Mark Nestmann explains why you should be concerned about all U.S. dollar-dominated assets.   

Would You Put Your Life Savings Into This Investment?
by Mark Nestmann

Would you willingly invest in something that has lost 95% of its value in the last century-and 30% in just the last six years? Well, if you-or more likely, your great-grandparents-had hidden $100 in paper U.S. dollars under a mattress in 1900, their purchasing power 107 years later would only be about 5% of their original value.

Here's proof, from data provided by the U.S. Department of Commerce:

But you don't need to look at a graph to know that this trend is real. When I was a boy, my grandparents often reminisced about the "old days." Back in 1900, when they were teenagers, you could buy a pound of beef for 10 cents. Spending the night in a decent hotel would set you back about $2. A good-quality man's suit cost $15.

In my own childhood, I remember the 1960s "gas wars," when you could purchase gas for 25 cents / gallon. A haircut cost 50 cents and a ticket to a concert cost $2. (I suspect you have similar memories.)

The accepted explanation for rising prices usually boils down to a "price/wage spiral" where workers demand higher wages and employers then pass the increased costs on to consumers, with the process repeating itself over and over. Yet, this doesn't explain why the purchasing power of the dollar is also declining internationally, in comparison to other currencies.

Is the wage-price spiral less pronounced in Europe than in the United States? Perhaps. But most economists believe the real reason the international value of the U.S. dollar is falling is irresponsible policies by the U.S. government: excessive spending, too much reliance on foreign sources of energy, and artificially-low interest rates designed to prop up the value of domestic real estate.

Moreover, many economists believe this long-term deterioration will continue. "The dollar could lose as much as 30% of its value in 2007," says economist John Williams, who publishes the website Shadow Government Statistics. "In 2007, we are likely to see the economic downturn of 2006 develop into a structural recession and yet we have international trade and federal budget deficits careening out of control."

What can you do to protect yourself from this frightening trend? After all, if you're living in the United States, everything you own is in dollars: your home, your vehicle, your retirement plan and your investment portfolio-unless you've taken precautions to protect yourself from the long-term decline in the dollar's value.

Fortunately, protecting yourself isn't "rocket science." It can merely be a matter of purchasing strong foreign currencies like the euro, buying precious metals, and including a smattering of foreign securities in your portfolio.

One of the easiest ways to make these kinds of investments is through a foreign bank account. And while there are many countries to choose from, I believe Austriais one of the best choices.

I recently returned to the United States after living for more than two years in Austria. While I was there, I completed a LLM in international tax law. And in my "spare time," I learned as much about this fascinating country as I could.

In virtually every area you would consider in choosing an international bank, broker or investment advisor, Austria offers significant advantages. Among these are a stable economy, a strong currency (the euro), constitutionally guaranteed neutrality, a universal banking system (where banking, securities trading and insurance are offered at a single institution), along with strict bank secrecy laws.

These advantages won't go away anytime soon, either. Unlike many other "tax havens," Austria is a rich country that is not dependent on outside aid. That gives Austria the kind of diplomatic clout to protect its status that impoverished island havens in the Caribbean and elsewhere simply can't match.

I've recently completed a book describing these "Austrian advantages," entitled Austrian Money Secrets. You can read more about it in the flyer accompanying this month's issue, or by clicking on Austrian Money Secrets.

If you're serious about protecting your wealth from the ravages of a continuing decline in the dollar's value, you owe it to yourself to seriously consider offshore investments. And Austria is one of the very best places to make them.