Brian's Bits - Dollar Reckoning

Dollar Reckoning

19 April 2011

In yesterday's article I mentioned prophetic words predicting major earthquakes on the West Coast of the U.S., as well as a worldwide economic meltdown, that would follow a major earthquake in Japan. The Japanese earthquake is now historical fact, and yesterday we discussed the potential for West Coast earthquakes. Today we will focus on the second part of the prophecies, relating to an economic collapse.

You don't have to be a prophet to see that this country is in big trouble economically — if you have eyes to see, the conspicuous signs are all around ... the day of reckoning for the dollar is at hand. How did we get into these dire circumstances? What will be the consequences? Is there a way out?

For about 25 years after the end of World War II, there was a massive economic boom which carried America, as well as numerous other countries, to the heights of unprecedented prosperity. Because of this new era of affluence, material conveniences, comforts and luxuries were within the reach of a much larger proportion of the American public than ever before. Lifestyles and possessions that were once the exclusive domain of the rich were now becoming the norm for an ever-expanding American middle class.

During this period of rapid and far-reaching change, the meaning of American Dream also went through a transformation. Originally, the term had more of a philosophical bent. In America, everyone could have opportunities for advancement, through hard work, that were not limited by class, caste, religion, race, or ethnicity. Over the decades this understanding evolved into a dream with a much more materialistic aspect. Especially since WWII, the American Dream has come to mean stability and prosperity in which most people could get a good job for life, a happy family comprised of a loving spouse and two children, a nice house in the suburbs, two (or more) cars, and plenty of material possessions to make life comfortable and enjoyable.

Through the Bretton Woods system, American economic might became the cornerstone of worldwide economic stability and prosperity. But because of various domestic and international economic issues during this period, the role of the United States became more and more unsustainable. It's a long and complicated story (which you can read about fully by following the links I am including to relevant Wikipedia articles), but by 1971, the U.S. government decided to remove the dollar from the gold standard. Now, rather than the dollar being backed by a certain amount of gold, the value of the dollar is largely built upon the promise of the federal government.

It is interesting to note that before 1971, you could take a piece of American paper currency to the U.S. Treasury and actually get real silver or gold for it. The paper money was backed by precious metal — in other words, the currency represented actual silver and gold, and was simply a more convenient way of carrying it around.

I've got a few of these older-type dollar bills, like the one shown to the left. Notice at the top that it says "Silver Certificate" — modern money says "Federal Reserve Note". The bill itself goes on the explain what "Silver Certificate" means: "This certifies that there has been deposited in the treasury of the United States of America one dollar". So as I mentioned above, this dollar bill represented an actual dollar's worth of silver in the U.S. Treasury. But at the bottom of the older currency is where things get really interesting. It is written: "One silver dollar payable to the bearer on demand". Those days are long gone!

The problem that the United States and other countries were facing in the late 1960's and early 1970s was the fact that mankind had in recent years created so much wealth that it far exceeded the value of all the gold and silver in the world! Therefore it was no longer feasible to have currencies backed by actual precious metals. In our modern times, the value of a particular currency is determined, in general terms, by the faith people have in that currency and the government that issues it.

OK ... back to our post-WWII economic boom, which, as was mentioned previously, became unsustainable for various reasons. In the early 1970s a number of converging circumstances combined to bring the boom to an end:

The Nixon Shock of the U.S. going off the gold standard
The growing influx of imported manufactured goods, such as automobiles and electronics
The 1973 oil crisis (otherwise known as Arab blackmail)
The 1973–1974 stock market crash
The 1973–75 recession

During the 25 years of greatly increasing prosperity of the 1940s, 1950s and 1960s, Americans easily adapted to their higher standard of living, until it became natural and normal. An entire generation was raised to expect the same, or an even higher, standard of living as their parents had achieved.

The problems started to arise when the boom years came to an end and American prosperity started to stagnate, or even decline. In general, Americans were not at all willing to adjust their standard of living downward to reflect the new economic realities. Heaven forbid! The American standard of living must continue, and rise even higher! But how was this to be achieved when the U.S. economy and financial situation was headed in the opposite direction?

There were two main methods that U.S. consumers used to try to maintain their expected standard of living. One was to rely more and more on imported goods. Why buy a bicycle made in America for $50 when you could buy one made in Asia for only $25? At first this seemed like a good deal, and it still does to many people today. But it has resulted in some unintended, yet serious, negative consequences.

