Across the top will be the words, boldly printed, "FEDERAL RESERVE NOTE". Let's think about what this means.
The Federal Reserve is a private institution that has no real connection to the
US Gov't. The Federal Reserve prints money. On the dollar bill, you will see it says, "legal tender for all debts, public and private". In other words, this note is proclaimed to cancel all debts. It used to be tied to gold held at Fort Knox, but now it is printed with no backing whatsoever. This is all fine and dandy so long as nobody stops to read what the note really says, or what it really means. Does it have value?Sure as long as the person you give it to believes that it does. And that is why the note you are holding will soon be worthless. There are many of them being printed right now to purchase the debt that the United States is creating by all of these bailout plans. Foreign governments are loathe to buy treasury notes, (I.O.U.'s issued by the U.S. Government, backed by the "strength" of the U.S. Gov). So now, the Federal Reserve has started buying Treasuries BY PRINTING MONEY.
The U.S. got into this pinch by creating wealth (by leap-frogging asset bubbles... started with the dot com boom, then crash - which then turned into the Real Estate boom - then crash). Now that the collateralized asset classes have all collapsed (namely Real Estate of all types) the Federal Reserve is going nuts printing IOU's in the form of dollars to buy US Gov't IOU's in the form of Treasury notes.
This is complete COMPLETE madness and it cannot continue. If you think the economy is bad now with job losses accelerating and real estate price drops accelerating - it's not the drop in consumer spending that mortifies me, it's the crash of the dollar.
If the dollar crashes, then hyperinflation comes in. Gas at $20/gal - any importable resource goes up 10x - like food prices, etc. The U.S. has to let the dollar go weak because with massive deficits in a slowing economy, the only way to minimize the impact would be to:
1) drop interest rates (which is near zero now) and 2) to let inflation rage. Remember if inflation comes in - say at 10% or 20% or 200%, it reduces the debt impact because you would be paying your old debts back at cheaper dollars. But here's the problem with that. Hyperinflation would lead to runaway interest rates.
I'm becoming certain that the U.S. Dollar is going to collapse, and all of this other stuff, bankruptcy of GM and Chrysler, accelerating job losses, etc. will be small potatoes compared to a worthless currency.
10 comments:
Lets' do the ultimate experiment. I think a dollar is going to hold it's value, you think it is going to be worthless, how about you segway down to the bank, withdraw one milllion of those little guys and send it to me, heck i'll even come pick it up.
Then when it becomes completely worthless, you can sit in your vault swimming in gold coins laughing at us writing blogs from your underwear.
And if it doesn't, I think I'll start an east coast gang of segway riders.
p.s. real estate price drops are not accelerating or job losses. both numbers will come in at a slower pace next reading.
Actually, the U.S. Mint/Treasury prints the notes that we use as "money". Then the bills are shipped to the Federal Reserve. You are correct in saying that the Federal Reserve is a private institution. It is no more Federal than Federal Express.
Once the bills are printed, they are shipped directly to the Federal Reserve.
The Federal Reserve then "LOANS" the money to the federal government. This loan is 100% collateralized with T-bills, which are never returned to the Federal government. The money is loaned to the government and the rate at which the money is loaned is prime, one of the rates at which loans to member banks is calculated. The interest on the loan is what our taxes is used to pay. None of our collected taxes are used to pay for any benefits given to us such as Medicare, Medicaid, AFDC, Unemployment insurance or social Security benefits.
In fact, the national debt, which at this writing is 10.7 trillion dollars
http://www.brillig.com/debt_clock/
and counting is made up primarily of interest on the loan and is owed to the Federal Reserve for the money we gave them to loan to us.
Ain't that a kick in the head?
Currently, all of the gold that you mentioned that is in Ft. Knox, is owed to the Federal Reserve who owns nearly all of the gold in this country. The gold in Ft. Knox is about 4176 metric tons. The gold owned by the Federal Reserve is estimated to be about 5000 metric tons.
So the Federal Reserve owns more gold than WE do, the U.S. Govt.
