THE RISE & DEMISE OF THE U.S. DOLLAR (2/2)
THE SQUEEZE FELT BY CONSUMERS
Remember, when a chocolate bar costs a quarter, you could fill your car up for $5 and feed a family of six for $35 a week. Whatever happened to those days? Without anything tangible backing currencies, governments could borrow and print as much currency as they wanted, gradually eroding the value of our currency.
The creation of all this money dilutes the value of all of the dollars in circulation so that the Dollar’s purchasing power declines, and where we used to be able to buy a gallon of gas for 31 cents is now around $5.
The average person is significantly affected by inflation because of the loss of purchasing power; consequently, his living standard declines if he can’t keep up with the inflation rate.
Measures of standard American living are much worse today as oppose to the time of our grandparents. Many examples can be found in a society where an ordinary worker without any higher education could support a large family and own a home. Imagine being that person today. It would be challenging even to support oneself, let alone a family and a home.
With inflation rising faster than incomes, people were forced into more and more drastic measures to maintain their standard of living.
Before going off the gold standard, the husband went to work, the wife stayed at home and raised the family, but because of inflation in the 70s, the wife went to work. So now you had two incomes that were necessary to produce and buy the same goods and services. In the 90s, we stopped saving. The savings rate dropped to zero because people were spending. They could not save to buy the same goods and services. Then we arrived at the last decade. The wife was already working, and the savings were down to zero so, they borrowed money. Hence, we’ve gone from two earners, getting rid of our savings, to borrowing money to keep pace with inflation.
The average person is now forced to borrow well beyond their means, getting themselves deeper into debt. At first, this was to maintain a decent standard of living, but slowly it has become necessary just to survive by printing so much currency and devaluing it so heavily. It would seem that governments are essentially levying a hidden tax on their people.
Central Banks say that 2% or 3% inflation is a good thing, making that a target. What is still a tax? Why is 2% inflation or 3% inflation better for the country than no inflation? You will be told, of course, that’s better than deflation. And you’ll be told that people like to feel that their money or their jobs or their wages are going up by 2%. At least it’s something where 2% is robbery, and what they get is going down by that amount.
We are experiencing inflation these days. CPI is reported to be around 2–3%, but anybody who’s can see that the inflation is well beyond that. It is probably running double digits.
WHAT IS INFLATION AND ITS CAUSES?
The purchasing power of the average person has been deteriorating drastically. But to disguise this, governments have been skewing the figures in their reports to make it seem as if inflation is much lower than it is.
This curious distinction made, which most people don’t understand, between core inflation and headline inflation. The core inflation is there’s a basic 2% target, which doesn’t matter. And the headline inflation is once you include all such things as energy prices, sudden tax rises, and the rest.
The inflation rate is skewed. They use all kinds of contrivances to make the inflation rate look lower than what it is. If the U.S. government were using the same CPI model as when President Carter was in the White House in the late 1970s, the inflationary today in the United States would be nine or 10%. That’s how badly the currency is being debased. The reason why they do that is there a lot of inflation-adjusted responsibilities that the U.S. government has to pay out money to, for example, people on the Social Security system on an inflation-adjusted basis, if they keep the inflation rate low according to their statistics, that means they’re paying out less that means the government budget deficit is less.
In a global economy where currencies are measured only against each other, countries can artificially lower the value of their own currency, making their industries more competitive. A country with a weak currency can make products cheaper, causing entire industrial centers to move overseas. This effect has been seen countless times in cities around the world, some of which still haven’t recovered from the loss of their industrial base.
Let’s take an example of the average person and how he is extremely frustrated by his situation today. He thinks about how he went to college and does not have a job, can’t get a job. He has spent all this money and accrued student loans, costing him more every day due to the interest rates. The FED tells him that there is no inflation, yet he goes to the store and sees the price of milk, eggs, meat going up. Gas stations have also raised prices. Although all this is visible to the common person, he doesn’t understand why all this is happening. Therefore, he gets frustrated because he does not understand that when you print money without anything backing it and when you debase the currency, you will encounter the side effects such as higher inflation cost, corruption, cronyism, and everything we have seen in the headlines over the last four or five years.
