How To Take Back Our Financial System

Recently, I read a book that I recommend to everyone, but be forewarned it will be most helpful for you to be a bit of a nerd as we used to say. In a nutshell, this is a rather dry book, but the information contained within

Graphical representation of a torn dollar forming the downward trend in the US dollar's purchasing power during the 20th century

The "Fed" Effect on the Value of the Dollar 1900 - 2000

is priceless. Its title is, “A History of Money and Banking in the United States”, by Murray N. Rothbard. I was motivated to buy this book after having borrowed a CD from my brother on the history of the Federal Reserve and listening to it on the way home from our last visit.

Since then, especially given all we hear and read about today, I have wrestled with how to explain this system, both the banking and politics of it to others who love this country but are interested in neither politics nor banking. Then today, the video below arrived in my email like an answer to my prayers.

Without a doubt, while this will take a few minutes of your time, it is the best explanation I have seen to date of our recent banking collapse, the debt politics of today, inflation, the Federal Reserve, and how they are all intertwined.

Please, take a few moments and watch this animated explanation of what is really happening. I doubt it will surprise you, but perhaps it will help for those of us who know the outbursts we are seeing in this country are surreal. In this a country of people who are ordinarily and historically kind, compassionate, reasonable, thinking people. Folks who, regardless of their station in life, understand, “There is no such thing as a free lunch”.

Lining Up For Gas in 1974

Part I of a three part discussion

Evaporation?  The last two plus years have been surreal to Grandma.  She has seen a lot and lived to tell about it financially, but this time is different.  The first gas lines in 1974 and Grandpa’s instructions not to cash his paycheck really got her attention.

She was fresh out of college, teaching school then, without a care in the world.  Grandma loved every minute of playing “grown-up”.   Promise number one to her adult self was:  “In order to survive financially, you must pay attention to the world around you.”  And so it was she was soon married to newspapers, TV news, financial publications, and numerous investment letters.  Grandma has been paying close attention ever since.

Blissfully teaching school immediately came to a screeching halt.  Into the “rat race” she leaped in order to gain three times her former salary.  Meanwhile, the stock market heaved a big downward sigh as first President Nixon put into place a ‘voluntary’ wage and price freeze.

Heady inflation followed, and President Carter came on the radio one afternoon and begged the country to stop using credit cards.  One bank in Grandma’s area was charging 24% interest to buy a home.  As usual, the ever vigilant Grandma had the radio on.  Her office staff and she were speechless as they listened to Carter’s plea.

Things began turning around under President Reagan.  Again the radio was on the afternoon in August of 1981 when the stock market took off like a rocket.  The announcers were giddy with joy as they relayed the news.  Grandma was vacationing that day, and always remembers how the lunch patrons in the golf course club house broke into loud applause.  We were ready for that day.

The day we weren’t ready for was that Monday afternoon in October of 1987.  Grandma was literally ‘sick to her stomach’ as she watched her portfolio and the college trust funds for her girls lose almost half their value in a matter of hours.  Life went on though, and we all survived.

We will physically survive this time too, but this a cycle that is distinctly different than the ones mentioned above including the crash of the NASDAQ in 2000.

Evaporation of your wealth doesn’t really happen, it just feels that way.  In reality, wealth just leaves you in a transfer to its new owner.  If your home (wealth) has been through foreclosure, your home (wealth) has been transferred to the lender or to a buyer at the auction.  When people lose money as stocks drop in price, somebody else made money by selling short.  Transferred again.

Grandma really thinks this time will be different, not that wealth transfer hasn’t already occurred.  To be sure, the transfer has begun and will continue.

The key is learning to recognize what’s happening so you can protect your wealth.

Next….. Part II:  How we got where we are today, the short-term view.