We ask ourselves on daily basis...why are we broke? Why am I in debt? What can i do with my extra income? How do i get a job? Why does a movie ticket cost $10? It used to cost half that when i was younger. Whats all this talk about a recession? What is a recession? The media says its over. Is it?
Ah yes, alot of questions...but how can you wrap your mind around so many issues? The world just keeps getting tougher. It's not as easy as it was 25 years ago. To get the overall view we must start with a foundation.
Sometimes good advice comes from unexpected places.
"The world, the world is behind us
Once a motherfucker get an understanding on the game
and what the levels and the rules of the game is
Then the world ain't no trick no more
The world is a game to be played." Tupac Shakur.
To understand the fundamentals in the world of economics and personal finance we must start with the very fabric of our lives. I'm talking about money. Otherwise you're just navigating in the dark. Why money? What is it? Why do we use it? Is it necessary? And she says, "I just want that dress from J. Crew!"
We must start with some history.
Back in the beginning of time, man used a barter system (trade). A fisherman would trade his fish with a baker for his bread and so forth. However, this is ineffective because the baker doesn't need an attorney or a Pedicure everyday. Trading gets messy in a complex society. There has to be a median of exchange (money).
For the last 5,000 years man has used gold or silver as money. These metals could not be duplicated. This made it safe. Men could not make themselves instantly richer by creating gold out of thin air. Gold and silver had to be mined out of the ground. (this is very difficult to do and results are minimal.) People trusted this median of exchange (money) because it maintains its value. It is still accepted all over the world.Gold is the immutable standard. Gold's price never changes. Everything else changes in value when compared with gold.
The Federal Reserve system (informally known as the Fed) is the central banking system of the United States. It was created in 1913 with the enactment of the Federal Reserve Act. The Fed was created by bankers (think J.P. Morgan) for bankers. The Fed's head of the board of governors is appointed by the president of the United States.
The Fed issued paper currency that was redeemable in gold. Whenever you had a federal reserve note (dollar) you could go the bank and exchange it for gold if you wanted. This restored confidence in people that "the dollar was as good as gold". During the great depression the President FDR radically made gold illegal for citizens to own. His intent was to restore confidence in the dollar and give power back to the banking system. This did not last and the policy of redeeming one's dollars in gold was reinstated. At the end of WWII many countries got together and agreed on what was called the Bretton Woods system. This was a deal that maintained currency exchange rates (dollars for Swiss francs, or Swiss francs for pounds) within 1% of the price of gold. This meant that paper money was backed by gold once again and all trade in the world would be at a fair price and not with an inflatable currency. Countries could exchange their paper money in gold. This meant all was fair in the monetary world.
In the 1960's and early 1970's the United States was engaged in vicious war in Vietnam. The U.S. was running up huge debts and a trade deficit. Foreign countries began to worry about their return of payment. Multiple European countries such as France and Germany were demanding their paper money back in gold since they knew the U.S. gold vaults would be depleting. The gold vaults in the U.S. started to dry up. In the view of Neoclassical Economists and the Austrian School, 1971, represented the point where holders of the U.S. dollar lost faith in the U.S. government’s ability to cut its budget and trade deficits. Politicians did not have the courage to contain their spending. War and social security payments were more important. The president of the United States, Richard Nixon, had to make a choice.
"Because of the excess printed dollars, and the negative U.S. trade balance, other nations began demanding fulfillment of America’s “promise to pay” - that is, the redemption of their dollars for gold. Switzerland redeemed $50 million of paper for gold in July.[1] France, in particular, repeatedly made aggressive demands, and acquired $191 million in gold, further depleting the gold reserves of the U.S.[1] On August 15, 1971, the United States unilaterally terminated convertibility of the dollar to gold(Wikipedia).
From there on out the dollar was only backed by "the full faith and credit of the US government". This is called a non backed fiat monetary system. Paper money issued without any intrinsic backing. The Fed could now increase the money supply at will. Since then, the value of the US dollar has dropped by over 90%!!!!!
