In our faith-based economy, the value of the dollar is not tied to any real, solid thing. It hasn't been, in any meaningful way since 1933, when President Franklin D. Roosevelt took the nation off of the gold standard. The dollar is fiat money, supported by nothing more than the faith that those that accept it in payment have in it, the belief that they can, in turn, exchange it for the good and services that they want to purchase. The problem looming on the American horizon is that those holding a huge portion of dollars, including nations like China, are beginning to lose faith and are starting to convert their dollars, which fall in value every time the printing presses spit out more, into gold and more stable currencies. Like their government, many US citizens are also drowning in debt. Owing mortgages and carrying heavy consumer debt burdens, these citizens stand to be financially devastated by a loss of faith in the dollar that further decreases its buying power.
Understanding The Dangers Of Fiat Money
Fiat money is risky business, as the government is no longer restrained by actually having to have a solid asset to back up the worth of the currency. Today's practice of monetizing debt, by selling debt instruments -- and we can all see how well that is working for the mortgage and lending industries and their investors – and the ability of the government to simply have money printed up when all else fails, places every dollar at risk of losing its value, or more plainly put, its purchasing power.
With a debt of over $9 trillion, which as been rising at more than a billion dollars per day since September of 2006, it only stands to reason that at some point, lenders are going to lose faith in the ability of the federal government to ever pay back that amount of money. Furthermore, there will come a time at which lending nations simply cannot afford to extend further credit, as they need real money for their economic systems.
Already there are signs that faith in the dollar is starting to waver. Nations like China, holding hundreds of billions of dollars worth of US Treasury Bills, are beginning investigate other possibilities. The Euro is gaining strength and gold prices are rising. Some oil producing nations are making the switch from the dollar to the Euro as their currency of choice for their product, with others giving serious consideration to following suit.
If lenders begin to significantly reduce the amount of credit that they are willing to extend, the Federal Reserve will have little choice but to print still more dollars to pay for what cannot be put on the tab. After all, it is highly unlikely that the government is going to call the troops home, for example, because they do not have the cash to finance the war any further. No, the printing presses will start running fast and furious, with the Federal Reserve marking the debt in their records. The government never runs out of paper.
When The Paper Runs Out Of Value
While the government never runs out of paper, the paper can run out of value. Paper money that is not backed by anything real has no value on its own. It's only value is what people think it is worth. As the worth of the dollar drops, then prices rise, as it takes more of these lesser valued dollars to buy the same things today that were bought a month ago. This is inflation when it happens gradually, prices creeping slowly upwards. When it happens rapidly, it is called hyperinflation.
It is always the people that suffer the effects of the monetary policies that produce such results. Inflation devours savings, as those dollars will only buy a fraction of what they used to buy. Inflation wrecks complete havoc on the budgets of individuals who are threatened with imprisonment for attempting to offset their debts by printing up cash. This is especially true now, as many in the middle- and lower-income classes have incomes that are consumed by the mortgage and consumer debt that they owe.
While they may have been just making it financially, paying enough on their debts to avoid foreclosure and repossession of goods, and having enough to buy food and fuel until the next paycheck, as the spending power of the dollar drops, the percentage of their income needed to procure the basic stuff of life increases. The pinch is felt to a much higher degree by those living on fixed incomes, such as those relying on pensions or Social Security, as the worth of their income drops while prices rise.
Protecting Yourself As The Faith Drains Out Of The Faith-Based Economy
One of the most important things you can do to protect yourself from the grave economic challenges that are fast appearing on the American horizon is to deal with debt now. If carrying consumer debt, take steps now to start paying it down, while your dollars still have enough value to ensure that you are going to be able to afford the basics of life while dealing with debt. The sacrifices you make now in lifestyle just may be what keeps the roof over your head in the future. If you can organize your finances now to reduce your debt load, then you won't be in the same financial trap as those who end up losing everything because they can't stretch devalued dollars far enough to both feed themselves and keep their possessions.
If you are in the position of not having significant credit card debt and other consumer debt to deal with, be very cautious about what you judge worth going into debt over. Understand that taking on non-essential debt may very well have serious financial repercussions in the not too distant future. Record levels of foreclosures are clear signs of the economic turmoil that has resulted from an excess of personal debt and inadequate attention to personal savings, the rates of which have reached low enough to match those of the era of the Great Depression.