WALL STREET PROTEST
The protest movements are an interesting phenomenon. Many people are upset with Wall Street because of what’s happening to their purchasing power. They’re upset with the news that the executives of these giant banks are getting multimillion-dollar bonuses, and simultaneously, they are robbing taxpayers’ pockets to get all this bailout money. This has infuriated the common man. Unfortunately, they are demonstrating against the economic crisis, and yet at the same time, they’re demanding more welfare, more medical benefits, more state control and regulation of their lives. They are demanding more money being created and pumped into society. Sadly, they don’t realize that these are the exact reasons that brought them onto the street to protest in the first place.
Banks are no longer willing to give out credit so freely, and many people are more concerned with paying off existing debt instead of taking on new debt. While this is prudent, sensible behavior, it’s also a serious threat to the global economy. Having set itself up as a giant Ponzi scheme, the global economy relies on more considerable debt being issued to keep itself functioning.
Trying to just live within our means and get by with just the amount of dollars we have today, paying the interest on these dollars collapses the currency supply. Therefore, we continually have to borrow more units of currency into existence every month. In the present financial system structure, we have to continue expanding the money supply; otherwise, the system will cease to exist.
Politicians and pundits speak of living within our means and paying down the debt. However, one cannot do that without collapsing the entire economy. If they do not come to the rescue, the politicians are in a situation where we could just have an overnight shutdown, which they can’t ever imagine happening while they’re in power. So, there is always this wish to move it on to the next politician in power, or as the expression goes, kick the can down the road. However, we have run out of the road, and the ‘can’ cannot be kicked any further because, with every kick, the can gets larger, and it has become enormous and will crush the economy unless we deal with it sensibly.
While the financial crisis of 2008 may have been the first death throes of the Ponzi scheme, governments around the world weren’t about to sit back and let it fail. So, they delayed the inevitable collapse, pushing it down the road by bailing out struggling financial institutions, buying toxic mortgages, and taking on debt on behalf of its citizens.
THE SHADY AND WASTEFUL ECONOMIC PRACTICES
Governments bought their way out of these crises by creating money out of thin air and flooding it into the economy, diluting the purchasing power. By doing this, they did not solve the problem but just pushed it further into the future, hence making the problem exponentially worse.
Now, do we keep going down this road? Do we keep printing more money? During the 2008 crisis, the Fed balance sheet expanded massively to about $800 billion; however, in response to the COVID-19 pandemic that we currently face, the balance sheet is up to greater than $10 trillion in the 1st quarter of 2021. The United States government has already provided multiple stimuli to keep the economy afloat, and these trillions of dollars have been printed out of thin air, yet again. Eventually, a point will come when people will lose faith in the currency entirely, and the U.S. Dollar will come crashing down.
Apart from causing enormous inflation, the Federal Reserve’s reckless money printing exercises also run the genuine risk of creating a worldwide loss of confidence in the U.S. dollar. We may see an extremely rapid decline in the value of the Dollar. Possibly in a matter of days, and people who have been buying Dollar as a safe haven in these uncertain times, would not feel it as a safe investment anymore. They will need an alternate safe haven to protect them from the losses of the Dollar.
At some point, people and the central banks around the world will start to wake up to the reality of the Dollar Ponzi scheme and start dumping the Dollar, which will lead to the implosion of the whole system. We already see this happen in countries like China and Russia. “We need to reduce sanctions risks by bolstering our technological independence, by switching to payments in our national currencies and global currencies that serve as an alternative to the Dollar. We need to move away from using international payment systems controlled by the West.” Sergei Lavrov, Russian Foreign Minister, said during a visit to China in March 2021.
But of course, when the Fed becomes the only buyer of the U.S. Dollar, that’s the end game or be the beginning of the hyperinflation.
What is Hyperinflation?
Hyperinflation is a rapid increase in the inflation rate. It occurs when the government spends so much money forcing it to borrow, it gets to the stage where it’s borrowing more money than the market is willing to lend. The central bank then steps in and turns that government debt into currency. So much so that people lose faith in the currency.
