Here's the situation in a nut shell I believe.
Some key things to think about: Money supply, government and public debt, inflation, trade deficit (more imports than exports,) and US being a consumer society.
We are a consumer society. Our standard of living stays high if we continue to spend. If we stop spending as much, then our economy falters. We don't produce nearly as much as we used too, instead we buy from China and sell their stuff here, which provides jobs. If our dollar loses it's value, which it has been for the longest time, we won't be buying as much. To prove that the dollar has been losing it's value I have provided three 5 year charts.
http://finance.yahoo.com/currency/conve … 1&t=5y Euro vs USD
http://finance.yahoo.com/currency/conve … 1&t=5y Chinese Yuan vs USD
http://www.kitco.com/scripts/hist_chart … graphs.plx USD value of gold
As you can see, the dollar is steadily losing it's value. It would be acceptable if the average worker's pay was increasing alongside this inflation, but that is not the case. Workers are getting paid generally the same, except for small raises here and there, but they are actually getting paid less and less when we factor in the devaluing of the dollar. This is one of the reasons why commodities have risen in price so drastically in recent years.
Now we know the dollar is losing its value rapidly. What is contributing to this loss of value? Our country is officially $9 trillion in debt and unofficially about $65 trillion dollars in debt. Our government is continuing to spend outrageous amounts to support the war we are in and to support the poor working class with welfare. The government cannot rely solely on taxes to finance it's self given the enormous budget it requires. It has to borrow money from foreign countries and it has to borrow money from the Federal Reserve. To learn how the Federal Reserve creates money read this:
"What Determines the Money Supply?
Federal Reserve policy is the most important determinant of the money supply. The Federal Reserve affects the money supply by affecting its most important component, bank deposits.
Here's how it works. The Federal Reserve requires commercial banks and other financial institutions to hold as reserves a fraction of the deposits they accept. Banks hold these reserves either as cash in their vaults or as deposits at Federal Reserve banks. In turn, the Federal Reserve controls reserves by lending money to banks and changing the "Federal Reserve discount rate" on these loans and by "open-market operations." The Federal Reserve uses open-market operations to either increase or decrease reserves. To increase reserves, the Federal Reserve buys U.S. Treasury securities by writing a check drawn on itself. The seller of the Treasury security deposits the check in a bank, increasing the seller's deposit. The bank, in turn, deposits the Federal Reserve check at its district Federal Reserve bank, thus increasing its reserves. The opposite sequence occurs when the Federal Reserve sells Treasury securities: the purchaser's deposits fall and, in turn, the bank's reserves fall."
- http://www.econlib.org/library/Enc/MoneySupply.html
Basically the Federal Reserve creates money out of thin air. Here is a look at a historical chart of the US money supply:
http://en.wikipedia.org/wiki/Image:Comp … supply.svg
Note: The reason why we don’t see data for 2006 and 2007 for the M3 statistic is because the Federal Reserve decided it costs too much to produce that data. How convenient it is that as they began to increase the money supply at an accelerated rate that they decided to stop publishing how much money supply there REALLY is.
“The most common measures are named M0 (narrowest), M1, M2, and M3. In the United States they are defined by the Federal Reserve as follows:
• M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency.
• M1: M0 - those portions of M0 held as reserves or vault cash + the amount in demand accounts ("checking" or "current" accounts).
• M2: M1 + most savings accounts, money market accounts, and small denomination time deposits (certificates of deposit of under $100,000).
• M3: M2 + all other CDs, deposits of eurodollars and repurchase agreements.
The Federal Reserve ceased publishing M3 statistics in March 2006, explaining that it costs a lot to collect the data but doesn't provide significantly useful information.[26] The other three money supply measures continue to be provided in detail.”
The M3 is no longer being published, yet it is the most important statistic of all. The M3 includes all the M2 + all CDs over $100,000, deposits of Eurodollars, and repurchase agreements (also known as repos.) Repurchase agreements are huge!
“Repos are essentially secured, short-term lending by the Fed. On the day of the transaction, the Fed deposits money in a primary dealer’s reserve account, and receives the promised securities as collateral.”
- http://en.wikipedia.org/wiki/Federal_reserve
“Primary dealers are banks or securities broker-dealers who may trade directly with the Federal Reserve System of the United States.”
- http://en.wikipedia.org/wiki/Primary_dealers
In other words, the M0, M1, and M2 are pretty much useless for determining what the money supply is. We all know that when you increase the amount of something, it loses its value. It is simple supply and demand. If the supply increases, the demand decreases. So now we don’t know how much money is in circulation… For all we know, the money supply could have been increased by $5-$10 trillion on top of the already $10 trillion out there.
If the dollar is continuing to lose its value what can reverse this change. Heck, we all know things go up and down in the stock market. Is it just that the dollar is going down and will come back up? I wish this were true, but there would have to be something to bring the dollar back up.
We are a consumerist society. Spending more, boosts our economy. Almost everyone is in debt. The thing is, the more we spend, the more we boost other countries economies and hurt our own. By helping our economy by buying more, we are hurting it slowly by supporting the trade deficit.
This article shows the numbers on our trade deficit. We are importing a lot more than we are exporting. This = bad
http://www.baltimoresun.com/business/in … 1782.story
As an overview, we are increasing the money supply like crazy, we are borrowing money like crazy, and we have a huge trade deficit. Our housing boom fueled China’s economy like no other. The only thing that will keep our dollar afloat is more spending. The dollar is currently the reserve currency. Central banks all around the world know that the dollar is coming down. They want to get rid of their dollar reserves without hurting their own economies.
Should I even mention the growing need for even more money to support the retiring baby boom generation? How in the heck will we be able to handle that, if we can barely support ourselves now?
The best way to prepare for this is to invest in gold, silver, and foreign currencies or companies. Getting out of the U.S. wouldn’t be a bad idea either if you can find work in another country.
Here are some other sources of information:
By the way, banks can loan money with a 9:1 ratio of how much money they have. If a bank has $1000 is can loan out $9000. If the person deposits that $9000 loan, the gov can then loan out $90,000 from the $10,000. Then from that they can loan even more and so on. The amount commercial banks have depend on how much they are loaned from the Federal Reserve or large banks. It a pyramid of debt all the way up to the top.
Watch this video. It talks about it.
http://video.google.com/videoplay?docid … 2583451279
This paper is posted by the Federal Reserve of St. Louis and is written by a Boston University teacher name Prof Kotlikoff.
http://research.stlouisfed.org/publicat … likoff.pdf
http://www.newstarget.com/019659.html
Ron Paul is our only hope to save this country. Watch this interview of him.
http://video.google.com/videoplay?docid … ;plindex=1
