Based on Generally Accepted Accounting Practices (GAAP), The United States is broke. One can argue that if you can print money, then you are not broke. That is only true to a certain point. When your money is no longer accepted as payment for goods and services, then printing money no longer satisfies the payment of obligations. A country’s overall production creates wealth and that wealth is really what pays the bills going forward.
When you go to a bank to borrow money, they look at your ability to repay both the principal and interest. They look at your past performance, the stability of your employment, and any assets you have that can be converted to loan payments. Your interest rate is consistent with the inherent risk of repayment. Your loan is consolidated with a basket of consumer loans of similar risk. The bank’s expectation is that not all of the loans will underperform and that the additional interest charged will cover any loan losses of the portfolio. This assumes a stable currency.
What happens when the nation’s currency is no longer wanted as payment for goods and services by other countries? Before August of 1971, they could demand payment in gold and get it from the U.S. When Nixon closed the “Gold Window” and ceased the convertibility of Dollars to gold, a whole new experiment began. How could the U.S. get away with mandating a fiat currency policy? The U.S. Dollar had been the “reserve” currency for use around the world and it was so interwoven into all commercial transactions, there was no feasible way to disconnect from the Dollar. The U.S. also had the most advanced military in the world. Nobody was willing to challenge the decision.
Other countries have spent the last 42 years thinking about how to do international business without the U.S. Dollar. Iraq tried an “oil for gold” program bypassing the U.S. Dollar. Suddenly, events occurred that caused the U.S. to invade Iraq and remove that plan. Other countries have been dissuaded from bypassing the Dollar. Little by little, China, Russia, Brazil, and India have been creating partnerships to bypass Dollar-based transactions. They have been accumulating gold which in turn could allow them to have some type of gold-backed currency as a guarantee for international transactions. Where is the gold coming from? The Western vaults.
For the first time in history, all nations are printing large amounts of money without any gold backing. The current system will fail. If you watched the video from yesterday, you can see that there has never been a successful end to this scenario. Pain will come. People will cry out for a new system, quickly. The Chinese know it, the Russians know it, and others who are accumulating gold and silver know it. Wealth can be attained a couple of ways. One way is for your investment to appreciate. The other way is for everyone else’s money to depreciate. The goal is to retain purchasing power in a medium that will continue to be accepted no matter how the collapse plays out. For most of us, silver plays that role. For some of greater means, gold will be acquired.
The U.S. may never admit it is technically broke. However, when interest rates go up by creditors demanding additional payment for greater risks, there will come a day that those in charge must do an accounting. When that happens, 401K’s, IRA’s, Pension Funds will all be targets for cash to “bail out” the government. You will be told a plausible reason for you to hold government bonds in your account. You will once again pay for the poor decisions of the central planners. However if you see what is coming, you can at least minimize the pain by safeguarding what little you have from the depreciating currency and its impact. This is why I have been warning you for the past several years to downsize your exposure to unexpected events. Most of us don’t have a lot of wealth but if we reduce our leverage, simplify our monthly needs, and focus our attention to what Our Heavenly Father is saying, then we will be the least impacted when this day of reckoning arrives.
The following graph provides some detail of China’s direction:
