Savers Have Never Been Bigger Losers
After 1971, the U.S. dollar was no longer money, but rather a currency.
As a consequence, savers became losers. The U.S. government is allowed to print money faster than it can be saved — and they have been doing it at faster and faster rates as the years have passed.
Inflation and deflation are caused by governments and banks attempting to control the economy by printing and lending money out of thin air — that is, without anything of value backing the money other than the “full faith and credit” of the United States.
For years, people all across the globe have believed that U.S. bonds are the safest investment in the world. For years, savers dutifully bought U.S. bonds, believing that was the smart thing to do. At the start of 2009, 30-year U.S. Treasury bonds were paying less than 3 percent interest. To me, this means there is too much funny money in the world, savers will be losers, and since 2009, U.S. bonds could be the riskiest of all investments.
If you don’t understand why that is, don’t worry. Most people don’t, which is why I say financial education (or the lack thereof) in our schools is the greatest crisis of all.
- Buckminster Fuller said, “The dark ages still reign over all humanity, and the depth and persistence of this domination are only now becoming clear. This Dark Ages prison has no steel bars, chains, or locks. Instead, it is locked by misorientation and built of misinformation.”
When I read this quote in his book Cosmography, another posthumous book that followed Grunch of Giants, the idea that we were in the dark ages rattled my brain. I wanted to learn more. My question was: How does GRUNCH keep us in the dark ages?
As a reminder, GRUNCH stands for Gross Universal Cash Heist. The giants are the elites that control the world economy and keep so much of the world locked in that Dark Ages prison…
I believe that today, we are held in a prison that has no steel bars, chains, or locks via a lack of financial education. In 1802, Thomas Jefferson said, “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property — until their children wake up homeless on the continent their fathers conquered.”
The dark ages are still upon us. Central banks all over the world are fighting deflation by printing trillions of dollars. The central banks are printing money to prevent the stock market and economy from crashing. This is why the crisis we are in today is the most dangerous in world history.
Inflation is good for debtors and bad for savers, which is why savers are losers. Inflation is why life is harder for millions of people today.
Inflation is caused by the Federal Reserve and the U.S. Treasury borrowing money or printing money to pay the government’s bills. That’s why inflation is often called the “silent tax.” Inflation makes the rich richer, but it makes the cost of living more expensive for the poor and the middle class. This is because those who print money receive the most benefit. They can purchase the goods and services they desire with the new money before it dilutes the existing money pool. They reap all of the benefits and none of the consequences.
All the while, the poor and the middle-class watch as every buck they have gets stretched thinner and thinner.
The Fed fears deflation because they can’t control it like inflation. In a normal economy, the Fed can ease inflation by raising interest rates. As the rates get higher, less debt is accumulated and less cash flows into the markets. Price increases ease as a result of less money chasing the same goods. But if deflation happens and prices plummet, the Fed can’t do many things to prevent it.
Deflation can hang around for a long time as it has in Japan, which experienced a lost decade in the 1990s. During that decade, Japan’s stock market dropped 63 percent despite the efforts of their central bank which pumped trillions of yen into their economy. Even today, the Japanese economy is slumbering and the confidence of its consumers is low.
The primary tool for fighting deflation is inflation. This means the Fed will have to employ massive amounts of debt and print more money out of thin air. And ultimately, this means higher taxes, debt, and, if successful, inflation.
Think of the global economy as a big hot-air balloon. For example, things were going along splendidly until August 6, 2007, when too much hot air — debt — caused a tear in the balloon. As the horrifying ripping sound spread, central banks of the world began pumping more and more hot air — debt — into the balloon in an attempt to keep it from crashing to the ground and causing a depression.
In his book A Tale of Two Cities, Charles Dickens famously wrote, “It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness.” Amazingly, things have not changed much since Dickens wrote that in 1859.
For some people, deflation makes these the best of times. The cost of living is going down as the prices of oil, real estate, stocks, and commodities drop and thus become more affordable.
For others, these are the worst of times. The cost of living may be going down, but these people are unable to reap the benefits because they no longer have a job to cover even their basic living expenses, or they are so saddled with debt that they owe more money than their assets are worth—and the assets they have are really liabilities, such as their houses.
What Can You Do?
The difference between those who find it to be the best of times and those who find it to be the worst of times is simply knowledge and financial IQ. The great failure of our education system is that it does not teach people about how money really works, and what it does teach is antiquated and obsolete — the old rules of money.
They teach you how to balance a checkbook, but they don’t teach you how to grow a balance sheet — or even read one for that matter.
They teach you to save your money, but they don’t teach you about inflation and how it steals your wealth. They teach you how to write a check, but they don’t teach you the difference between assets and liabilities. One wonders if the system is intentionally designed to keep you in the dark.
Editor, Rich Dad Poor Dad Daily