Our rights do not originate with government, but they are to be "secured" by government.
Formerly: Libertarian Party of Citrus county

Tuesday, April 12, 2011

Paper Money vs. Tangible Assets

Now that it is clear that the people elected by the TEA Party to protect our liberty and institute financial responsibility by the government, are going to do what the Democrats and Republicans have for over 50 years, and spend spend spend regardless of the available revenue and wishes of the people (62% of us don’t want the government to extend the debt ceiling). It’s time to start changing our behavior and the way we think. The government will not live within its financial and constitutional restrictions anymore. Deficit spending at the current rate will bankrupt the USA and we will see another true depression. In less than 10 years there will not be money for Medicaid, social security, and welfare. That means in less than 10 years about half the population will have no means of support. What we will see will make the Great Depression look like a mild dip in the economy. For a thorough explanation read “The Return of Great Depression” by VoxDay. Here is an interview about the book.

Right now we are experiencing far more inflation that either the government or the news is telling us. Unless you live in a bubble you know this is true, just go to the grocery store or gas pump. At the grocery store you are seeing a steady significant increase in food prices. For example a 1 pound package of pasta less than 2 years ago cost 99 cents, now it costs $1.79, and a 16oz can of veggies now only contains 13oz. For many items the price appear to be stable the actual quantity of food sold per package has decreased. If the deficit spending doesn’t stop soon you’ll pay $10,000 or more for that pound of pasta.

Inflation is going to take away your savings and cripple the USA. To pay off the impossible debt of the government it will simply print money. This has been the way governments in debt trouble get out of debt. Unlike Greece, a relatively small country, there is nobody who can or will bail out the USA. If you think this can only happen to a third world countries like Zimbabwe and not to a modern western republic, you’re wrong, it has. Less than 100 years ago Germany (the Weimar Republic) went through hyperinflation.

Timeline of German (Weimar Republic) Hyper-Inflation

  • June 24, 1922: 272 Reichsmark (RM) = 1 US dollar
  • July 1922: 670 reichsmarks = 1 US dollar
  • August 1922: 2,000 reichsmarks = 1 US dollar
  • October 1922: 45,000 reichsmarks = 1 US dollar
  • November 1922: 10,000 reichsmarks = 1 US dollar
  • December 30, 1922: 500,000 reichsmarks = 1 US dollar
  • February 1923: Reichsbank buys back RM (or reichsmark); stabilizes RM at 20,000 to 1 US dollar
  • May 4, 1923: RM 40,000 = 1 US dollar
  • June 1, 1923: RM 70,000 = 1 US dollar
  • June 30, 1923: RM 150,000 = 1 US dollar
  • August 1-August 7, 1923: RM 3,500,000 = 1 US Dollar
  • August 15, 1923: RM 4,000,000 = 1 US Dollar
  • September 1, 1923: RM 10,000,000 = 1 US Dollar
  • Around September 10 to September 25, 1923: Prices reportedly rise hourly in several German cities.
  • September 30, 1923: RM 60,000,000 = 1 US Dollar
  • November 15, 1923: Rentenmark issued; pegged to the Gold Standard; Rentenmark 4.2 = 1 US dollar; at this time: Old Reichsmark 4,200,000,000 = 1 US dollar.

    It could happen here, too, and all the money you've scrimped and saved could become worthless in a short order. Notice what they did to stabilize their currency, pegged it to Gold. Gold for thousands of years has been the standard to own to protect assets. Not to grow in value but to protect accumulated wealth. The rich own property, gold, jewelry, and other real assets as hedges against inflation.

    What can you do? You can change your behavior. Traditional savings will not be adequate, forget growth, you need to put a significant amount of your assets into something tangible. Don’t go out and buy Gold, right now it is artificially high because significant people have realized the above truths and the law of supply and demand have increased its value above its traditional level. When (not if) hyper inflation hits we will be back to barter, until the government is forced to create a stable currency. Although valuable gold will be hard to trade and not as liquid as you may think. You need to think about what people will need and want that you can reasonably store and protect and will hold its value? The reality is a breeding pair of pet goats, or promoting your kid to raise a calf for 4H, are probably better investments than Wall Street. Unfortunately the people that will probably have the last laugh are survivalists. Yep those crackpots who are hording food, fuels, etc. will be better off when hyper inflation hits.

    Personally, trying to figure out what assets will be tradable when hyper inflation hits but would still be either usable or maintain their value if the US does by some miracle avoids the next depression (it won’t) is difficult. I believe guns and ammo will be of high value and very trade-able, food stuffs will be valuable including basics like baking powder, yeast (for brewing and breads ), and spices. Owning some basic building supplies, nails, PVC pipe, tarps, and having tools, fasteners, etc may be valuable, but if the economy recovers what do you do with 100 lbs of nails and a half-dozen hammers that are no longer a viable trade good? I’m stocking up on sugar and grains, way more than I can reasonably use, except for the fact that my hobby, home brewing, has given me the skill to turn that sugar into alcohol. Now that is a trade worthy commodity of historical significance.

    Regardless of how you do it, being prepared for a crash in the dollar makes prudent sense. If the powers that be vote to once again extend the debt limit, converting our assets from cash and other paper money to real trade worthy products is practical and shrewd.
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