I frequently get many questions from business owners regarding our economy, gold and the dollar. The questions are framed in different ways, but the gist of their questions are always the same…they hinge on their own ability to outlast any economic downturn, similar to what happened in 2008. Unfortunately, my answer is not always what they’d like to hear…especially when it comes to paper assets.
So, let’s look at the facts regarding the US economy, which is linked to everyone’s livelihood. The real truth is that the US economy never really recovered from the significant collapse of 2008, therefore to expect a miraculous recovery is unrealistic, given the conditions which now prevail. Since that time, none of the underlying issues which caused this collapse have been addressed or even more so, discussed at a governmental level. The Federal Reserve has continued on with their ridiculous practices and all manner of manipulation has taken place to maintain the status quo. Notwithstanding the Feds absurd QE (Quantitative Easing) Program, in other words constantly printing inflationary currency…not backed by gold or anything of value, the Federal Reserve in conjunction with the US Government, have only exacerbated the problem with no easy solution in sight.
However, the most fundamental factor affecting the US economy at present is the massive US debt, which is crippling the economy and eroding the US dollar. The US Federal debt now stands at over $20 Trillion, reported rarely in the media, but more important are the unreported and unfunded obligations of $180 Trillion…a staggering amount considering the US GDP is only $18.7 Trillion…in other words, we have a totally unsustainable financial problem of over $200 Trillion that is growing at an exponential rate.
BRIEF HISTORY…GOLD VS DOLLAR
How we got to this unenviable position is long and complex. However, prior to 1971 the US dollar was backed by gold, which meant it had a greater ability to maintain its value. However, when president Nixon severed this relationship between the dollar and gold, it went from being money to fiat currency overnight…whose value was now dependent on whatever the Federal Reserve wanted it to be to control the currency (money) supply. Since that time the dollar has lost about 94% of its purchasing power and has created periods of severe inflation up to the present time. The net effect of this Fed induced inflation has resulted in a reduction of the middle class, greater numbers of people falling into poverty and a unequal distribution of wealth favoring the upper 10% of the population.
GoldOne saving grace for the dollar in the past is that it is backed by Oil…but, which is now very tenuous, given the strained relationship of all oil producing countries with the US, especially Saudi Arabia. However, the US dollar functions as the Reserve Currency of the world since the Bretton Woods Meeting in 1944…meaning the US dollar is used for most international trade, especially oil purchases. For example, whenever a country has to buy oil, say Germany wants to buy oil from Saudi Arabia, it must first purchase US dollars from the Federal Reserve…this has the net effect of bolstering the US dollar. If this situation ever changes it would signal a major alteration in US financial policy, as it would no longer have the ability to print money as it has done in the past. The net affect would be a lowered standard of living for all Americans, with what’s left of the middle class suffering the most. Even worse, many small businesses would likely go bankrupt as a result of significant cost increases through hyperinflation, reduced or zero credit availability and reduced customer patronage. The only good news is that the Government would no longer be able to wage the wars as it has done over the past century, since it would no longer have the luxury to borrow ad-infinitum to fund the warfare state.
Unfortunately, this debt and currency situation is further being exacerbated by many countries who are now opting out of the Petrodollar scheme, selling off their huge holdings of US government securities and turning to alternative sources for international financial transactions. The consequences of such actions further reduces the power of the dollar for international trade. This is especially true of many Asian countries, in part due to creation of the BRICS (Brazil, Russia, India, Chain and South Africa equivalent to the World Bank controlled by the US) that now have an alternative financial system to the US.
It’s a fact, never in the history of the world has fiat currencies ever survived much longer than about 60 years or so…they all collapse to their actual value, which is zero. The dollar is no different and in the not too distant future the dollar is going to collapse…maybe even sooner than we think. It is therefore essential to plan for this event by reviewing assets such as IRAs and 404Ks and moving them to safer havens to minimize the potential catastrophic consequences, as the US dollar unravels. Gold and silver have always been regarded as money, even as long as 5,000 years ago. Today, nearly all the gold ever mined is still in existence in various forms, such as central bank gold holdings, private investment gold hoards, gold jewellery, or within industrial, medical and scientific applications. Fortunately, there are now options such as gold backed IRA’s, where an IRA or 401K can be rolled over into a gold IRA with little or no difficulty. I know there are many people out there that couldn’t even conceive of such a possibility that the currency would collapse, given the present stock market highs, and the tenuous strength of the dollar against all currencies, however this is all illusory…the fact is that a dollar reset is planed right now that will be playing out in latter half of 2017 to mid 2018 time frame. So Be prepared!