Tuesday, June 23, 2015

Dead Reckoning Day

One aspect that is overlooked with the Federal Reserve's fiat money system is the fact that our whole economy is based on faith. Faith is what backs our system. We place faith that our currency will deliver goods from purchase. No one rejects the IOU. Please, don't bring up the isolated circumstances of a mortgage lender refusing payment in cash or a rental office demanding a money order or check because they are also variations of faith based on credit. Everyone takes credit.
Credit is an Asset
You see, dear reader, according to the Fed and the government, credit is money. Everything we do is a result of this format. You get a loan(credit)to build a house. Your mortgage is your credit. The builder gets his supplies on credit. His workers construct your house for the first two weeks based on credit of the boss, as everyone in line awaits the release of payment which is numbers in an account that go plus and minus accordingly. No one transfers huge amounts of actual cash. All our bills are plus and minus signs on a ledger. We pay the utility bill by check and the energy company gets a plus while you get a minus in your account. This is the root of the problem. I'll explain.
the information and market company reported that used car loans(credit)have reached an all-time high of 62 months. Our fellow citizens are buying used vehicles and they will pay another five years to own a second hand car! Why, you ask?
Because we don't earn and save enough to be able to purchase a used car with cash. People, that last word is the focal point of this piece.
Because the convenience of credit allows us to go about our daily needs without carrying a truckload of cash and becoming a potential robbery victim. The problem with real cash as related to credit magnifies itself when someone's check bounces. Not that an individual scam can bring an economy to a halt. However, dear reader, states, cities and government use credit just like we do, but the numbers in the plus and minus accounts are much, much bigger. Therein lies the problem.
It is why Greece is in the headlines. In the US 36 states will soon vie for that space. Pension and medical promises to local, state and federal government are underfunded. They are now do.
The Government Accounting Standards Board wants states to come clean and update their ledger. Our federal government keeps things off the books and so do local "leaders."
This will only make the problem known because the last resort is you and me to cover these obligations. Rough estimates indicate that $500 billion is needed for pensions and another $500 billion to cover medical promises. Who will pay? (see above)
Now, back to our cash in circulation. Estimates say we have $250 billion. I say that is probably wrong and the figure is much, much higher. Nevertheless, the amount will be no where near the amount of debt and credit that moves our $14 trillion economy with another $23 trillion based on credit.
Dear reader, when states and cities like Detroit fail, that bounced check causes a chain reaction just like the threat of Greece defaulting. Bills must be paid, Cheney!...and there isn't enough cash to go around. When that day arrives and it is not far off because credit keeps expanding, a day of dead reckoning is just behind the promise of a unfunded pension with medical coverage. When that day comes, if you don't have cash, precious metals or something of value to trade, you will go hungry and find yourself homeless. It will get worse because civil unrest will follow and so much fear that none of the charity, food banks or similar goodwill functions will be open to operate. The government will institute capital controls to limit banks and ATMs just like in Cypress and now, Greece. Thanks to the Federal Reserve things will get ugly for awhile which is another reason why I say End the Fed!