We hear in the background – IMF and EU offer 78 billion EU bailout to Portugal, US debt reached 14.3 trillion $ (BBC Source), Greece has close to 500 billion EU debt and pays 13% interest rates on 10-year government bonds (BBC Source) … Still very few people stop to ponder what does this means for them?! Even fewer see the writing on the wall. It’s in our nature to believe that we can make any kind of excesses and that we’ll never pay for them. US, a country ridden by debt, this is the first year when people are allowed to pay their due taxes using a CREDIT card.
What does it mean 14.3 trillion $ in debt ?! It means that each American – old, young, newborn, making 12,000$/year is liable for close to 48,000$. And this doesn’t include the personal debt! Right now the Federal Reserve keeps the interest on this debt artificially low, close to 0%. What if US would have to pay 7% (less than Portugal pays right now and almost half of what Greece pays)?! That would mean 1 trillion $ in interest only, every year.
So why should one care?! Well, to finance these huge debts that countries run without much worry, the printing machines are running hot. US is financing this huge debt by printing money. All our monetary system is pegged onto USD so we are all liable to pay for it when The Reckoning Day arrives. Many people are completely oblivious about what it means inflation, not the real one or what is called hyperinflation (BBC Source). Yes, prices are rising but what if they increase by 3000% per year as it did in Brazil in 1994 (BBC Source)?! The bread that costs 2$ today would be costing 60$ in a single year and 1800$ in the second year. Do you think that your salaries or the ones on which you depend to live your life would increase at the same rate?! Yes, people will make strikes, pressure on the governments would increase (as we have seen in France, Greece, Portugal etc.) and actually by creating an unstable political system it would become worse. Soon. Very soon. Can you see this future with 20-30% unemployment, with public sector continuous strikes, with interest rates of 80-90-120%?!
But this will not happen, some would say, because US can continue to manipulate the currency and make the games. It is not so. For years now, they are having a hard time convincing the world countries to keep USD in their local reserves. Pressures on Saudi Arabia, made them change their mind in 2009 about leaving the current system. Last week, Mexico purchased gold worth 4 billion USD. Chinese government, stuck with huge loads of USD (close to 1 trillion $) that they acquired by financing American splurge, is on a shopping spree to make use of these reserves which soon might become worthless.
Not scared enough?! How bad can it be? In 1923, 1 USD was worth 4 trillion German marks! Prices were doubling every two days! In 1985, Bolivia suffered inflation of 12,000% for 1 year.
What is there to do?! Surely there will be life after the crash of USD. Maybe not as we know it but there will be. We have to minimize the risks. Go back to basics: live without (or as little as possible) debt, save and invest, learn to do more with less and… don’t forget to enjoy life. Who remembers that old saying “Best things in life are free”?
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