The State of the US & World Economy

The below section is an email I sent to my family and friends in December 2010 about the research I had been gathering about the world’s economy, and I hope to tweak it every now and then with additional information.

I have stayed informed about the world economy since last year and see that things are going to go down hill in the next couple of years and want to bring it to your attention if you arent already aware. The US dollar has been loosing its purchasing power for over 100 years as 1 dollar today is worth 3 cents in 1900 and worth 20 cents in 1971. The US dollar has lost 8% of its value in 2010, so if you had 100 dollars in the bank a year ago, though it still says 100 dollars on it, it can only purchase 92 dollars worth of products when compared to last year.

US Dollar Over Time

1775 – 2007

1900 – 2000

Since 1971

The US dollar has been the world reserve currency since world war 2, but at that time the US dollar was backed by gold, but in 1971 President Nixon broke the tie between the US dollar and gold (without speaking with the rest of the world) and now the US dollar is fiat money (money backed by nothing but the confidence and perception that it has value). The reason why the US dollar has continued since then to be the world reserve currency is because oil is priced in dollars (aka the petro-dollar), and because of this, 89 nations continue to peg their currencies to the dollar.

President Nixon’s Closing of the Gold Window – Wikipedia
The PetroDollar – Includes footage of Ron Paul and from “Iraq Conspiracy”

In the last year or so, many countries and even the United Nations have been talking about replacing the US dollar as the world reserve currency. The International Monetary Fund (IMF) has recently been pushing forward with the replacement of the US dollar with its fiat currency, the SDR (Special Drawing Rights), which is backed by fiat currency of its member countries. They are discussing this because the United States has been heavily printing additional money in an attempt to improve its economy. The problem with this is that most countries hold US dollars as reserves in their central banks, and when the US prints additional money, the dollars they have in reserves become worth less, so many countries have been diversifying their US currency reserves with more reliable currencies (Canada, Australia, Switzerland), as well as buying gold. As more and more countries decide to use the US dollar less and less, the US dollar will ultimately loose its world reserve status, and with the US printing more and more of its currency, this will likely result in the hyperinflation of the US dollar, similar to what happened in the Weimar Republic of Germany between 1921 and 1923. Hyperinflation has occurred throughout the century and the most widely known examples include Germany (1920s), Yugoslavia (1990s), Argentina (2000s), and Zimbabwe (2007).

U.N. panel says world should ditch dollar – Reuters
IMF discusses plan to replace dollar as reserve currency – CNN Money
Dollar Replacement Beat Goes On … and On – The Daily Bell
China, Russia quit dollar for bilateral trade – China Daily
India, Iran mull over gold-for-oil for now – India Times
Hyperinflation in Germany – Wikipedia

Gold and silver have been used as money for over 5 thousand years, while paper money backed by gold was used for around 50 or so years, and fiat money (which are all the currencies of the world presently) has been used for the last 40 years. The main problem with paper money is that governments can print more and more of it, whether they are backed by gold or not, which results in the stealing of purchasing power (wealth) from people who hold it. This stealing of purchasing power is known as inflation and is called the silent tax, as people cant see it happening. How many of us have heard the story where our parents or grandparents tell us that a candy use to cost 5 cents in their days, but we never stop to think about why it was so. The simple answer is that 5 cents in those days is worth many times more than 5 cents is today, even if it was the same coin. Another sign of inflation happens when coins get smaller, coins replace bills, and new denominated bills or coins come into circulation, like the 2-dollar coin in Canada or the 20 and 200 dirham bill here in the United Arab Emirates (UAE). With gold or silver coins as money, no one can steal its purchasing power from it, as you cant print more of it, you have to use labour to dig it up and shape it into a coins, but with paper money, they just have to turn on the printing press. Well the printing press was the old way to do it, as today less than 1 percent of money is in paper/coin form, while the remaining is in digital form on computers, so they can easily add new money to the system buy the click of a button. You should also know that it costs the US government the same amount of money (around 4 cents) to print a 1 dollar bill as it does to print a 100 dollar bill, but that cant happen with a 1 gram gold coin and a 100 gram one.

GoldNomics – [4 mins] Store paper money or gold in a vault for 10 years?
What is Money? – [6 mins] Dr. Chris Martenson discusses what it is
How Money is Created and Destroyed – [10 mins] Basic presentation about money circulation

Most countries in the world are inflating their currency (printing more money and reducing its purchasing power) and by doing so, they are making commodities/staples (wheat, corn, oil, coffee, sugar, gold, etc) rise in value. The result of this inflation is that things are going to start costing more. China and India are presently having around 10% inflation. I’ve gone shopping in September and then again in October and see that the prices are up and i’m assuming you to have seen prices go up as well. So i would encourage you to stock up on storable food (rice, pasta, beans, etc), as its going to be cheaper today than it will be in the coming months. Food and unemployment riots have recently broken out around the world and will continue to get worse as inflation continues to grow.

