Financial crisis: Is it reparable?

As I discussed in last week's column, "Wealth Without Work," my goal is to help readers learn how to create real wealth, without gambling. That means finding places to keep your money that will likely prosper independent of falling public confidence, currency wars, and/or Wall Street scandals.

Accountants define "wealth" as our assets, minus our liabilities. But in today's volatile financial world, our assets can quickly become liabilities when the fabric of public confidence becomes torn badly enough (think: "Emperor has no clothes").

TRENDING: Poll: Stunning number say Biden suffers 'cognitive ailment'

The biggest financial risk today is that American (and foreign) investors will continue losing confidence in the U.S. economy, the dollar and Wall Street. If that happens, welcome to "Fall Street" 2005.

Marketwatch.com describes the Wall Street environment last week as "SHROUDED IN GLOOM," while stocks fell to fresh 2005 lows. "Fears of an economic slowdown" was the main reason given.

"CONSUMER CONFIDENCE FELL IN MARCH, as higher gasoline prices and a turbulent job market dampened the moods of car-reliant Americans," reports AP.

And now, fasten your seat belts for yet another round of confidence-shattering accounting scandals on Wall Street, ripped from recent headlines ...

• "CEO SHIFTED $2 BILLION IN AIG STOCK TO WIFE," reports Bloomberg. If AIG is found guilty of accounting irregularities, trust me, confidence in the broader stock markets will drop.

• "BONDS TUMBLE ON CONCERN GM TO BE CUT TO JUNK" ... more bad news from Bloomberg. "ACCOUNTING CONCERNS JOLT GM'S STOCK" says Forbes.com. If GM debt falls to "junk bond" status, watch out below – we could be in for another "Wiley Coyote" market moment before sailing over the cliff.

Economist Stephen Roach of Morgan Stanley states the problem:

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. As the tide goes out in this post-bubble climate, one flaw after another keeps being exposed in the American system. The confluence of Wall Street misdeeds, an Enron-led accounting scandal, and the damaged credibility of the New York Stock Exchange points to nothing less than a full-blown crisis of corporate governance.

Advertisement - story continues below

Today 80 percent of American's "wealth" exists only on paper or in computers. As long as our credit-debt system runs smoothly, our computers are online and our home values are rising, we feel confident that our assets are safe, right? But what happens if that confidence disappears? Historically it begins a chain reaction that could escalate into an uncontrollable panic because so many of us are living on the edge today financially (think: Last pair of pantyhose with a big run in them).

Too many Americans live paycheck-to-paycheck today, buried in debt. Any disruption in income or investment values may send their confidence spiraling downward – dragging with it stocks, bonds, CDs, mutual funds and the value of the U.S. dollar.

Sobering realities, but there alternatives for those seeking "true" wealth.

Certain investments are like good suits: They're worth hanging on to, even if they seem out of style. Since all "paper" investments require widespread public confidence, I say let's find the precious few that don't rely on confidence – and then hang on to them for the long term.

"True" wealth helps to repair torn confidence because:

1. True wealth stands the test of time (integrity).
2. True wealth never becomes a liability (growth).

Since the dawn of creation, gold has been held in the highest esteem as a store of value and a universal monetary substance in all civilizations. Why? Because gold represents financial integrity, solid growth and "real" money.

Gold is one of the few commonly respected values that has united mankind throughout the millennia – transcending race, religion and geography – a rarely noted, but significant fact in light of today's growing cultural convergence and emerging global economy.

"We have gold," Hoover said, "because we cannot trust government." It now appears, 70 years later, that we cannot trust Wall Street either. Therefore, "we have gold" ... and personal gold ownership helps to repair the torn fabric of our economic confidence.