Understanding risks of holding savings in US Dollars

The reason why economists (the ones you see on mainstream news at least) cannot or do not explain money properly is because of at least 3 possibilities.

1) They don’t understand the economy and money mechanics, even if they have a degree in economics. Business schools these days are a joke (ask any entrepreneur who has gone to one who you know to be an objective thinker). They teach the “Establishment” version of business theory that is not applicable to the real world. webcam girls

2) They are using “talking points” that are approved by the news editorial board and are not allowed to say what they really think. In mainstream news, if you do not follow government approved propaganda, you will be restricted from government press conferences or be placed on a list to be harassed. Ask independent reporters about this one.

3) They assume that you understand certain keywords that might be second nature to them, but is “greek” to anyone else.

So here’s the breakdown: The US government is so deep in debt with so many outstanding “loans” it owes its creditors, that it knows that time is running out for it to “pay off” said debt before its largest creditors “cash in” their debt and demand something tangible like gold, mineral rights, eminent domain, (more) toll roads, etc. The only way that the US government to do this is by devaluing it’s currency. I know that you understand that this is going on already, so the following is the meat of the answer: When there is a limited amount of money in an economy, everything finds its equilibrium quickly. Some money will be saved and the rest of the money will float around based on supply and demand. In other words, you pay what you “believe” that something is worth. You determine this based on how much money you have and how much you feel is a fair profit for the person selling something. Usually a fair net profit is 8-15% for most vendors. If you know that their overhead is not going up, you know that you shouldn’t have to pay more. But suddenly the prices start rising on everything. Why? In this case it’s not because of supply and demand. It’s because the Federal Reserve is printing the market with a currency that is not backed by anything. In other words, it’s not worth the paper it’s printed on. But they can print as much as they want. Compare this to gold, silver, and even copper. To dig these things out of the ground and then convert them to coins is slow and is not inexpensive to do. So it’s next to impossible to flood the economy with precious metal coins. Now imagine that there is $10 trillion in the economy spread out around everyone. What would happen if the Federal Reserve suddenly added $1 trillion (by having the government spend it)? Suddenly this 10% increase in the total supply of money makes every $1 in your pocket to be worth 10% less, especially since all commodities are traded in US Dollars. This is a sneaky way for the US to default on its debt slowly rather than all at once. The ones hit the hardest are the poor and the middle classes. It is effectively a “stealth tax” since the government gets to spend as much as it needs and as soon as it gets it, while the interest you are receiving in the bank is probably 1% or less for Dollars. So it’s like you are paying a 9% tax. So what does this mean for the future? The money printing cannot stop (since there is no possible way for a positive GDP in the USA for the foreseeable future), and the longer you hold Dollars, or something with no intrinsic (REAL) value, it will continue to lose purchasing power and buy less…much faster than it has historically.

So what do you or your relatives do? Tell them to put their savings in a stable currency like the Swiss Franc. Or tell them to sell any property over a 3 bedroom and reinvest in smaller places that they can rent out since nobody will be looking to buy houses, especially as the Baby Boomers retire, glutting the market will family size homes as they retreat to their retirement condos. The US housing market is nearing its bottom as far as price however. It will not go up, but it cannot fall much further than maybe 10-15% due to what I described above. But I know that there are several people who were waiting to sell their house when prices go back up. WHEN that finally happens, the value of the money will probably be worth 50% less, meaning that the $3 that buys 1 gallon (4 liters) of gas now only buys 2 liters of gas one year from now.
So if they are waiting around for things to “get better”, they are making a huge mistake. Several very bad things (especially for the middle class and below) need to happen first before this is possible. This will hit people who are retired the hardest with wage-earners slightly less. If they trade goods and services independently and do not hold an inventory, they will be shielded. If they are going to rent their property to a tenant, make sure that they limit the contract to 6 months so as to adjust it for inflation. Please note that this does not consider capital controls. This is the wild card and it’s too complicated to go into here. I may post a note about it in my profile later. I’ll later add this to my notes as well. If you still have questions privately, just send me a PM and I’ll add to my notes accordingly in general terms since several people have asked me the same question after Bangko Central announced that $2 billion write-down (loss) after having to purchase Dollars to artificially suppress the Peso. That’s good for you in the long term, however, since it means that your Peso savings will be able to buy more.