Increased imports has led to a massive U.S. trade deficit. Increased imports has also led to a significant decline in American industry, with a resulting loss in good-paying jobs and increased unemployment. This has weakened us economically and socially as a nation. The Wikipedia article on the trade deficit states:

Wealth-producing, primary-sector jobs in the U.S., such as those in manufacturing and computer software, have often been replaced by much lower-paying, wealth-consuming jobs, such those in retail and government in the service sector, when the economy recovered from recessions. Some economists contend that the U.S. is borrowing to fund consumption of imports while accumulating unsustainable amounts of debt.

While unsustainable imbalances may persist for long periods, the distortions likely to be caused by large flows of wealth out of one economy and into another tend to become intolerable. In simple terms, trade deficits are paid for out of foreign exchange reserves, and may continue until such reserves are depleted. At such a point, the importer can no longer continue to purchase more than is sold abroad.

The successful American businessman and investor Warren Buffett (pictured left) was quoted in the Associated Press (January 20, 2006) as saying "The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil... Right now, the rest of the world owns $3 trillion more of us than we own of them."

Economically, things are not looking any better for the 50 individual states of the Union than for the nation as a whole. CNNMoney.com has a page called States in Crisis, which is a long list of news articles related to the economic crisis facing many, if not all, of the states. A headline from January 2011 proclaims, States Face $41 Billion in Budget Gaps. The article goes on to say:

Some 23 states are reporting a total of $41 billion in budget shortfalls. And 11 states must close $10 billion in deficits before the current fiscal year ends. The Great Recession has hit state governments hard. Over the past three fiscal years, states have closed $230 billion in budget gaps. They have slashed spending for education, social services and public safety. They've cut the state workforce and reduced aid to local governments.

The future doesn't look bright for states, which typically recover two years after the nation's economy. Seventeen states are already reporting nearly $41 billion in budget gaps for fiscal 2013. And states are likely to suffer $175 billion in gaps over the next three years, said Raymond Scheppach, executive director of the governors association.

This leads us to the second method American have used to artificially sustain their desired standard of living: by borrowing money to pay for it. The Wikipedia article on the trade deficit continues:

In 2006, the primary economic concerns focused on: high national debt ($9 trillion), high non-bank corporate debt ($9 trillion), high mortgage debt ($9 trillion), high financial institution debt ($12 trillion), high unfunded Medicare liability ($30 trillion), high unfunded Social Security liability ($12 trillion), and high external debt (amount owed to foreign lenders).

The situation has only gotten worse during the past five years! According to the U.S. Debt Clock, the U.S. national debt is now over $14 trillion, mortgage debt is over $13 trillion, unfunded Medicare liability is over $78 trillion, unfunded Social Security liability is nearly $15 trillion, and external debt is nearly $5 trillion. And all of these numbers are on the rise. It is not possible to sustain this amount of debt. There WILL be a day of reckoning, and it's going to be VERY painful!

As if to underscore the seriousness of our situation, just yesterday the big news story of the day was that the Standard & Poor's credit rating agency lowered its outlook for America's long-term credit rating from "stable" to "negative". The article says:

The United States is at risk of having its pristine credit rating lowered if politicians in Washington cannot agree on a plan to bring down the nation's deficits over the long term, ratings agency Standard & Poor's said Monday. The change means that there is a one-in-three chance that S&P could downgrade the nation's "AAA" credit rating within two years. That would make it harder for the U.S. government to borrow money to fund its activities. The agency said a downgrade is possible if Congress and the Obama administration fail to enact a credible deficit reduction plan.

In the past couple of years there have been proposals floated by Russia, China and the Arab countries that the U.S. dollar be replaced as the standard global trading currency. The prestige of the dollar is on a downward trend. The American dollar and the American economy will only survive if investors are reasonably sure that the government's economic policies are sound. The whole system is based upon trust. When that trust gets shaken, crashes and collapses are the inevitable results.

Because we Americans cannot afford to maintain our expected high standard of living, we have often chosen to live on credit in order to maintain the appearance of a high standard of living. Between the debt we go into to buy our houses, cars, clothes, vacations, and various other material items, the average personal debt per U.S. citizen is a staggering $52,000 and counting! For my family of five, that would be $260,000 of debt, even though we personally have zero debt. Americans are definitely not living within their means, but WAY beyond their means. One day this bubble is going to pop! We can escape reality only for so long before it catches up with us.

