Consequences of Currency Corrosion

Dec 16, 2014 | Debt, Economic Collapse, Fiat Currency, Financial Literacy, Monetary Education

When you think of something corroding it’s never referenced in relation to money. Just like acid rain over time corrodes sculptures and buildings, too much debt corrodes fiat currency.

Over the last decade the United States Government has borrowed in excess of $8 trillion dollars in efforts of stabilizing our economy, while disregarding two crucial economic principles. You can’t spend more than you earn nor can you borrow beyond what you can afford to pay back. Assuming the government actually plans on paying it back.debt

The United States national debt is now over $18 trillion dollars and counting. What we should begin to start thinking about is whether our leadership has plans on paying off their creditors or not. Since the principle of the national debt continues to rise, let’s assume there are no plans in place to pay it down. Now, how does that affect you?

Here comes the problem with an ever increasing debt. Since the government stays in business by borrowing through issuing securities (Treasury Bonds, Bills and Notes), there has to be someone willing to buy. Since other nations have realized the United States has no intention of paying back their debt they don’t buy securities like they did in the past.

The best option for raising funds to keep the government running is to have the Federal Reserve Bank issue currency directly in exchange for securities. A select group of elite financial institutions buy these securities on the open market and the Fed prints paper currency in exchange for those securities.

The problem with this operation is that government debt leads to an increase of currency in circulation and too much currency corrodes what’s already in existence. The corrosion of currency is a slow and gradual weakening of purchasing power of what you’re saving for a rainy day. In order for an economy to function smoothly there must be a balance in the supply of currency in circulation.

The balance of the currency supply in the economy should be gauged by the law of supply and demand, not government debt. When any item is in excess supply, the demand drops because there is not much of a need. When the demand for an item is high the supply tends to drop because everyone wants more than what’s available. Right now the planet is flooded with dollars and there isn’t much of a need because nations know the United States will have to renege on their promise to repay.

When it comes to currency, the government has disregarded the law of supply and demand all together. Since more debt leads to an increase in the supply of currency the Fed just prints with no concern of the side effects.  More currency in existence beyond what the economy needs is a problem waiting to happen.

Whenever a law is broken there will be consequences. The consequence of too much debt only leads to the diminishing value in the currency in your possession. The more debt the government borrows, the more currency printed, results in more currency competing for good and services.

The excess currency due to debt monetization leads to prices of everyday items you buy going up which lessens your disposable income. The less income available because of an increase in the cost of living leads to a lower quality of living.

The most important thing you will come to realize is that the United States monetary system is in big trouble. The leadership who conducts business on behalf of their citizens has entered into a mess that has grown too big to be solved. The end result of the national debt is a corroding currency.

The evidence of this reality lies in the statistics of what is supposed to be an economic recovery. If the nation is doing so well, how come the facts aren’t looking to promising? Here are just five statistics which are given from Michael Snyder, writer and editor of Economic Collapse.com, entitled “19 Signs That The U.S Consumer is Taped Out.”

#1 Real disposable income per capita continues to fall.  In the fourth quarter of 2012, it was sitting at $37,265.  By the time that the fourth quarter of 2013 had come around, it had dropped to $36,941.  That means that average Americans have less money to go shopping with than they did previously.

 #2 In January, real disposable income in the U.S. experienced the largest year over year decline that we have seen since 1974.

 #3 As disposable income decreases, major retailers are closing thousands of stores all over the country.  Some are even calling this “a retail apocalypse“.

 #4 From September 2013 to January 2014, the personal saving rate in the United States dropped by a staggering 16 percent.

 #5 During the fourth quarter of 2013, we witnessed the largest increase in consumer debt in this country that we have seen since 2007.

If these stats don’t resemble the characteristics of a faltering economy I don’t know what will. The main point is that the more indebted a nation becomes, the poorer the citizens will become.  The poorer the citizens are the less freedom and options they will enjoy. All of this because of the consequences of currency corrosion.

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