Chinese inflation rattles shoppers – CNN Money
Increase in Commodities Since Last Year – Daily Reckoning
Latest Inflation Riot Tally – Zero Headge

Many countries in the world are buying gold. For the longest while, central banks of the world have been selling off their gold reserves as they thought that gold was valueless in our current monetary system, but now they are buying gold. Since last year, there are many countries that have purchased tons of gold – Mauritius, India, Vietnam, Russia, China, and Iran. The US has 78% of its reserves in gold and the European Central Bank [ECB] has around 50% of its reserves in gold. Most of the countries in the world have the majority of their reserves in US dollars, which is why they are swapping their dollars for gold and other hard assets. 60% of worldwide reserves by all the central banks are in US dollars.

China is the largest producer of gold in the world and they have reduced their export of gold by 60% this year and have also imported 5 times as much gold then they did last year. Only a few years ago, china began allowing their citizen’s to purchase gold and silver bullion (bars and coins) and they are encouraging them to do so. Gold has been rising an average of 20% per year for the last 10 years, which is one of the indications that fiat money is losing its value. The beauty about gold and silver is that they have intrinsic value (the value is stored within it) and arent effected by inflation, and are one of the only safe heaven in a time of economic or political uncertainty. I believe this is why the Prophet Muhammad (SAW) said, “A time is certainly coming over mankind in which there will be nothing (left) that will be of use (or benefit), so save a Dinar (gold coin) and a Dirham (silver coin).”

China encourages Silver Bullion for investment – CCTV [1 min]
Gold over the last 10 years – Kitco
Islam & the International Monetary System – Sheikh Imran Hosein
Why Gold & Silver? – Mike Maloney [9 mins]

From all thatIi have read and watched over the last year or so, I know that paper money isnt worth anything and that if you have savings, you should put it into gold and silver or other tangible assets that arent continuously decreasing in value, but also beware of overvalued assets like real estate. I bought gold and silver last year and this year and will continue to do so and encourage you to do the same. Though most people brush off the idea of owning gold by saying “you cant eat gold”, i would respond by saying “you cant eat a dollar either”. Gold or paper money is just a medium of exchange, but i’d rather hold gold that has been increasing in dollars than hold dollars that have been decreasing in purchasing power. If gold is to expensive, then purchase silver but purchase physical gold and silver and not paper gold and silver certificates or stock market Exchange Traded Funds (ETFs).

For individuals living in the UAE and the Gulf, I would encourage you to purchase ‘Pamp Suisse’ 24k gold bars/waffers, ‘European Sovereign’ 22k gold coins of 1 to 8 grams, and 1 or 1/2 kg of silver bars. For individuals living in the North America and the rest of the World, you can purchase ‘American Eagle’, ‘Canadian Maple Leaf’, ‘South African Krugerrand’, ‘Australian Kangaroo’, ‘Chinese Panda’ and ‘Austrian Philharmonic’ gold and silver coins, in addition to ‘Pamp Suisse’, ‘Credit Suisse’ and ‘Johnson Matthey’ gold and silver bars. All gold and silver coins and bars are sold at a premium over the current spot price, so always go for the ones that have the lowest premium. For more information, please read my buyer’s guide to buying gold and silver.

The US will be going through another recession or depression in the coming years if it doesnt get its act together and one must prepare for such a thing, especially if your living there. The problems stem from mortgage foreclosures, household debt, city & state debt, medicare and medicaid costs, social security costs and of course the 14 trillion dollar federal debt. I’m not pulling this all out of a hat, I’ve been listening to economists/investors who said that the 2008 housing bubble was going to pop in the US five years before it happened. Such names as Peter Schiff, Jim Rogers, Marc Faber, James Turk and Max Keiser. Here are a few other videos on the state of the US that are worth mentioning.

End of Liberty – [1 hr 14 mins] Documentary showing the state of the US
60 Minutes: The 401k Fallout – [13 mins]  Shows how the collapse has destroyed the retirement program
No Law That Requires You To File A 1040! -  [7 mins] Aaron Russo discusses the fraud of the IRS
America’s Downfall Pt 5 – Public Service Layoffs & Cuts -  [11 mins] News clips showing how the layoffs
60 Minutes: State Budgets – [14 mins] Discusses the bankruptcy of US states

The rest of the world is also have problems including sovereign debt crises in Europe and Dubai, as well as property bubbles in China, Singapore, Australia, and Canada. So one must prepare for the worst and hope for the best.

As a closing, I believe that one of the means that we are enslaved in this world is due to the use of fiat money and because banks are able to create it out of thin air and loan it to us on interest. It is our lack of financial education that has enslaved us, as the financial industry continues to grow and prefers us to be ignorant about it. We are not taught this in school or by our parents and as a result we dont pass on this knowledge to our children. I hope that this information has helped in some way or another and that you can use this to help yourself and those around you, as knowledge is power, though ignorance is bliss. There are many documentaries out there that have opened my eyes to these facts and here are a few of their names – “The Debt of the Dictators”, “Slavery By Consent”, “Money as Debt”, “Oh Canada – Our Bought and Sold Out Land”, “IOUSA”, “Life and Debt”.

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