Over the years there have been various economic bubbles, which, when popped, have resulted in widespread economic damage. Just to name a few in this country:

As huge and devastating as all of these economic bubbles were, they are nothing compared to the ax that is currently hanging over our heads. Our entire American way of life, our American dream, our artificially-high standard of living — it's all just one gigantic bubble! As the old saying goes, "The bigger they come, the harder they fall." Or in bubble terms, the bigger the bubble, the more catastrophic the pop.

When this economic disaster strikes, do you think we will react like the Japanese have to their earthquake / tsunami / nuclear meltdown — no rioting, no looting, no breakdown of society, very little whining and complaining? Not on your life! America is not Japan. The Japanese culture is very collective-oriented — personal happiness or gain must be sacrificed, when necessary, for the good of the family, the village, or the country. In contrast, American culture is extremely individualistic — I want what I want, when I want it, and too bad for everyone else.

We have become a culture of entitlement, expecting the government to take care of us from cradle to grave. We demand inexpensive education, medical care, infrastructure, pensions, and many other services. And woe to anyone who tries to take any of that away just because it's "too expensive"! If the criticism of the government's response to Hurricane Katrina is any indication, there is going to be an incredible amount of rage when the government is unable to provide the expected level of services during the coming financial meltdown. It seems likely that chaos and anarchy will be the rule rather than the exception.

We Americans are are very similar to little babies — we MUST have our generous supply of milk from the government breast. If we don't get it, we scream and cry and rage, just like a petulant infant. You don't believe me? Just wait until the government breast runs dry, and then you'll see the reality! Oh, we're all for government cuts and balanced budgets — as long as we get our full share of the milk, and someone else has to do without.

We can see this played out on a small scale in the recent uproar in Wisconsin. In an attempt to address a projected $3.6 billion budget deficit, the Wisconsin government proposed a new law which would, among other items, require state employees to contribute 5.8% of their salaries to cover pension costs and contribute 12.6% towards their health care premiums. In addition, unions would only be allowed to collectively bargin for wages, and increases would be limited to the Consumer Price Index.

When the Wisconsin state employees got wind of the new legislation, as true Americans, they did scream and cry and rage, because their supply from the government breast was going to be lessened somewhat. The noise and heat they generated was so great that the situation was in the headlines of the national media for weeks. There's a massive budget deficit — the government breast is drying up — but the squalling babies won't stand for one drop less than they are accustomed to!

This is just one tiny foretaste of what is coming on a much more massive scale. Do you think the other hundreds of millions of Americans are going to react any better, as the government breast runs dry, than the hundreds of thousands in Wisconsin? We haven't even seen the tip of the iceberg yet! It's going to get really ugly, really fast.

I don't think we Americans will even be able to begin to stop acting like spoiled brats until we finally realize that that is exactly what we are. It's time to wake up, to grow up, to wean ourselves from the government breast, to tighten our belts, to learn to do with less, and to even do without some of the things we think are essential to life. The 1950s are more than half a century behind us. The American Dream is just that — a dream. It's way past time to leave fantasy-land and face the realities of life in this modern world.

The reality is this: we are not going to have the high standard of living that previous generations had. We are going to have to accept a lower standard of living. We can either do this willingly, or we can go down kicking and screaming as it is forced upon us. One way or another, it IS going to happen. It's already happening — that is how things are. Get used to it.

In the New Testament, Yeshua (Jesus) said: "Isn't life more than food, and your body more than clothing?" (Matthew 6:25b) and "Life is not measured by how much you own" (Luke 12:15b). Later, the Apostle Paul wrote:

We brought nothing with us when we came into the world, and we can't take anything with us when we leave it. So if we have enough food and clothing, let us be content. But people who long to be rich fall into temptation and are trapped by many foolish and harmful desires that plunge them into ruin and destruction. For the love of money is the root of all kinds of evil. And some people, craving money, have wandered from the true faith and pierced themselves with many sorrows.

Lest we think Paul is not talking about us, let's put things into perspective. Compared to much of the world, most Americans, even poor ones, would be categorized as rich. Now many of us would say that we don't long to be rich, nor do we crave money. We simply want the same nice standard of living that past generations had. But if we reword it as "wanting to live beyond our means," then suddenly it hits a lot closer to home.

