Will the Dollar Die?

The question is looming, and if you haven’t heard by now the US is deeply in debt. While this is called the ‘public debt’ most rational people I know would not have wanted it to come this far, but it did.

Let me summarize a few key points that will often be brought up in these grim yet true commentaries and tidbits. Public debt is another name for government debt, and the debt I refer to is that of the Federal government. It is called public because the government traditionally draws income from the public through taxes. Of late the government has had to draw upon other sources for money including loans to other countries accomplished through treasury bills and other instruments where the government promises to pay interest provided they are loaned the money.

The national deficit, which is the difference between Federal government revenue and spending, was $1.4 trillion dollars for fiscal year 2009 – the largest on record and in terms of purchasing power the largest any country in history has ever overspent. The deficit is possible through the trust of the dollar and the US government – yet history has shown that national debt and high deficits are rarely actually paid off through painful budget adjustments and shrinkage of government.

In fact quite the opposite is true, the government will actually either destroy its own currency or heavily increase taxes – the first of which will be good for manufacturing yet destroy whatever wealth families have accumulated over the years in order, and the second of which stunts growth and would result in less jobs locally.

Let us hope the less trodden path is taken and prudent budget adjustments are made and expensive and useless wars are avoided. In this way the dollar may survive and people wont be forced into bartering for goods and going back to the financial stone age.

Another important point to bring up is the actual production of goods and wealth. If the US was able to increase economic output in areas which haven’t already succumbed to the manufacturing advantages of certain Asian countries it could also reduce its deficit via a shrinking trade deficit (which I should are proportional to national debt). As it stands, each working person in the United States owes over $60,100 if the national debt was evenly distributed amongst them. Over 10% of 2009’s tax income will go towards paying public debt, the amount of debt the U.S. bears is around four times its annual income (compare that to a person who makes $100,000/year whos debt is $400,000). Another interesting blog I read puts the US in the ‘subprime’ category for buying a house.

How can you protect yourself from this? Aside from education, I would suggest either buying silver, owning land, steer clear of keeping large amount of money in low-yield bank accounts or checking accounts, and most importantly invest wisely. Of course spending money, while ironic, is one of the best ways of not accumulating it. Spending it on things that retain value is also a good idea. If you have any more ideas feel free to comment.

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