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Successful Homesteading, Issue # 19, Financial Armageddon and how to prepare for it
October 16, 2009
Issue #019, October 16, 2009
It's my hope this letter will help you survive in the coming months. I am convinced we are headed toward a financial Armageddon in the United States, a total collapse of our currency. You won't hear this from the mainstream media or the government because they know that the more you believe in our currency, the longer it will remain stable. But your blind faith could cost you in horrendous ways.
I recently ran across one of the best explanations about this that I've seen from John Williams with ShadowStats.com. Williams has been a consulting economist for 25 years. Although you can see the full version here, I have written a summary on why he believes - and I agree - that a financial Armageddon looms:
Less is MoreThe less there is of something, the more valuable it is. That's why gold and silver have always been desired and used as money for centuries. Not only are precious metals pretty, they're also limited and you can't make them. But gold and silver are heavy, and hard to carry around. Plus, if you get robbed, you're bankrupt. So everyone started putting their gold and silver pieces in the bank and got currency notes in their place. The notes were an easier and presumably safer way to buy things.
That's how our own currency came about. We had gold and silver at Fort Knox, and if you held an American dollar that meant you had the equivalent of an ounce of silver. If you had a twenty dollar bill that meant you owned the equivalent of a little less than an ounce of gold. Believe it or not, our currency retained that value (and prices of gold and silver remained basically the same with a few variations) for more than 140 years, from 1792 until 1935, as long as we stayed on the gold standard.
The Fiat SystemThings changed with the Great Depression. No one had jobs, which meant no one had the money to buy anything, causing even less business and less jobs. So Franklin Roosevelt got us off the gold standard and into a Fiat system, which meant he just printed money without any gold or silver on hand to back it. Then he used that "money" to create a ton of jobs through the WPA program. It worked, at least back then. But the dollar lost value and prices shot up and have continued climbing ever since.
Using Fiat currency is a bit like writing a hot check and hoping the guy who gets it doesn't cash it until your next paycheck comes in. The money doesn't hold value unless people believe in it. A Fiat currency system is always dangerous because eventually, whoever is in charge gets greedy and starts printing a whole lot more currency than there is actual gold on hand for personal use. The more money they print up, the less valuable it becomes, and eventually, the currency becomes worthless.
Corruption in CongressIn our case, Congress was the greedy culprit. Washington lawmakers spent - and continue to spend - so much money on government programs that we are now buried in a pile of debt that couldn't be paid off even if Uncle Sam seized every penny we made in this country, including wages, salaries and corporate profits. And by the way, that total doesn't include Social Security and Medicare obligations. Those two programs alone cost more than our government brings in through taxes each year.
To pay for all this rampant spending, Congress has taken loans from other countries in the form of Treasury notes sold to foreign investors. They're not using that loan money to pay off the debt mind you; they're just using it to make the minimum interest payments. Unfortunately, foreign investors are going to wise up eventually and quit investing in the dollar. Asking foreign investors to pay our debt is a bit like that deadbeat cousin coming to you asking for a loan one too many times. Why waste good Euros on a dollar that is essentially worthless?
When that happens, our government will no longer have money to pay all that interest we owe on all those loans. They'll have to pay that debt by printing even more money and making the dollar far more worthless.
By the way, this is the same thing that happened in Germany during the thirties. By the time it was all over, the German mark was more useful as toilet paper than as currency.
Possible Here?Not only is the same scenario possible here, but it has the potential to be far, far worse. For one thing, we've shipped most of our manufacturing overseas, meaning all those great jobs are going to foreigners. Plus, as I write this, our Congress is on the verge of passing a health reform bill we can't even begin to afford. The only way our government will be able to pay for all that is by - you guessed it - printing more money.
So What Will Happen?First of all, we'll all run out of cash - literally. There's just not enough currency printed up to cover skyrocketing prices. Most of our currency is overseas. We only have about $200 billion in cash here for the 304 million people living in the U.S. That's $690 per person. Not a problem, as long as prices remain the same. But if in a short amount of time the price of a loaf of bread shoots up to $100 per loaf, it's going to be tough to buy enough groceries to feed a family of four for a week.
Big Deal! I Can Write a Check,
That's assuming you have enough in your checking account. Most people are barely making enough to pay for rising grocery costs now, let alone enough if prices skyrocket.
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