Your assessment that we got where we are by various bubbles etc is not exactly accurate. We really hear because of the ever climbing never declining amount of interest we owe to the Federal Reserve.
I do fully agree with you that we are headed to the point that our dollars will be worthless or nearly so. If fact, if the decline in value that has occurred in the last 30 years were to happen in a week or a month, the American people would rioted in the streets and most of our leaders would have been executed for treason.
The way to cure our economic ills is to do away with the Federal Reserve, put us back on the gold standard so that our money is back by something other than the word of a corrupt government, do away with the IRS and the resulting economy (i.e. accountants, tax attorneys, tax courts, etc.) and reduce federal employees working for our elected representatives. Make the earn the money they are being paid and make them responsive to us.
It is said that compared to the initial public opinion of 80% of the people being in favor of a bailout, that that figure has now dropped to 34%.
I ask you, how can our elected representatives vote in favor of a bill that only 34% of us are in favor of?
By the way, the current value of T-Bill that the treasury gave the Federal Reserve to collateralize the loan is $1,735,051,000,000. This figure is taken from the Federal Reserves published balance sheet.
I agree with your assessment Gary. Obama's stimulus package is currency suicide. The only possible safe haven are stocks in companies that will survive no matter what because their value will reprice with inflation (defense contractors can sell to any country that can pay) or hard money like gold or silver. The other possibility is to have debt on productive assets that is fixed at today's low interest rates.
Anyway Obama's stimulus package should be on a male stripper, otherwise it will strip the dollar of all value.
Hytek
I remember being a tourist in Jamaica sometime around 1994, and I distinctly remember two very shocking money-related events. (1) I saw a gentleman buy ONE bottle of Coca Cola for TWENTY DOLLARS in Jamaican money! (2) I bought a small souvenir and paid for it with US dollars. I had 5 cents (US) coming in change. The meerchant asked me if I wanted my change in US money or Jamaican money. Hell, it was a nickel! I said give me Jamaican money. HE GAVE ME TWO DOLLARS!!
I see that, today, the Jamaican dollar is worth about $0.011 (USD). So, Gary, I'm starting to think that someday our USD could be like that Jamaican dollar against some other currency...
Paul W - it will. The USD is worthless - there is only a perception of value.
I bought some sushi yesterday. My US dollars worked great.
I will say the US government is run by a bunch of assclowns. They are trying to debase the currency, so far so good.
This video below is pretty funny.
http://www.youtube.com/watch?v=JwFy8X4U7Io
Once again, Revelation 18 is the U.S.
Gary,
You are right on target! (finally ha!) Our currency is all manipulated. Inflation and recession manipulated by the Fed Reserve (which is a Delaware Corp.)
The dollar is backed by "nothing" it is a fiat. Worthless paper...or soon will become just that. The Central Bank prints the dollar out of thin air. Not backed by gold....It's a "Printing Press". Print as many as you want!!!
The interest payment alone back to the Fed Res. on 1.2 trillion stimulus over 10yrs is $350 Billion! almost 35%.
We are a debtor nation, the debt in this country is now greater than all the assets.
When you said "buy gold" you are right.
gary - what say you?
"Home sales increased 85% in December in California compared with the same period a year ago, while the median price of an existing home fell 41.5%, the California Association of Realtors reported (CAR). Sales of existing, single-family detached homes in California totaled 544,580 in December at a seasonally adjusted annualized rate, according to information collected by CAR from more than 90 local REALTOR associations statewide. Statewide home resale activity increased 85% from the revised 294,520 sales pace recorded in December 2007 (see chart above).
The median price of an existing, single-family detached home in California during December 2008 was $281,100, a 41.5% decrease from the revised $480,820 median for December 2007, C.A.R. reported (see chart above).
Editor's Note: From what you hear in the media, it would seem like we are years away from a real estate recovery, when the statistical data suggest otherwise. Falling home prices and falling mortgage rates are fueling a real estate recovery in states like California. In other words, markets are working. As the Law of Demand predicts, demand curves slope downward, and when home prices fall, the number of homes sold increases."
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