IS MY MONEY SAFE?

•July 14, 2008 • 5 Comments

A year ago, if someone had suggested that the economic situation in the US would deteriorate as much as it has in just one year, they would be easily ridiculed and written off as crazy. Now, 12 months later, no one needs any convincing that we are hitting a n extremely challenging time in the history of this country.

On Friday, July 11th, Indymac bank collapsed and was taken over by Federal regulators. It is one of the largest bank failures in the history of the United States. Frustrated bank depositors were lined up around the block to get their money out, only to be told they had to come back on Monday. Though FDIC insured the bank and the accounts of depositors who had less than $100,000.00 deposited, about 10,000 unfortunate others lost a total of 500 million dollars.

Remember, we are talking about families like you and me who probably worked hard for their money, and were saving for retirement, kids’ college, or business. I find it amazing that people’s money can just disappear, its just something we never think about. The Average American is justified in asking; “Is my money safe in a bank?”

Its prudent to keep these things in mind:

1) Banks are companies. Companies go under. Its that simple-if you have money in the bank, you are really funding the activities of a company which could potentially fail. These days, even the largest and well established banks pose a risk of failure because of the current housing based credit/derivative crisis (just look at Freddie and Fannie).

2) The FDIC, which we count on to insure the banks where we keep our money, has a budget of about $52 billion. 10% of that budget got wiped out with Indymac’s collapse. In other words, the FDIC’s power to save your bank account is VERY limited.

3) According to many experts, the level of debt based derivatives based on bad loans is (which is what brought Indymac down) is just beginning to unravel. That its possible there are several banks operating that are among the “walking dead”. FDIC has a list of 90 of these banks, but are not telling us who they are.

So what can you do? You could pull all your money out of the banks, and keep it in the mattress, right? Well, before you rip open your posturepedic, realize that that won’t be enough, there is yet another way to lose your money that is even more insidious than a bank failure:

4) When the government prints money to excess, which they will to bail out the many failing hedge funds and banks losing billions, they devalue the dollar that is in your bank account, CD, retirement fund, and even your mattress. Imagine a blueberry pie with four slices: each of the four people present get a nice portion, right? But what if five hundred more people walked in and they each had to get a slice – you’d hardly be able to taste what you get because it becomes so small. Thats what happens when you feverishly print money like our Fed has been doing. Each dollar gets smaller, and can buy less gas, and less food. The reason its worse than a bank failure or outright theft, is because no one knows its happening year after year. Its like a hidden tax, and you don’t even have to declare!

One way to avoid this dollar shrinking is to convert your dollar into something that doesn’t shrink. Physical Gold and Silver fit this bill, and if you care about your money, you’ll find out as much as you can about converting money into this form before becomes too costly to be practical (they are well on their way).

So what does all this mean? Well, you are responsible for your money. You can put it into whatever form you like this minute, in whatever institution your intelligence directs you to. I saw a video of some of the people who lost a great deal of money due to the Indymac collapse, and it wasn’t pretty. I suggest buying a decent safe, and putting a good amount of your savings in the form of silver and gold in it, beyond the reach of a bank collapse , and the very real dollar inflation we are beginning to see. You and your family may be very glad you did.

Best of luck,

Jay

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THREE THINGS EVERY AMERICAN SHOULD KNOW

•June 26, 2008 • 15 Comments

Three simple things that we all should know and act upon. They could make a big difference in your life.

1) Our Currency is Inflating at the Highest Levels in History:

Trying to save money in an inflating currency is kind of like trying to pour water into a bucket with a small hole in it. You are taking what you think is responsible action, but in time you realize all your effort’s being wasted.

What is inflation? We hear about it every day in the news, and most will respond “its just increasing prices”. To put it simply, inflation is when money loses its value, and that is why prices increase. Ultimately, it means your standard of living tanks: you can afford less things, and you have to work even harder to keep the things you do have. Sound familiar?

With all the pundits and opinions in the news, its tough to determine where this is all headed. But taking a few steps back, history shows us many societies that have been infected with this monetary disease- ancient Rome, 18th century France, and Weimar Germany in the 1920’s, and modern day Zimbabwe are some good examples. If there were such a thing as a doctor of economic health, someone who had studied the rise and fall of civilizations and their currencies, he’d tell us the following:

  • When a country prints too much money ( usually to go to war, or to fund projects) there is inflation.
  • If that inflation is allowed to continue, it snowballs out of control – bringing increasingly high prices, greater debt, and business failures.
  • If the inflation continues even further (hyperinflation) , the currency collapses, and the citizens lose all they have (except for those who see ahead and protect themselves).

We are in the middle stages of this disease today in the US. The Federal Reserve – which controls our money supply, has been inflating our currency at breakneck speed for about 37 years. This deeply affects everyone, from unemployed to millionaire, because your money literally shrinks. The solution is simple: convert dollars into something of stable value.

2) Government Numbers are Faulty; The Media is not your Friend

Everyone knows about inflation. That is why we keep money in CDs and play the stock market. What we don’t know is that its much higher than what is reported to us by the official numbers. CPI, the consumer price index, is a number compiled by the US treasury which is supposed to report what inflation is. Yet it is falsified ( by excluding things like food and oil) to create a sense of economic security in people. Same goes for GDP, unemployment, and the money supply. The huge problem with misinformation is that people cannot then protect themselves and take proper action.

