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Sunday, May 31, 2009

Well, gang, the Obama administration sure has created a lot of money lately! That's great, right?! Uh, well, that depends on where you are in distribution. You see, money, in our system, only measures wealth; it isn't wealth itself. Let's face it, true wealth only exists as a result of human effort. Is gold in the ground wealth? Well, only sort of. It's not useful wealth until someone makes the effort to extract, refine and mold it into a useful medium that it can truly be called wealth. The same can be said for just about anything. Rocks are a form of wealth but until it's cut or crushed and sorted into various sizes (countertops or gravel), it's not useful. In our system, someone has to borrow currency into existence. This means that someone is promising to create wealth tomorrow for cash today. Those promises can be made far faster than anyone can keep. Obama has spent more money so far that all previous presidents.....combined. What that means is the counters of wealth are being increased much faster than new wealth is being created. The only possible result is price increases and the faster he spends money, the faster inflation will run. You only benefit if you are the recipient of the new money at it's creation. Then you can get the full effect of buying power before the general price increase. Can anyone say, "Zimbabwe"? There is an alternative and it's not good. Our government could renege on it's debt which would wipe out its credit and about 95% of the currency. Remember, the currency exists because someone promises to pay. No debt, no currency. That would make the dollar scarcer and, surprise!, more valuable. Prices will plummet, except what you already owe and dollars will be harder to acquire. This would put Joe American at a serious disadvantage. Anyone think the bankers will allow themselves to be put to disadvantage by allowing hyperinflation? Me, neither. The best answer is to get out of debt, now. Sell your home and rent or pay it off. Harry Dent (http://www.hsdent.com/) predicted last fall's stock market collapse way back in 1998. I have the book. He's predicting more trouble later this year, especially for real estate. Do I think the US Government will repudiate the debt? Not voluntarily. My concern is that things are out of control.