The Great question, and no one can know the answer to this question, is that at what level of inflation 5% 10% 15% 20% should we start to panic. What is certain is that when that level of inflation comes, everyone will panic together, causing a massive implosion of the currency value. The consequences of hyperinflation are that the price of goods and services rises extremely rapidly, which feeds upon itself getting stuck in a feedback loop, causing people to get rid of the currency even more quickly. People buy things with that currency that can hold significant value or simply hedge their investments into safer assets. This paradoxically accelerates the demand for paper money to be used to purchase these safe haven goods. Thus, the value of paper money further collapses.
People start buying tangible things in excess because they foresee the price of these things increasing in the near future due to the devaluation of the currency.
The United States has a large retirement community, but unfortunately, due to the upcoming collapse of the economy, they will have to get back to work. A typical retiree earns about $800-$900 a month from social security if they do not have any other means of income such as 401K and other savings. This is not enough to make ends meet, especially with the declining value of the currency and rising prices of goods and necessities. The real estate industry will also suffer because paying rent or making repairs requires a large amount of money, but it would be extremely hard for these retired individuals to have a good quality of life.
The example of the 2008 crisis is clearly in front of us when there was a massive real estate crash, and homelessness went awry due to these individuals not being able to afford rent or mortgages. It’s a hard choice to make between spending money on living necessities and rent/mortgage. If there are no jobs or people have been laid off due to downsizing, how will they pay the taxes? So, the whole economy is going to crumble beneath the weight of this run-away inflation, and of course, the initial reaction by the Fed will be to create even more inflation, to try to stimulate the economy by printing even more money, which of course is the source of the problem.
It would appear that this is a problem facing the United States alone, but with so many countries holding their savings in U.S. government bonds, a loss of confidence in the U.S. dollar could trigger a global crisis, which would affect every nation on Earth just as it did in 2008.
If the U.S. dollar hyper-inflates, the implications are profound. One can take the case study of hyperinflation in Venezuela or Zimbabwe, where multiple kilos of paper money is required to purchase a toilet paper roll. These are minor currencies, to begin with, but if hyperinflation hits the U.S. Dollar, the world reserve currency, it will indeed cause severe economic crashes around the world.
The only real solution is to go back to a real sound, currency. Real Money with something behind it. It does not have to be gold or silver. But historically, that has always been what societies have chosen through trial and error. They’ve tried multiple assets but always ended up with gold or silver. Going back to the gold standard would likely stabilize the world economic system.
With all the uncertainty facing the world today, returning to a gold-backed economy would seem logical. But why is there no conversation around this topic? The answer is as simple as it is alarming. The people at the top, the ones who have been benefiting from the current Ponzi system, do not want this system to end. Many now believe the price of gold and silver has been artificially suppressed to make it seem less desirable as a unit of Global Exchange.
Groups like the gold antitrust action committee have been tracking what they believe is the deliberate suppression of gold and silver prices through various dubious means.
There are numerous methods they use to suppress the price of gold. Some are harder to prove than others. But some of them are fully reported.
Between 1999 and 2002, the Bank of England sold a massive amount of Britain’s gold reserves at an average price of $275 an ounce. The proceeds were spent buying euros and U.S. dollars. The governments of Canada, France, and Switzerland, among others, also sold massive amounts of gold at this time. They were selling nearly 400 tons of gold every year. This was a coordinated effort to suppress the price of gold and show the world that these currencies are a much better investment.
Alan Greenspan, an American economist who served five terms as the 13th Chair of the Federal Reserve of the United States from 1987 to 2006, in testimony to Congress, admitted that they were manipulating the price of gold when he said the world’s central banks stand ready to sell gold in increasing quantities should the price of gold rise. This meant that the target was to suppress the price of gold.
Although central banks can sell off their country’s gold holdings legally, they may have also been suppressing the price of gold using some other rather questionable means. Some investigators believe that Western central banks have been loaning their country’s gold to bullion banks. A bullion bank is an institution that sells gold intending to repurchase it sometime in the future at a cheaper price. With the proceeds of this sale, these banks have been known to buy us government bonds. While this isn’t a problem in itself, central banks report the gold they have and the gold they’ve loaned to these bullion banks as one item. So while a central bank may claim it has a certain amount of gold and reserves, much of that gold may be on loan to a bullion bank, which may have sold the gold in exchange for government bonds.
