Have you struggled to explain the global economic death sprial to somebody else? I certainly have. That's why I spend a few weeks boiling the situation down to a Mr. Rogers-level explanation. I wrote the following essay specifically to help people explain to their friends, family and coworkers what the hell is going on. I'm going to turn this into a simple video presentation that can be freely shared by all, but first I'd love to get some feedback. Please let me know of any factual errors, conceptual gaps, or other glaring omissions/problems.
ECONOMIC ARMAGEDDON AND YOU
Meet Uncle Sam. He has a lot of bills to pay: wars, entitlement programs, government payroll … These things take money. About 3 and a half trillion dollars per year, actually.
The problem is that Uncle Sam’s income is only a little over 2 trillion dollars per year. To pay the rest of his bills, he does what most Americans do: he borrows money.
When Uncle Sam takes out a loan, he calls it a “bond.” Whether the bond is held by a bank, an investor, or a foreign government makes no difference: Uncle Sam has to pay it back eventually, and in the meantime he has to pay interest, just as you do on your credit card bill or mortgage.
Ever think about paying your Visa Card with your Master Card? That’s what Uncle Sam does. He takes out new loans – new bonds – so that he can make payments on the old ones.
All those loans and all that interest adds up. Right now, Uncle Sam owes about 14 trillion dollars. To put that in perspective, 14 trillion dollars is about the same as the GDP – the total value of all the goods and services produced by the American economy in an entire year.
It’s such a huge amount of money that Uncle Sam is starting to have trouble just paying the interest on his loans: that’s like having trouble making the minimum payment on a credit card – it starts making the people lending the money nervous.
Because Uncle Sam is starting to make lenders nervous, he’s having trouble borrowing money. If he can’t borrow money, he can’t make his payments. If he can’t make his payments, the banks, investors and foreign governments that he borrowed from won’t be able to pay their bills either.
If banks can’t pay their bills, you won’t be able to cash your paycheck, withdraw your savings, or take out a loan.
If investors can’t pay their bills, corporations won’t be able to pay their employees.
If foreign governments can’t pay their bills, their own banks and investors start having the same problems.
Uncle Sam doesn’t want to be responsible for those kinds of problems. Fortunately, he has one more way to make money: just make it! Uncle Sam runs the printing presses that create money. These days, it isn’t really a printing press, it’s just a computer. Uncle Sam can push a few buttons and – like magic – money is created and deposited into banks. Uncle Sam calls that magic trick “Quantitative Easing.”
The problem is that the more of something there is, the less it’s worth. The 1909 Honus Wagner baseball card wouldn’t be worth 2.3 million dollars if it weren’t so rare. Same goes for the US dollar: the more dollars there are, the less each one will buy.
That’s why commodities like gasoline, food and gold keep going up in price. They’re not worth more, your money is just worth less. This process is called inflation.
This is one part of the problem: Uncle Sam has run out of people to borrow from, and has to print money to pay his bills, thereby making your money worth less.
Remember the foreign governments that lent money to Uncle Sam? When they lent money to the American government, something interesting happened. It made the US look richer, and their countries look poorer.
As long as other countries look poor and America looks rich, one dollar of our money buys a lot of their money, so they can pay their workers only a few pennies a day. With such low labor costs, they can sell products in America for lower prices than any American manufacturer.
If American companies want to stay in business, the easiest way for them to compete is to move their factories overseas, and pay their workers over a few pennies a day too.
When American companies start moving their operations to other countries, Americans lose their jobs. The people that still have jobs are so desperate to keep them that they’ll work longer hours for less pay. When you’re earning fewer dollars, and your dollars are worth less, that’s called stagflation.
When people are out of work, or earning less, they can’t pay their taxes, and they collect unemployment payments. This means that Uncle Sam has even less income, and even more expenses.
The difference between Uncle Sam’s income and his expenses is called the annual deficit. The bigger the deficit grows, the harder it is for Uncle Sam to make the payments on the national debt.
If you can’t make the minimum payments on your credit card, the bank will stop letting you use it, and they’ll start hassling you about paying your bill. That’s what’s happening to Uncle Sam right now.
Uncle Sam’s only way out is to stop spending so much money. But if he does that, he’ll make people angry.
Uncle Sam can’t bear to make people angry. He’d rather just pretend that nothing’s wrong as long as he can.
Sooner or later, though, the whole house of cards is going to fall down. Uncle Sam won’t pay his bills, which means that banks, businesses and foreign governments won’t be able to pay their bills, which means that – all over the world – people like you and me won’t be able to pay our bills.
