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- Our stock market bubble financial system is on borrowed time…
- Prepare for the worst now, and you’ll see the silver lining (and find the pot of gold) when the storm hits…
- History tells us to expect these three possible outcomes (spoiler: they’re all bad)…
A few weeks ago, I celebrated the birth of the fake dollar with a tweet:
Some people ask why I talk about that date so much. My answer is simple: That one day changed the course of the economy forever. There’s no turning back.
It’s the day in U.S. history that you can point to and say this is why we have so much debt…
It’s why today, savers are losers.
And if you look through the lens of the past you can better see the future.
The Dollar Is an IOU
Rich dad explained to me that our currency isn’t an instrument of equity but instead an instrument of debt. Every dollar used to be backed by gold or silver.
Today, every dollar is an IOU guaranteed to be paid by the taxpayers of the issuing country. As long as the world has confidence in the American taxpayer to work and pay for this IOU called money, the world has confidence in our dollar. If the key element of confidence suddenly disappears, the economy comes down like a house of cards.
When the Federal Reserve was created in 1913, a deal was cut between the bank and the U.S. Treasury — a government-sponsored cash heist. Without a solid understanding of history and how money is created, true financial education is not possible.
To simply say to a child, “Get a job, save money, buy a house, and invest for the long term in a well-diversified portfolio of stocks, bonds, and mutual funds” is a script right out of the central banker’s operating manual. It is a success myth propagated by the super-rich.
When it comes to the global economic game of chicken, who are the winners and losers?
In the case of IOU money, as confidence in the dollar is lost, the value of the dollar goes down. It takes more money to buy the same things. In that scenario, savers are losers. Those that follow the old advice to go to school, get a job, save your money, buy a house, and invest in a diversified portfolio of stocks, bonds, and mutual funds are losers.
In short, those who follow traditional investing advice are losers.
The winners are those who understand how debt and money work in today’s world. Those who invest in assets that they can control and that go up in value with inflation, and those who invest for cash flow, are the ones that win.
Those who are financially educated and able to technically trade on the volatility of the markets win.
In short, those who follow the new rules of money are winners.
When President Nixon severed the U.S. dollar from the gold standard in 1971, the United States no longer needed gold, silver, gems, or anything else in its vaults to create money.
Technically, before 1971, the U.S. dollar was a derivative of gold. After 1971, the U.S. dollar became a derivative of debt. Severing the dollar from gold was bank robbery of ungodly proportions.
Fiat money is simply money backed by the government’s good faith and credit. If anyone messes with the government and central bank’s monopoly on money, the government has the power to put that group or person in jail for fraud and counterfeiting.
Fiat money means all bills payable to the government, such as taxes, must be paid in that nation’s currency. You cannot pay your taxes with chickens or Bitcoin.
I have one final point about history. The Founding Fathers opposed central banks like the Federal Reserve.
President George Washington experienced the pain of government-made money when he had to pay his troops with the continental, a currency that eventually went to its true value — zero. Thomas Jefferson adamantly opposed the creation of a central bank.
Yet today central banks control the financial world, and we’ve granted them the power to solve our financial crisis for us, the very crisis they helped create.
Simply said, a central bank can create money out of nothing and then charge us interest on money it did not earn. That interest is paid via taxes, inflation.
The policies of the Fed aren’t abstract realities. They are powerful actions that determine your financial well-being in both open and hidden ways.
Anyone who purchases a home knows that for the first years most of your mortgage payment goes to the bank to pay down interest, and that very little goes toward reducing the principal. The bank effectively receives interest payments for money it did not earn but rather created out of thin air.
Storm Clouds Ahead
By preparing for bad times you have a better chance of seeing the silver lining when storm clouds gather, and a better chance of finding a pot of gold at the end of the rainbow.
This graph shows all the base money (coins, paper money, and bank reserves) in circulation since 1913, the year the Federal Reserve was created.
It took 84 years, from 1913 to 2007, to put $825 billion in circulation.
Look at what happened to the dollar supply after 1971. It began to climb at an accelerated rate. You may also notice that since 2007, the year the subprime mess rocked the world, the Fed has essentially doubled the previous 84 years’ worth of currency supply, increasing the base money in circulation to roughly $1,700 billion.
What do you think this graph means to you and your family? Some possibilities I see are:
- Hyperinflation: This means prices of essential items such as food and energy will increase at unheard-of rates. This will be devastating to lower- and middle-income families.
- All countries will probably be forced to print money: Because the United States is printing money, all other countries will probably have to print money. If other countries don’t print, then their countries’ currency will become too strong against the dollar, and exports to the United States will slow down, causing a slowdown in the exporting country’s economy. This probably means inflation in every country that trades with the United States.
- An increased cost of living: People who earn money from paychecks will find it harder to survive because higher prices will eat up more of their income.
As I write this, I believe we are merely in the eye of the storm, and the worst is yet to come. All because of one day, 50 years ago.
Play it smart,