A few years ago, the U.S. Treasury changed the way they account for gold. They started counting for some of their receivables and their inventory as one item. In other words, they started accounting for the gold they actually have and what people owe them as the same thing. This is illegal and fraudulent accounting practice.
Questions arise, why work so hard to keep the price of gold and silver low? Why do healthy gold and silver prices threaten to collapse the Ponzi scheme?
There is a competitive relationship between gold and national currencies because gold is the only competitor to a national currency, and gold is real money. These national currencies are money substitutes that circulate in place of gold. Fiat money gives power to the government. Real money keeps the power with the people. Because when you have real money, the government is limited. It can only spend what it taxes, and the public will resist taxation. But if the government can simply print and borrow at will, there is a lot less resistance, so it is much easier for the government to grow when it can promise something for nothing, and this is why they have this behavior.
Gold is what protects the people from the reckless policies of the government. So gold is an enemy of big government, but it is a friend of freedom. It’s a protector of individuals from the government. Gold is a competitor to the Dollar, and at high prices, it is an inflation threat. Therefore, the U.S. government has significant interests from Wall Street and the politicians to keep the price suppressed. Gold in the hands of people is the way you control government.
Governments cannot create money out of thin air if the money is gold. However, they can create paper out of thin air. If they can create paper out of thin air, they can use that paper to wage wars or use that paper as a political device to enrich their friends. Consequently, governments have been fighting gold for a very long time.
Recent instability in the markets due to the pandemic and other economic situations around the world has caused the price of gold and silver to increase rapidly. This has further exposed a deeper problem within the central banks of the world. Central banks have sold massive amounts of gold and silver to keep the price suppressed, but now they are embarrassed because they are not the large holders of gold and are now keen buyers instead of the original cartels.
The suppression of the price of gold by the Western central banks takes place by selling or loaning the gold to other countries. However, the physical gold does not leave the vaults, so there is no way to determine if the central bank is selling or loaning more gold than they actually have in reserve. If true, this could be one of the biggest scams ever perpetrated in history, not by individuals but by entire governments. The question remains, if everybody, especially the large holders, wanted all their gold delivered at the same time, it would be a physical impossibility. For most of the gold that exists globally, there is more than one claim on each ounce. If you do not hold your gold, it is just the same as not owning it. This charade cannot go on forever, and one day there will be countries who would want their gold delivered, which is already happening.
The lack of accountability in gold sales by Western central banks hasn’t been a concern so far. But as more and more buyers of gold have started to demand physical delivery, central banks that have oversold or loaned out their country’s gold will find themselves caught in a major scandal. The result of such fraudulent activity means buyers of gold, be they individuals’ pension or hedge funds, or even entire nations, could be ripped off for billions of dollars.
Even with cracks forming in the current financial system, the only solutions offered by governments are, in fact, just more steps down the road to disaster. But while a single person may not be able to save the world, there is still something you can do to protect your family and yourself.
You cannot turn to a Ponzi scheme actor and ask him to run an honest business because he does not know how. So, you can’t turn to all of these Ponzi scheme actors in government who are inflating the currency and say, well, let’s solve the crisis in some other way. They don’t know how. So, the solution is to quit depending on the same people with the same mentality to solve our problems. If the government does not return to the gold standard, individuals can return to the gold standard themselves. One can start preparing for the subsequent economic collapse by investing in precious metals like gold and silver and further look into other new and emerging asset classes like digital assets.
Digital Assets: A Multi-trillion Dollar Asset Class
The world is changing rapidly, and the emergence of the new asset class is being created in front of our eyes. Imagine being allowed to go back during the dot-com era and invest in Google, Amazon, Microsoft, and Apple for pennies on the Dollar. The current push towards a digital economy and financial system is creating that opportunity for the modern investor. Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Cardano (ADA), and so many other projects have been launched on the Blockchain, and each provides a solution to financial problems that we currently face. Furthermore, these are deflationary assets, which means a finite number of coins are available, and they simply cannot be created or printed out of thin air. The current financial system may be dying. But where there is chaos, there is also opportunity. As the old model falls apart, the door may be opened for great prosperity.