Saturday, October 13, 2012
America's Financial Collapse Part 1
Question: Where will the Federal Reserve get $40 Billion to pay for mortgage backed securities every month with no time limit?
Answer: From thin air. They’re printing money without anything to back it up. What does that mean? For every month that they print up $40 Billion, prices will rise. Food, utilities, gas, etc… The more money they print, the less it’s worth.
Here's an example of what I'm talking about: Say you find a valuable baseball card. It’s one of only ten of these cards known to exist. It would be worth a fortune to a serious collector! You put it up for auction and it sells for $1 Million because of it’s rarity. Or say you don’t really want to sell it. Say you want to trade it for something else at the auction that’s worth a million dollars. You hand over the card and you get the other item in an equal trade.
Now, let’s look at it from a different perspective. You list the card for auction as you did in the previous example. Baseball card collectors from all over the country are practically tripping over themselves to get that card. The day before the auction, someone discovers boxes upon boxes of the very same card stored in a warehouse. Suddenly, the card you own isn't so rare. How much do you think you’ll make at the auction if the buyers find out that there are 800 duplicate cards out there on the market? Not much. In fact, you might as well take the card and schlep home because no one's going to bid on it. But you have another option. You decide to trade that card for an item you want at the auction that cost $1 Million. You have a problem. Your card isn't worth that much, so you need to aquire multiple copies until you've collected enough to pay for that million dollar item.
That, my friend, is what it’s like when you print money. The more you print, the less it’s worth. The less it’s worth, the more it takes to buy the items you need. When the economy is awash in money, it practically becomes worthless.
This is one of the reasons why our financial system is heading for disaster. The dollar will still be around; it just won’t buy what it used to. If you buy an apples for $1.75 per pound now, a few months from now it could cost you $4.00 a pound. The less our money is worth, the more it takes to buy what we need.