That’s called a global economic collapse, and it’s really scary. It’s never happened before, so nobody really knows how bad it will be, how long it will last, or even how we’ll eventually get out of it.
Maybe Uncle Sam will decide that he’d rather make a few million people angry today than destroy the lives of billions of people tomorrow. Don’t count on it.
Instead, do whatever you can to prepare now. While your credit cards and bank accounts still work, turn your soon-to-be-worthless dollars into tangibles – things that have real value because they’re useful: land, food, tools, and things to protect yourself with. If you live in a city, make plans to go somewhere else once things get bad. If you have any money left, buy some of what’s getting to be worth more and more as the dollar is worth less and less: gold and silver.
For more information, check out these websites.
Good luck. And may God help us all.
Yes, I think most of us have had a hard time explaining to people what’s going in the economy. With the wide array of stuff going on, it’s tough (for me anyway) to articulate a well-rounded argument. I think dumbing it down might be the best way to get people involved. I can’t wait to let some sheeple read this. Big Texas hat tip to you sir.
I would add an example of inflation but priced in silver or gold (20 gallons of gas in 1950 and now).
Keep following the KISS (keep it simple silly) principal! Pare it down even more, maybe shorter, sharper, machine gun delivery. Modern attention span is short. If you plan a video - no longer than 4 minutes. Any longer starts to suffer audience loss - proven.
Excellent project and I wish you the best of luck with it.
Just talking out loud, no need to get sidetracked. Point is, I found this paragraph confusing. Perhaps:
The problem with just printing more money is that the money loses value. The price of a $2 loaf of bread can become $3, or $4, or $100 - there's no end. It happened in Weimar Germany, Hungary, Argentina and many other places, most recently Zimbabwe, where the loaf of bread ended up costing billions of Zimbabwe dollars.
We're used to thinking about price. But when things like gasoline, food and gold keep going up in price, you need to think differently. A higher price doesn't meant the thing has gotten more valuable; it means the money to buy it has become less valuable. This process is called inflation.
And of course it's a scam that functions as a very effective wealth transfer mechanism, but we don't need to get into that ;-)
Nice job on the layout, looks good. I'll never use it to be honest as I have been preaching this since 01. So I have given up, the sheeple will meet their own destiny one way or another.
Good overall essay and something I've been struggling with too.
My only nit to pick is about Uncle Sam not paying his bills. I kind of doubt that will happen -- Uncle Sam will keep paying his bills in increasingly worthless fiat trash hot off the printing press until Uncle Sam (and his currency) are no more. . .
"Uncle Sam’s only way out is to stop spending so much money. But if he does that, he’ll make people angry.
Uncle Sam can’t bear to make people angry. He’d rather just pretend that nothing’s wrong as long as he can."
This statement is a bit disingenuous I think: "..he'll make people angry." Actually, people will die in droves, but only after they pass some time as the living dead (zombies) trying to redistribute wealth on their own. That is where household security becomes important, especially in the urban setting when store shelves are empty and fuel is in short supply.
The question I always get is why buy gold and silver? What good is that anyway? How will it be useful? Maybe you could elaborate on that part more. Buying PM's is the most important concept to get across, but it is hard to picture how it will help when TSHTF. People can't make the jump mentally from I buy food with FRN's, to nobody wants FRN's, "How will you buy food now?"
Normalcy bias can kill you, I tell them.
Folks, thank you VERY MUCH for the excellent feedback.
Inflation is the most difficult thing for me to explain ... I picked the Honus Wagner example because it's the most expensive baseball card in history. However, if it jumps out as being distracting trivia, I will retool that section. I like the idea of using bread as an example, and mentioning other countries.
And I agree that brevity is the soul of wit. I will see if there's anything I can consolidate or abbreviate. I'll also see if I can expand the PM section slightly to be more than just a redirect to tfmetals.
Thanks for the encouragement and advice!
Good piece of work. I,ve been trying to explain this to my mother-in-law for a long time......no luck. This approach may do the job though no guarantee. She,s a good person but just doesn't get it.
I use similar analogies on my children as well. Most people don't want to know, but I have convinced a circle around me that at least something doesn't feel right. Hopefully soon they will start storing food at a minimum. I feel that we are running out of time quickly. Anyway, terrific post!
Paladex - this is good stuff. Thank you for your efforts. Some of the difficulty in convincing others is a generational concept. My father, age 76, knows hard times and can tell something is different this time, and is extremely frugal, but I can't get him to buy gold or silver because of the Hunt Bros. debacle. My daughter, age 21, is tired of hearing me preach about how things are going to be very different for her generation and she should save instead of buying the new pair of shoes, latest cell phone, etc. My point is that most people suffer from inertia, believe life goes on like always, and don't understand why this time it's different. How do we explain that? Or do we?