All fiat (government backed paper currency) money in the history of the world has failed.
Zimbabwe has a fiat money system. They currently issue a TRILLION dollar note.They are completely broke and in poverty.
Our founding fathers foresaw this and did not want this to happen. They included a provision against this in the constitution.
Is the government disobeying the US constitution? Sounds like it to me.
Please observe the charts below. This is what happens to the value of your hard earned money when it is not backed by a hard asset. The federal reserve prints more and more money as it seeks to pay off the enormous US governments debt. The Fed does not have to worry about giving up anything intrinsic in value. It just creates money on a computer screen.
This is a very powerful concept to understand when you marvel at prices as you go shopping.
Below we see the dollar index of the last 10 years.
Below we see the value of gold in US dollar terms for the last 10 years.
How high can gold go? Wrong question. How much value will the US dollar lose? Richard Russell
"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson to Edward Carrington, 1788. ME 7:36
Our parents often refer to the times when a hamburger cost 25 cents and an ice cream cone a nickel. What are the prices today? Much higher!
You might ask about the great prosperity of the last 30 years? Why were things so great yet we were on a non backed fiat monetary system. Its equivalent to going on a great vacation with only a credit card. It's all fun until you get the bill. The U.S. has enjoyed the luxury of being the worlds reserve currency. All trade is to be done in U.S. dollars. However, countries have recently been trading together with their own currencies. Their is a movement to get away from the U.S. dollar because of the manipulation and devaluation by the U.S. FED. (Brazil and China recently announced this agreement)
Just looking at the last 10 years you can see the rapid devaluation. I hope all of you are getting significant raises at your jobs to help you compete with this devaluation. Unfortunately, wages are the last thing to go up when inflation (increase in money supply) is happening. The common person is the one who suffers. The hard working young adults pay dearly while politicians and FED empower themselves.
Surely this is corrupt? It can't be true. Todd are you just blabbing BS? Just look at the charts.
You think its different for the USA? The mighty USA. The great life we've all lived. Could the charts be singing a different tune?
Lets say a man works his entire life through hard sweat and labor and accumulates maybe 1 million dollars. Is it moral that the FED can create BILLIONS of dollars with a flick of a switch? I don't like it.There is surely something wrong with that picture?
But why should you guys care? Do you just want to accept being poor? Shall we accept being duped by others? Why do a pair of shoes cost hundreds of dollars?
There are many ways to protect yourself from being just another broke citizen under government control. We will go over ways to protect oneself in future blogs.
You are not free when you are always swimming upstream.
I went to Jeanine's Bakery the other day and found out a sugar cookie cost $3.99!!! Ha! what a joke! But I don't blame Jeanine's.
I'll talk more about freedom, hard money, and shopping in the next blog.
Signing off for now.
Todd
I might post random comments sometimes. Like this -
For the last 5 years the big thing in California is to install turf fields at football and soccer centers. Owners see it as a big up front cost but as a cost savings down the road as maintenance is not as costly. Professionals such as David Beckham have criticized these plastic pitches for being tough on your joints and not fit for traditional futbol.
I have to agree with Becks on this one. I prefer natural grass. But nicely groomed natural grass...not the crap they make our youths play on every weekend at our local schools.
My soccer season has started up. I'm ready to go. Hopefully the Islanders will take the league this year!
I went to Tennessee the other week. Ah a different life. I went to the bars in downtown Nashville, listened to country music, ate at a waffle house, went to the country music hall of fame. I also shot a .38 caliber handgun at a shooting range. Those hand guns are not very accurate! Or maybe I'm just a terrible shot? I'm not a redneck but sometimes its the simple things that fire me up!
SB is getting hotter by the day. Crazy weather this year. Fog, rain, random steaming hot days, wind, etc. There is no method to the madness. Oh well...like they say...you cant do nothing about the weather.
Nice stuff Todd. I say we take that .38 back out and work on your shot and prepare for hyperinflation.
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