9 (cloth) 1. Finance, Personal—United States. 2. Financial security—United States. I. Title. HG179.M4318 2010 332.024--dc22 2009023151 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 ffffiirrss..iinndddd iivv 99//77//0099 99::1199::4477 AAMM To my children: Felix, Helena, Katarina, and Lina ffffiirrss..iinndddd vv 99//77//0099 99::1199::4477 AAMM ffffiirrss..iinndddd vvii 99//77//0099 99::1199::4477 AAMM Contents Foreword xi Preface xiii Introduction 1 Achieving Excellence as a Financial Pilot 2 What Is Sustainable Wealth? 4 A Volatile World of Debt, Consumption, and Temptation 6 Unintended Consequences 8 The Flight You’re About to Embark On . . . 9 Part I A World of Temptations 13 Chapter 1 The Temptation of Credit 15 The Relationship Between Credit and Debt 17 Credit as Money 20 The Power (and Un-Power) of Central Banks 23 Sizing the Debt Problem 25 A Crisis in Confidence 27 Credit Crisis Consequences 28 A Bond Market Bubble? 31 Credit as a Threat to Sustainable Wealth 32 Credit as Fuel for Other Temptations 33 Using Credit Wisely 34 vii ffttoocc..iinndddd vviiii 99//77//0099 99::2200::3366 AAMM viii Contents Chapter 2 The Temptation of Consumption 37 The Consumption Paradigm 39 The Cost of a Consumption Economy 45 Long-Term Consequences 53 Unwinding the Consumption Bubble 54 What This All Means for You 56 Chapter 3 The Temptation of Policy Change 59 The Boom/Bust Cycle: Can You Fool Mother Nature? 60 Goldilocks Intended 65 Above and Beyond: The Fed Ventures Into Fiscal Policy 69 More Bad Medicine for Boom/Bust Cycles 73 Regulation and Taxes: Consistency is the Best Policy 76 Long-Term Policy Consequences 79 Policy, Complacency, and Sustainable Wealth 82 Chapter 4 The Temptation of Complacency 83 Big Hat, No Cattle 84 Complacency’s Counterparty—Risk 88 The Complacency of Business Legacy 93 Trust Must Be Earned Every Day 95 Live Free or Die 98 Part II Achieving Sustainable Wealth 101 Chapter 5 Challenging Conventional Wisdom 103 Recognize Your Responsibility 104 Should You Use an Adviser? 107 The Proactivity of Sustainable Wealth 110 Low-Probability, High-Risk Events 117 Adaptive Investing, Rather Than Staying the Course 118 The Sustainable Wealth Lifestyle 123 Chapter 6 Saving and Spending in a Volatile World 125 The Sustainable Wealth Grid 126 Become a Scenario Planner 129 ffttoocc..iinndddd vviiiiii 99//77//0099 99::2200::3366 AAMM