We may be approaching a point where things will not work
I am not sure if owning paper assets, like stock in Royal Bank of Canada will really act as insurance or not against USD hyperinflation. It is possible that ADRs would be considered like foreign currency and you couldn't get the shares into something useful in the USA, or the dividends not allowed to be credited to your brokerage account. So far I have not seen anything about how that worked in past crisis, but I think that was because they did not have ADRs in the 1930s or earlier. (Wouldn't it be funny to have some RBCDF in a USD hyperinflation situation, have an emergency happen that you needed the money, and then find out it was 'frozen' and unavailable to you?)
I also see there is a NYSE listing, RY for the shares, so I wonder if the ADRs of Royal Bank of Canada are in effect the same as the RY shares (USA issued shared in USD)? I will have to look up to see how many shares and ADR of Royal Bank of Canada are.
There have been periods in the past where the debt to GDP, or overall budget was far worse, like after the Civil War, Great Depression or World War II. The numbers, as a percentage of the economy was worse, but people kept working, the budgets got balanced (for the most part) and debt as a percentage of GDP went down. There also was an attitude that it needed and would be done.
Today, that all seems to be gone. Many Americans seem to think that somehow it will all work out, even when we have current examples of how bad things can get, like Greece, and no one is doing anything to fix things. In Greece the only thing they seem to be doing is to make larger and larger loans. At some point the ECB is going to have to admit that they are not getting their money back.
I look around at a lot of the people around me, that I know I am making more money than I am, and wonder how they are able to keep up the level of spending and lifestyle that they do. I keep thinking I mus be doing something wrong and then realize that they must be piling up all kinds of debt also.
As one example, one person I know makes over $125K/year, is in their late 40s, but only has about $300K save for retirement with the wife thinking they are going to continue to spend at the level they are now in their retirement years. I think the only hope my friend has is if one of them passes away prior to his retirement. (If he passes away then he will not have to deal with the problem of the family overspending anymore, if she passes away before him then he will not be stuck buying things that are not needed, like thousand of dollars in household junk every year.)
Another example is that one of my friends has his last kid going to college, and is about to sell his business so he can retire. The wife and kid were planning on him coming up with $25K for four years for college and then follow it up with another four years of grad school at $50K/year for four years.
As an example of how American use to save and stockpile wealth:
I remember reading a story about a farmer and his wife buying some more farmland during the depression. It was for $10,000 and a foreclosure. They went to the bank with a coffee can of cash to make the purchase. The husband counted out the money for the sale, but it was short the $10,000. He turned to his wife and said, "We brought the wrong one." i.e. There was another coffee can with more than $10,000 in cash. I did a quick look, and $10K bakc then would be like have over $100K today, so, in the middle of one of the worst economic downturns in the history of the country, this husband and wife had stashed away over $20K in cash, which today would be like someone having $200K in cash in the house. Today, that could would have a few thousand in the bank, with a large house, three cars in the driveway, all kinds of toys and extras; but the minute one of them loses their job, the family is financially ruined.
These attitude extend to companies also. It use to be that a company in business for a while usually would pay off any debt and all of its liabilities, and then enjoy being able to run a business without the fear of not being able to pay its bonds. Now companies seem to run perpetually on debt, and act like not have any debt is some kind of failure.
One of the things I do wonder about RBC is if they were ok in 2008/2009 and if there was ever any chance of them going under. Some of the large banks in the USA, like Bank of America (BAC) or Citigroup (C) looked like they were not going to make it in March 2009.
Louis J. Desy Jr.