Just printed a bunch of copies, stapled it to a good essay on the true value of a college education and left a stack on the table at the local university student union building where I teach a course every now and then. I don't fit in around here anyway so at least I'll get a good show, maybe help someone in the process. I know I know, I'm a sh*t stirrer, and proud of it!!!!
Thanks for text.
As a financial advisor i try to educate my clients and often find they have a misunderstanding of inflation. The common perspective is they believe inflation is a rising level of prices. This is incorrect. Inflation results in a rising level of prices. The "textbook" definition of inflation is " too many dollars chasing too few goods". I use this story to illustrate:
Suppose there is an auto auction and ten auto dealers come to the auction. They are not allowed to bring any money, but each is given $10,000 dollars at the door. One car is auctioned. How much did the car sell for? The answer: $10,000. One of those dealers will want it enough that they will spend all the money they were given, while others would try to get it for less, thinking they would keep the money not spent.
OK. We clear the auction and bring in another car - exactly the same as the one before and bring in ten more auto dealers. This time we give them each $11,000. How much does the car go for? $11,000! All the conditions are the same except for the amount of money. Again, one will want it enough that they will pay all the money given them. But how can this car, exactly the same as the one sold before be worth 10% more? ~ "Too many dollars chasing too few goods"~
Creekdweller. remind your dad that the Hunt brothers were defeated by the market makers changing the rules. They played using the paper contracts. Ask him to think about what would have happened if they had the physical. Also, give him some examples of collapsing currencies and what hyperinflation did to purchasing power. Finally perhaps you can have a conversation about prudent diversification. Using this investment theory at least he should be able to accept a 5 to 10% allocation to PM's.
Certainly there is a normalcy bias (perhaps ask your daughter to Google that term.)
We MUST get the general populous to kick out the cobwebs and use their brains. All the fact are there to see. Use historical examples and have them try to contradict. At least you can kick start their brains. Get the intellectual conversation started.
The family loves me despite my tendency to preach doom.
I share your frustration regarding the normalcy bias and/or ignorance/denial of associates and loved ones. As Dorothy Parker once statedm when asked to use "horticulture" in a sentence: "You can lead a whore to culture, but you can't make her think."
Nevertheless, hope springs eternal. I look forward to working on this further. Thank you all for your helpful and thoughtful feedback. I greatly appreciate your time, and I will rework the script based on these suggestions. I'll then put together some graphics to support the verbage, and put together the video. That will certainly be easier to share than printouts (although I'm immensely flattered that Capt. Silver chose to share my text, as is!)
My point is that most people suffer from inertia, believe life goes on like always, and don't understand why this time it's different. How do we explain that? Or do we?
My point is that most people suffer from inertia, believe life goes on like always, and don't understand why this time it's different. How do we explain that? Or do we?
Good luck. I have a similar situation. My father is in early 80s now (has degrees in accounting and agribusiness). I have been preaching higher gold and lower dollar for 12 years now. He knows I have been right all these years, but he still won't buy gold (says "he is scared to"). Parents don't listen to their kids; probably some payback for kids not listening to their parents :)
Also, it does not help that those so-called "financial experts" on the call-in radio shows are know-nothing idiots when it comes to precious metals. I can say for sure that Clark Howard, Dave Ramsey, and Bob Brinker at one time or another have told callers specifically "don't buy gold." I don't know if any of them changed their minds on that because I stopped listening when I figured out they gave opinions on things they had no clue about. But there has to be a lot of people who did not buy because of their clueless advice.
Captain Silver wrote: Just printed a bunch of copies, stapled it to a good essay on the true value of a college education and left a stack on the table at the local university student union building where I teach a course every now and then.
What would work better is a 'selling' web site - i.e., short and catchy page one leads you to page two etc., mobile friendly. Then, leave some QR codes with the URL stuck to lampposts or w/e. That way a janitor can't simply put the whole pie in the trash.
I'll be thinking about this more. Might make for a fun design project. Though personally I think that anybody who doesn't pretty well 'get it' by now - meaning they've either gotten their asses and assets out of Amerika or are well armed and provisioned and hunkering down - are basically deer in the headlights.
Thanks for writing this, I will spread it and look forward to your updates! I am working on a resource guide and would love to include this in it. Just wondering do you want your name attached to it or would you like it to be anonymous. Hat tip to you Sir
Dynamis, thank you for the kudos. I am delighted to share this work freely with all who are interested. I do not need to be credited.
Give me a week or two to work on the graphics, and I'll post the video link on this thread.