Also, notice what Paul says: "If we have enough food and clothing, let us be content." Are we content with just that? Could we be content with only food and clothing? Is it even within the realm of possibility to be content with just that? Could a modern American hope to survive without a car, electronic devices, electricity itself, colleges, restaurants, vacations, shopping centers, sports, and the very long list of everything else we find so vital to our existence?

In the midst of all the things clamoring for our attention and devotion, God's wisdom in the Bible whispers back to us: If we have enough food and clothing, let us be content."

I'm not against any of these modern conveniences — I enjoy them and want them as much as the next guy. They are not the problem. The problem is trying to live beyond our means — selling our country to foreigners and accumulating massive personal debt in order to artificially maintain a standard of living that is not sustainable.

If we have the means, without personal and foreign debt, we can enjoy these modern conveniences. If we don't have the means, then we must do without some, or even all, of these things. In the end, let's be happy if we have food and clothing, because they don't come automatically, and not everyone in the world has even that. This is the way life works — this is the way life has always worked. We are greatly deceived if we think otherwise.

On the consumer front, are we willing to invest in the prosperity of our country by purchasing products made in the USA, rather than made overseas, even if they cost more? Buying foreign goods raises our standard of living in the short-term, but as we have seen, in the long-term it's actually detrimental to our well-being. Would we be willing to forego our short-term gain in order to reap a long-term gain down the road. Of course, because our industrial production has been so decimated, it's harder than ever to find American products to buy. Often we have no choice than to purchase foreign goods. But when we do, which motivation will we follow: our greed or our wisdom?

Imagine — all these years, and we've been drinking at the wrong source! The milk from the government breast can never give us true life. God, when He created male and female, BOTH in His image (see Genesis 1:27), made the female breast as a symbol of the nourishment, comfort and life that we can get from Him alone. We need to drink deeply from God, as it says in 1 Peter 2:2-3,

Like newborn babies, you must crave pure spiritual milk so that you will grow into a full experience of salvation. Cry out for this nourishment, now that you have had a taste of the Lord's kindness.

In His Sermon on the Mount, Yeshua explains how we are to do this:

Don't hoard treasure down here where it gets eaten by moths and corroded by rust or—worse!—stolen by burglars. Stockpile treasure in heaven, where it's safe from moth and rust and burglars. It's obvious, isn't it? The place where your treasure is, is the place you will most want to be, and end up being.

Your eyes are windows into your body. If you open your eyes wide in wonder and belief, your body fills up with light. If you live squinty-eyed in greed and distrust, your body is a dank cellar. If you pull the blinds on your windows, what a dark life you will have!

You can't worship two gods at once. Loving one god, you'll end up hating the other. Adoration of one feeds contempt for the other. You can't worship God and Money both.

If you decide for God, living a life of God-worship, it follows that you don't fuss about what's on the table at mealtimes or whether the clothes in your closet are in fashion. There is far more to your life than the food you put in your stomach, more to your outer appearance than the clothes you hang on your body. Look at the birds, free and unfettered, not tied down to a job description, careless in the care of God. And you count far more to him than birds.

Has anyone by fussing in front of the mirror ever gotten taller by so much as an inch? All this time and money wasted on fashion—do you think it makes that much difference? Instead of looking at the fashions, walk out into the fields and look at the wildflowers. They never primp or shop, but have you ever seen color and design quite like it? The ten best-dressed men and women in the country look shabby alongside them.

If God gives such attention to the appearance of wildflowers—most of which are never even seen—don't you think he'll attend to you, take pride in you, do his best for you? What I'm trying to do here is to get you to relax, to not be so preoccupied with getting, so you can respond to God's giving. People who don't know God and the way he works fuss over these things, but you know both God and how he works. Steep your life in God-reality, God-initiative, God-provisions. Don't worry about missing out. You'll find all your everyday human concerns will be met.

Give your entire attention to what God is doing right now, and don't get worked up about what may or may not happen tomorrow. God will help you deal with whatever hard things come up when the time comes. (Matthew 6:19-34)

This is how we prepare ourselves for the dollar's day of reckoning. Live within our means — live in God's abundance.

In this article, we have focused on adjusting to a lower standard of living mostly at an individual level. In tomorrow's article, The Out-Of-Control Monstrosity, we will examine the need to cut back at a national level. <

This article is the seventh in a series of articles on this Web site related to American Politics and Culture, which also includes:

Want to throw in your own two bits? E-mail me at: 2bits@briansbits.com
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