Are We Headed for a Financial Collapse?

On my recent trips around town I’ve seen four beggars with signs asking for help and four others wearing costumes, a tiger, and a bunny, a Statue of Liberty and a “Disco Stu” (Simpson’s character) all waving signs promoting businesses. Two of those businesses were places to sell gold. So, have we become a nation of beggars? When I spoke about this with an acquaintance their response was “At least they have jobs”, well now there’s a way to secure your place in the economy, make a few bucks under the table waving a sign, I wonder what the benefits are?
During the Great Depression social programs were enacted to alleviate some of the worst effects of the Depression, Social Security, Welfare, Food Stamps, Unemployment, there is a long list of programs designed to help people that would be standing on soup lines without these programs. Now there is a political movement trying to dismantle these programs little by little and to get rid of unions too. The unions have helped all of us secure a 40 hour week and get various benefits just to keep the unions out.  I wonder if we really want to turn back the clock to a time when people had to beg to get by, for most of the population there are just a few paychecks between them and a beggar with a sign, “Will Work For Food” How bad do things have to get before we realize that yes we are our brother’s keeper.

In 1681 King Charles II gave a charter to Pennsylvania to the Penn family. The Penn family could and did over ride the legislature of Pennsylvania and so there were conflicts. In 1757 Benjamin Franklin was sent to London to the Court of St. James, to represent the people of Pennsylvania in a case against the Penn family. The Penn family won.

During the 1750s, long before our Revolution, the Colonies were a very prosperous place, there was an abundance of opportunities and resources and poverty was almost unknown. When Franklin got to England he was astonished to see the level of poverty. There was hunger and beggars in the streets, the poor houses were full and people were being arrested for not paying their bills. Franklin was asked how the Colonies found enough money to support the poor houses. He responded “We have no poor houses in the Colonies; and if we had some, there would be nobody to put in them, since there is, in the Colonies, not a single unemployed person, neither beggars nor tramps.” How far we have come to be dressed like “Disco Stu”

Franklin’s claim was pretty remarkable and he was asked how the colonies got to be so prosperous. He replied “That is simple. In the Colonies, we issue our own paper money. It is called ‘Colonial Scrip.’ We issue it in proper proportion to make the goods pass easily from the producers to the consumers. In this manner, creating ourselves our own paper money, we control its purchasing power and we have no interest to pay to no one.” When London’s bankers heard of this they had their pals in the Parliament outlaw the use of Colonial Scrip and use only the Gold and Silver money that was provided by the Crown in adequate amounts. Soon the Colonies were experiencing poverty because there was not enough money to go around. This according to Franklin was the original cause for the Revolution, not the tax on tea or the Stamp Act. This points out the problem with using silver and gold as the only currency, there’s just not enough to go around.

The government tried twice to start National Banks during the 18^th and 19^th centuries and both times the government ended the attempt. Finally the Federal Reserve was created in 1913, as a response to recurring financial panics. The Fed is run by un-elected bank presidents. The Fed does work under the authority of Congress and the President does appoint the Board of Governors, but they are independent within the government. No one has to approve the actions they take. To put it simply our money is controlled by a bunch of bankers not our elected officials.

The Federal Reserve (The Fed) controls the money supply. Back in the 70s Richard Nixon decoupled our money from a gold reserve, so now the only thing the dollar in your wallet is worth is faith in the Federal Government and the Federal Reserve.

When the government needs more money than has been taken in through taxes certain steps have to be followed, first Congress has to approve raising the allowed debt ceiling, once that is done the government issues a bond that borrows money from future taxes, when the Federal Reserve buys these bonds they can issue new money just by adding amounts to the government's bank account, no cash needed. Money from nothing!

For years Social Security has been collecting more in taxes than it has been paying out, this extra money has been spent buying the government’s debt. When someone tells you that Social Security is going broke they don’t know what they’re talking about. The truth is that the government owes Social Security about 2.5 trillion dollars. Starting in 2015, and from then on, Social Security will be paying out more in benefits than it is receiving in taxes. That’s when they will start taking back the money they have been lending the government all these years. It’s not until 2037 that that money will start running out, that’s right Social Security is Solvent until 2037!  
On January 31^st 2011 the government had an outstanding debt of 14.13 TRILLION Dollars; this is 96.6% of the gross domestic output for one year. In spite of what the demagogues will tell you, the sky is not falling and the nation has survived a much higher level of debt in the past. After WWII the government owed 120% of one year’s domestic output.
The cost of the war in Iraq has been estimated to be as high as 3 trillion dollars but true numbers are difficult to come by. Suffice it to say that while the government was cutting taxes during war time the government was borrowing money, hand over fist. All of this was during a fiscally responsible Republican administration. Then the economy tanked and before leaving office President Bush borrowed 700 Billion dollars for the Troubled Asset Relief Program. President Bush spent half of those funds and when President Obama came into office he spent the remaining 350 billion and asked for more. Bailing out the wealthy, while simultaneously giving tax breaks and running a war is going to cost your kids a lot of money someday.  This money is going to come out of their standard of living. Thanks Mom and Dad.

When any government pumps money into an economy the result is inflation, there is more money available so the existing money is worth less. So far The Fed has been manipulating the amount of inflation by keeping interest rates low and of course the government helps by not counting food and energy when they figure out the rate of inflation. The stuff we buy everyday doesn’t affect the inflation rate! How convenient for the politicians but if you’re on Social Security there will be no increase no matter how high the price of food goes.
After WWI the victorious allies imposed punishing debts on Germany. Germany was in a position where they couldn’t pay their debts. They responded by printing lots of money, this is hyperinflation, their mistake was that they had nothing to back up their debt; that is unlike us because we back the debt by charging it to the kids. I am really glad I don’t have any children to have to face.

Since the posted inflation rate is just a fraud, what can you do to protect your savings?  If you believe that hyperinflation is going to take place then literally anything you can buy that is not perishable is better than having cash in the bank. In Weimar Germany people had to spend money as soon as it was earned because it would lose value in a matter of hours. People ended up literally bringing a wheelbarrow of currency to buy a loaf of bread. In cold weather it was cheaper to burn currency than it was to buy firewood. With so much of our money being electronic, just a decimal point on a ledger, we can’t even burn our money to keep warm.
So, what can you do to protect your savings? I’m not a financial advisor so I can offer nothing but what I have seen.
A few years ago I heard of a fellow named Jason Hommel and visited his website, Jason has been predicting the rise of silver and gold prices for a long time and all it takes is a look at the price of silver to see that he has been making some good predictions. Since I started watching Hommel and the prices of gold and silver those prices have skyrocketed.

If history is any guide we will weather this storm and emerge a little poorer and a little wiser.
Your children will not enjoy the same standard of living that you do as they struggle to pay for your tax cuts.
Many will struggle to pay their bills and some will end up destitute when they can’t pay medical bills.
Some will be denied access to “the best health care system in the world” because they can’t afford insurance.
Whatever the big corporations want will become law and if they screw up we will bail them out.
Corporations already have the freedom to try to buy elections, so when you make a purchase you are supporting the company’s political activism.
But, eventually, people will stand up for their rights and curb the power of the corporations and start the cycle all over again.