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Randy S. Economicrot.blogspot.com
Agenda
Money Fed Reserve US Dollar Worlds Reserve Currency Inflation Debt Housing Bubble Current and Future Economic Outlook What to do
Money is a good that acts as a unit of account, a store of value, and a medium of exchange
Another example of commodity money was the U.S. currency before 1971, which was backed by gold.
Fiat Money
In a fiat money system, money is not backed by a physical commodity (i.e.: gold). Instead, the only thing that gives the money value is its relative scarcity and the faith placed in it by the people that use it.
Nixon removed the US Dollar from the Gold standard in 1971 thus changing the US dollar from a Commodity money to a Fiat currency
In a fiat monetary system, there is no restraint on the amount of money that can be created. This allows unlimited credit creation Initially, rapid growth in the availability of credit (money) is often mistaken for economic growth, as spending and business profits grow and frequently there is a rapid growth in equity prices.
In the long run, however, the economy tends to suffer much more by the following contraction than it gained from the expansion in credit
This is where we are today
President Woodrow Wilson, pressured by political/financial backers, signed Fed Reserve Act into law on Dec 23rd & stated:
We have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world -- no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men.
Federal Reserve Act transferred US money supply and banking system controls from Congress to a private banking elite
These private bankers could now create money from nothing, loan it to our Gvt. & charge interest (our federal income tax system) for privilege of doing so
A worried President Nixon abolished the Bretton Woods accord in August 1971
Dollar/Gold standard was removed US Dollar became a Fiat Currency Currencies around the globe went into turmoil; dollar lost value vs. gold in 1 yr Needed a new solution to reestablish faith and trust in the falling US Dollar
In Reality:
Inflation is caused by a net expansion of money supply that causes rising prices -- by devaluing a currency Stated differently: the expansion of a nations money supply increases available currency beyond the proportion of available goods and services causing more dollars to chase the same number of goods/services. Thus it creates a supply/demand situation that drives prices higher.
$700 Billion
Fed is printing money at 20% annual rate; money supply to double in 4 years
INFLATION-1900-2000
2000 Dollar worth $.4 Cents compared to 1900 dollar Additionally, since 2000 the US Dollar has lost a further 60% vs. EURO Bottom Line: Todays dollar worth ~ 2 cents vs. 1900 Dollar
By understating inflation, the US Gvt. pays its obligations (Social Security, Welfare, Pension Benefits, Military Pay/retirements, Medicare obligations, and even foreign held debt) with significantly devalued dollars over time
Housing Bubble
Supply/Demand imbalance
Lots of cheap new money chasing dwindling supply homes
Many Banks are Insolvent (Securitized, Tier-III, off balance sheet assets far surpass underlying Banking System Capital )
Banks unwilling to lend to each other; lending standards much tighter
Compounding the housing dilemma fewer buyers for larger inventory HELOCs being yanked back by the $ Billions
New unprecedented Federal Reserve lending mechanisms recently enabled to help shore up bank balance sheets
Trading toxic/securitized Tier-III garbage for Gvt. Treasuries
(Highly Inflationary in Nature)
Gvt.& Fed will eventually have to rescue bond, housing & various other markets via Taxpayer funded bailouts
Expect more stimulus checks to be cut for the masses
Money from Helicopters (Highly Inflationary in Nature)
IRAN no longer accepts Dollars for oil; opened their own oil Bourse Feb 08
Very negative for US Dollar and oil pricing
Huge negative implications for US Dollar and the future price of oil
What to do?
Get out of debt Dont take on any new debt Stay conservative (volatile markets in future) Dont speculate (flipping houses, get rich quick, schemes, etc) Be thankful you have a job try to keep it!
Many layoffs coming in the not so distant future
Take a proactive role in your financial future Save money for potentially difficult times ahead If you can afford it, as a hedge against inflation and the devaluing dollar, buy some physical Gold and Silver for the rainy days & potentially years ahead!