Saturday, April 22, 2006

The Horror is for Real...

...The economic horror, that is.

I am constantly amazed by the number of people who seem to operate under the misguided perception that borrowing to live is a viable long term alternative to living within ones means. They have no understanding of money or what money really is. If you ask them about money, they immedeately point to Federal Reserve Notes. When you ask them the meaning of the term "Note", they think of it as just a clerical reference. The legal term is a "Note of debt or indebtedness". Which is what FRNs are. Even the term bill is a reference to an unpaid debt.
They are a promise to pay. To pay up in What? Real money, of course. The currency used to have this promise printed on them. But after FDR made real money illegal they had to remove the promise to pay, for obvious reasons. From 1934 until 1971 only foriegnors could redeem FRNs for gold (sorry Ramsey, your wrong) In 1971, Nixon nixed even this, as it was rapidly draining gold from Americas coffers.

Recently, on the Dave Ramsey Show, Dave was heard to utter...(paraphrased) "Gold hasn't been used as money since the Roman Empire..." Dave was talking to his audience about people who had written him about buying bullion or coins for a hedge against economic collapse. He recommended tradable items such as liquor, cigarettes, dried or canned foods and such. All good ideas, but only tradable to those who needed those specific items. Money evolved out of the need to expand the trade markets, such that trade could happen between people who didn't have the same wants or needs to exchange.

Contrary to Ramsey's opinion on gold and silver as money, it has been used as such in the United States until 1934. Even now, the American Liberty Dollar is silver currency traded in thousands of locations in the States.

Back to the horror...Eric Englund gets it...

"Unfortunately, the common American does not understand he is being manipulated and impoverished by the Federal Reserve. When money is no longer real (i.e. fiat currency vs. gold and silver), then people may come to believe in the surreal, and a hyperreality emerges. In particular, during the reign of Alan Greenspan, money and credit – created out of thin air – rained upon Americans as if to assure us that crop failures and misfortune had been banished from U.S. soil. Hence, we came to live in a world of plenty where one may become wealthy by simply purchasing a house – with lots of borrowed money – and by "investing" in stocks for the long run. What a dream it is to become wealthy without effort. This mass delusion is only one step away from collectively believing that cotton candy is a cash crop. Alas, Americans will soon discover that housing values don’t grow to the sky and that heavy mortgage debt leads to a harvest of financial despair. The Austrian theory of the trade cycle will be validated yet again."
More here...

Read and prepare accordingly...

Interestingly, The Daily Reckoning recently asked readers to comment on what would happen when the next "great" depression begins... Here are some of their responses...

"It won't be pretty," writes one reader, who calls himself Mr. MAGNUM. "In fact, ugly will fail to sufficiently describe the events which will unfold across America in the coming three to five years.

"Initially, isolated incidences of desperation will be reported in the press as a lunatic gone wild with a gun or a knife, in a grocery store, for a gallon of milk.

"Then the media lock down will occur, and all such reports of desperate people doing desperate things for food for their families won't be reported, therefore won't be happening.

"Eventually, across America we will be reading local newspapers reports, and hearing sound bites on radio and television, of the fringes becoming the fat tail and felonies for food occurring everywhere.

"When America's Second Great Depression takes hold with the bite of a pitbull, around 2010, we will all get to personally experience how our borrowing for widgets and chitoys, our failure to save, and our failure to remember the results of past forays into fiat currency, bring to our own front doors the sacrifice and suffering we Americans collectively thought could never again happen here in the Land Of The Free and The Home Of The Brave.

"Sometime in 2012 we will all wake up and realize that we are living in 3rd world economy, here in the last great empire on good old mother earth.

"As they say in The Daily Reckoning, we are going to get not what we expect, but what we deserve. And we will be getting it good and hard.

"Mr. MAGNUM recommends stop spending, sell your McMansion, buy a home you can pay cash for, pay off all debt, buy silver and/or gold, keep a low profile and don't flaunt any wealth you may have. Those who DON'T HAVE, will remember those who DO HAVE and they are going to want to come and take it from you when things get really bad."

You really should go read the rest of the article...

Anyone not planning for this eventuality (which may come a lot sooner than anybody thinks), is going to have a very hard time in the coming years...

"The State is great fiction by which everyone seeks to live at the expense of everyone else."
-- Frederic Bastiat

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