For a while now I have been concerned about the very bleak and dire situation we in America are in economically. There are many who think that a recovery is on its way and that we just need to “grease the wheels'” of the economy by adding more credit and things will go back to how they were before. First of all it is my belief that things will never again be like they are today. America has had it’s day in the sun and now that sun is setting as we have spent away our future thanks to easy credit. We are a nation with a very large debt burden that we cannot repay. We make up a large portion of the worlds economic output, but as far as population goes we make up a much smaller portion.
What happens when a person cannot be repay their debts? They go bankrupt. What happens when a nation cannot repay its debts? It goes bankrupt. What happens when a nation that is bankrupt can print money? It tends to print more. This is where the danger lies. Up until the seventies our currency could be redeemed internationally for gold. If a country had one million dollars they effectively had one million dollars in gold and that one million dollars could be exchanged for that amount of gold. In the seventies we printed too much money and were unable to continue to exchange gold for dollars so the the international gold standard was eliminated.
Fast forward to the 2008 crash in the stock market. The stock market lost a significant portion of its value and many have suffered greatly. Many joke about how their 401K is now a 200.5K and in many cases that is correct and I’m sure some wish they were so lucky. The question what remains for the future?
The truth is the real crash has yet to come. In other words, the stock market crash was only a precursor to something much bigger and more severe. What we have to fear most is the collapse of our currency the US Dollar. I believe the collapse of our currency will cause a depression so severe that they will rename the Great Depression to something like The First Depression. Our depression will be far more severe because unlike the Great Depression what dollars we do have will be worth far less than they are today due to inflation.
To briefly explain, inflation is the expansion of the supply of currency. This is generally followed by higher prices. To illustrate, let’s say you live in a town where there are ten farmers and one new tractor for sale. One day two of the farmers’ tractors break down and so they go to buy new ones. If each farmer has $10,000 then the maximum possible price each farmer could possibly pay would be $10,000. Now if each farmer has $1,000,000 then the tractors could easily go for $50,000 or $100,000 or maybe even $500,000. So you see prices are affected by how much currency people have, so the more currency people have the more likely it is that prices increase. Now think about the trillions of dollars the government making available.
Often I have trouble communicating with others what the next decade or so will be like, because it is hard to imagine a life other than what we live today. The other day I came across a blog post that I thought provided a pretty clear explanation of what is likely to be in our future. I believe that most if not all of what is said is very likely to occur, so hopefully you are prepared for what lies ahead.
The Worst Case Scenario (Someone Has to Say It)
To conclude I would just like to say that there is hope for a better future. There is much pain we must endure for our past choices and this cannot be avoided, but we can look to make the changes necessary in our own lives so that a similar situation will be avoided in the future. Hopefully we will return to prudence and save for the things we desire.
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