Maintaining financial health in the current climate requires the average person to develop a fuller understanding of our money system and the global economy. The government relies on your faith in the dollar to prop it up, and will not provide you with a warning concerning its troubled condition. However, it it exactly that faith that the dollar will be worth what it is today in a month, a year, or 5 years from now that you have when you increase your debt burden or postpone paying down debt that will leave you vulnerable to complete financial ruin. Take action to protect yourself today by paying attention to the world of finance beyond your own budget and by reducing your debt.
Understanding The Dangers Of Fiat Money
Fiat money is risky business, as the government is no longer restrained by actually having to have a solid asset to back up the worth of the currency. Today's practice of monetizing debt, by selling debt instruments -- and we can all see how well that is working for the mortgage and lending industries and their investors – and the ability of the government to simply have money printed up when all else fails, places every dollar at risk of losing its value, or more plainly put, its purchasing power.
With a debt of over $9 trillion, which as been rising at more than a billion dollars per day since September of 2006, it only stands to reason that at some point, lenders are going to lose faith in the ability of the federal government to ever pay back that amount of money. Furthermore, there will come a time at which lending nations simply cannot afford to extend further credit, as they need real money for their economic systems.
Already there are signs that faith in the dollar is starting to waver. Nations like China, holding hundreds of billions of dollars worth of US Treasury Bills, are beginning investigate other possibilities. The Euro is gaining strength and gold prices are rising. Some oil producing nations are making the switch from the dollar to the Euro as their currency of choice for their product, with others giving serious consideration to following suit.
If lenders begin to significantly reduce the amount of credit that they are willing to extend, the Federal Reserve will have little choice but to print still more dollars to pay for what cannot be put on the tab. After all, it is highly unlikely that the government is going to call the troops home, for example, because they do not have the cash to finance the war any further. No, the printing presses will start running fast and furious, with the Federal Reserve marking the debt in their records. The government never runs out of paper.
When The Paper Runs Out Of Value
While the government never runs out of paper, the paper can run out of value. Paper money that is not backed by anything real has no value on its own. It's only value is what people think it is worth. As the worth of the dollar drops, then prices rise, as it takes more of these lesser valued dollars to buy the same things today that were bought a month ago. This is inflation when it happens gradually, prices creeping slowly upwards. When it happens rapidly, it is called hyperinflation.
It is always the people that suffer the effects of the monetary policies that produce such results. Inflation devours savings, as those dollars will only buy a fraction of what they used to buy. Inflation wrecks complete havoc on the budgets of individuals who are threatened with imprisonment for attempting to offset their debts by printing up cash. This is especially true now, as many in the middle- and lower-income classes have incomes that are consumed by the mortgage and consumer debt that they owe.
While they may have been just making it financially, paying enough on their debts to avoid foreclosure and repossession of goods, and having enough to buy food and fuel until the next paycheck, as the spending power of the dollar drops, the percentage of their income needed to procure the basic stuff of life increases. The pinch is felt to a much higher degree by those living on fixed incomes, such as those relying on pensions or Social Security, as the worth of their income drops while prices rise.
Protecting Yourself As The Faith Drains Out Of The Faith-Based Economy
One of the most important things you can do to protect yourself from the grave economic challenges that are fast appearing on the American horizon is to deal with debt now. If carrying consumer debt, take steps now to start paying it down, while your dollars still have enough value to ensure that you are going to be able to afford the basics of life while dealing with debt. The sacrifices you make now in lifestyle just may be what keeps the roof over your head in the future. If you can organize your finances now to reduce your debt load, then you won't be in the same financial trap as those who end up losing everything because they can't stretch devalued dollars far enough to both feed themselves and keep their possessions.
If you are in the position of not having significant credit card debt and other consumer debt to deal with, be very cautious about what you judge worth going into debt over. Understand that taking on non-essential debt may very well have serious financial repercussions in the not too distant future. Record levels of foreclosures are clear signs of the economic turmoil that has resulted from an excess of personal debt and inadequate attention to personal savings, the rates of which have reached low enough to match those of the era of the Great Depression.
Maintaining financial health in the current climate requires the average person to develop a fuller understanding of our money system and the global economy. The government relies on your faith in the dollar to prop it up, and will not provide you with a warning concerning its troubled condition. However, it it exactly that faith that the dollar will be worth what it is today in a month, a year, or 5 years from now that you have when you increase your debt burden or postpone paying down debt that will leave you vulnerable to complete financial ruin. Take action to protect yourself today by paying attention to the world of finance beyond your own budget and by reducing your debt.