Hate to say it like this, but its true. Just about every media story is written not to tell you the news, but to sell you an idea that somehow benefits the entity that owns the news source. One of my favorite clips of all time is below. Late 2006, CNBC hosts media spin doctor Art Laffer and author Peter Schiff to talk about the economic outlook.

I love this clip, and listen to it over and over. Though its obvious today he was right, realize that two years ago when this was recorded, a great majority of the viewers would come away thinking Peter Schiff was a crackpot. My personal opinion is that CNBC, owned by General Electric, needed to paint a rosy outlook, to deter Americans from pulling money out of the stock market. Funny, they never invite him on after this.

We need to stop relying on major media to report the news honestly to us, and assume they will misinform us until the Titanic goes down. We need to be more careful what gets into our heads.

3 Gold and Silver Retain their Value

It can’t be said any plainer. Gold and silver retain their value in times of economic difficulty. This plays out in history over and over again. Gold and Silver have been the money of choice for humanity for the last three thousand years, and are recognized everywhere on the globe. They are not stocks, they are not investments, they are money.

In the countries named above where the currency was being destroyed by inflation, those who knew bought gold or silver and kept the value of their wealth while others lost everything. In fact, a country that honestly backs its currency with gold or silver (as we used to prior to the 1930s) cannot inflate its currency, because the amount of gold on the planet is limited. Which brings me to another point.

When inflation starts to become unbearable, everyone will want to convert dollars into gold and silver. Yet the amount of gold in the world is extremely limited. There is nowhere near enough for everyone to buy. This ultimately means two things, a) the price will be driven extremely high b) the vast majority of people will not own gold or silver. Therefore, in the future, gold and silver at today’s prices will look like an incredible bargain.

So, buying something of value is a great way to diminish the effects of inflation on one’s wealth. Precious metals like gold and silver are indeed valuable. But don’t take this article at face value. Do the research for yourself. Come to your own conclusion. To guide you, answer the following question by looking up this info.

Homeowrk question: if you had $10,000 in January 2000, and you purchased gold, what would it be worth today? How about silver? How about a CD? The Dow? (Hmmmm. CNBC never told me that…)

4) Bonus

Okay, the title says three things, but since you took the time to read this far, I thought I’d hit you with one last point, which is just as or more important than the others. In history, when states inflate their currency, they tend to get, well, mean. They begin to pass laws diminishing people’s rights, forcing them to trade in specific ways, detaining them and even imprisoning them- ultimately ending in a totalitarian type state. Look at Weimar Germany, which led to Hitler coming to power, and modern day Zimbabwe and Robert Mugabe.

This is a point that can be easily expanded upon, but that’s more than enough for now.

Have a fun weekend!

Jay

Royal Bank of Scotland issues Crash Alert

•June 23, 2008 • 1 Comment

Last Thursday, the Royal Bank of Scotland issued a report to its clients warning of a Global market Crash within the next three months. Below are some of the points of the report:

  • The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. “A very nasty period is soon to be upon us – be prepared,” said Bob Janjuah, the bank’s credit strategist.
  • A report by the bank’s research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as “all the chickens come home to roost” from the excesses of the global boom, with contagion spreading across Europe and emerging markets. Such a slide on world bourses would amount to one of the worst bear markets over the last century.
  • “Cash is the key safe haven. This is about not losing your money, and not losing your job,” said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.
  • US Federal Reserve and the European Central Bank both face a Hobson’s choice as workers start to lose their jobs in earnest and lenders cut off credit. The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets.
  • The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets,” he said.

These seem extremely strong words from a strategist at the fifth largest bank in the world, and I’m guessing it probably won’t make the evening news. The article goes on to say that the equities markets (basically stocks) will go down heavily within the next three months bringing with it as big a bear market as we’ve ever seen in the past 100 years.

Now panic is never a good thing. But awareness is. These are pretty good times to carefully consider the question, “How would we handle life if our present economic structure broke down?” These days I am beginning to look around me, and noticing how much I take for granted – I can easily go to ATM, withdraw some money, then head to the store and buy a loaf of bread, or hop on a plane to visit family. What if all that were to change? Sounds gloomy, but maybe some things should be looked at, even if they are unpleasant.

These letters are not going to be all doom and gloom, predicting disaster and complaining about politicians. True, we are in a most challenging place in the world, but I like to think of a challenge as training ground to discover our own strength and humanity, the very best within us. That’s why I am dedicating this entire effort to solid solutions I believe in and am using, and real sharing between visitors.

JAY

Welcome to MoneyCPR

•June 19, 2008 • 2 Comments

These are turbulent times. Many, including myself, are questioning the solidity of our present global financial situation. Is it normal for our gas and food prices to be rising the way they have been this year? How will the credit crisis affect everyday life in the US? What can I do to protect myself and my family?

I’m not a financial expert. Just a concerned citizen who recognizes that much of the valuable information we need is not available in the mass media, and that there is a strong need for sharing between individuals. I needed some answers to the above questions, and it lead me to do some lay-research on the financial system, banking, and trading. This path enriched my understanding of the world around me, and showed me some practical ways I can act to ensure my well being in these turbulent times.

I’ve been playing with the idea for doing this blog for awhile, but lately, things have been changing so rapidly that delaying much longer isn’t an option. I hope people can use this blog as a way to share their own ideas and benefit from each other’s points of view.

Jay