the-financial-crisis-of-2022

Welcome to bear market of 2022. We aren't just talking about cryptocurrency, literally ever market seems to be in tank. The war in Ukraine, high gas prices, and continuation of high inflation is plaguing our economy. At this point, it is almost too late to do anything. The monthly FOMC meetings have brought new regulation to the markets. The big question though is it enough? The US national debt at time of writing is flirting just under $100 trillion. Let that sink in for a second. To give you a scale of how much money that is, to make $1 million you would have to make a dollar every second for 10 days straight. To make $1 billion, you would have to make a dollar every second for almost 32 years. Now this is where it gets crazy, to make $1 trillion, you would have to make a dollar every second for 31,709.79 years. We have more debt than we could ever pay back. But what caused this debt? Debt in itself is kind of an interesting topic. A lot of the world's debt has to deal with credit and interest rates. We as people use credit and loans to obtain assets. Some debt is good, while other debt is bad. At the end of the day credit is necessary for everyone to have. It is a way that the banks can judge you as a person financially. Just because someone is nice in character, doesn't mean they know how to manage a check book or a bank account. These types of under the hood details are important when running a business or buying a house or car. The lenders need to make sure that you personally are not a bad investment, and that they will get their money back. Due to interest rates, money is deposited into a bank account, and then the bank takes that same money and loans it out to other people. They then get a percentage of returns (interest). This is why our debt will never be paid back. Every dollar that is deposited, more dollars are basically magically created from thin air. This is the result of interest. Unless we changed our whole credit situation, the whole world will always carry this massive debt. With that being said, that may just be the best option. If you look at history over thousands of years. Every society has different exchanges of currency. From salt, to livestock, rocks, gold, silver, etc. The point is, the average for these changes historically is every 100-200 years. A good is mutually decided by the population and is agreed upon as an exchange of value. This is what defines a currency. A unit of exchange for goods and services. In our current day and age, it is typically denoted in paper money. Good old fiat currency. Cheddar, scratch, benjamins, green, bread, stacks, racks, etc. you get the point. Although the dollar, particularly the US dollar has been a global leader for quite some time, over recent years it has become pretty evident that this current financial system is on the verge of collapse. At the rate at which we are going, financial collapse is inevitable. A time that will be way worse than the 2008 subprime mortgage crisis. The worst part about it is, no one seems to know or even care. This is why our government, the federal reserve, and banks have to come to an agreement on what the next move is and very quickly. Ever hear of hyperinflation? Just google hyperinflation and tons of historic accounts with pop up of countries such as Brazil, Germany, Hungary, etc. The currencies for these countries basically become worthless in a short period of time due to irresponsible money printing. Sounds familiar right? The whole quantitative easing that the US government introduced a few years back was designed to help the country in times of a crisis. In theory it sounds like a good idea, a way to bring new money into the economy and to offer new invests and loans to people at very low interest rates. Sounds almost too good to be true. Well usually in life, things that are too good to be true, never end well. Just look around to what is happening in our everyday lives. Let's say you have been working at the same job for 10 years. Over the first couple years, you got pretty decent pay raises because you advanced up the ranks. But now as you have reached the top, you aren't receiving that significant pay raise over the first term of employment, because you have hit your max rank. The only way to advance in position is if someone leaves. That is okay though, you love your job and are promised a 3-5% raise every year moving forward. As long as the company is in the positive in. terms of revenue and you are still doing well at your day-to-day tasks, why wouldn't you get a raise. Well that is all great, but let's look at the price of goods. Gas has gone up so much over the course of a decade. Even over the past two years, gas have more than doubled. Food has also gone up substantially, what might have cost you $100 at the grocery store, now costs you $120. Don't even get me started about house prices and the cost of rent. These massive prices are not good for the economy at all. Every ten or so years, we see this happen in the housing market. The prices should always raise in real estate, but at a reasonable level. At the rate they have been going lately, no average person can afford to buy a house. You may have bought a house for $200,000 two years ago and now are sitting on a property that is literally double. Now short term, that is good for the seller. But in the long term, it doesn't help anyone at all. At the end of the day, the rate at which our inflation is impacting the purchase power, it doesn't matter really what you are being paid. For money to be successful for a long term currency, it has to be backed or pegged to a deflationary asset. Gold is a perfect example of this. While gold technically isn't deflationary, because 2% of the total gold supply is increased every year through mining, it is recognized as the OG in terms of value. For many times in history, gold along with other precious metals were used as mediums of exchange. But as societies advanced, and needs changed, so did the currency. The problem with gold or anything physical as a medium of exchange is transporting it. You walk around your city in today's world with gold bars or coins hanging out of your pockets, there is no doubt you will have all eyes on you. You shouldn't have that much anxiety when you are just trying to pay somebody or simply go to the bank. So what was the solution? In the early 1900s we came up with fiat currency (us dollar). For a very long time it was backed by gold, or known as the gold standard. It actually was great, we had debt as a nation, but it was manageable. It also kept us somewhat limited to what we could do as a nation. Which can be argued as both good and bad. But at the end of the day, times were good in terms of finances. Well unfortunately, that was all taken away in the 70s. So what happens then? What gives our currency value? Some people argue our currency is a P.E.T.R.O dollar. A fiat currency that is backed by our oil reserves and the trading of oil reserves from other countries. It also carries the theory of military protection. That majority of countries need to transact with the US dollar being the global standard. In return, a partnership (alliance) is developed. And in the event of global conflict, the United States military will be there to help your country out. Ever wonder why the US is involved in almost ever single war? That in itself is an eye opening topic that we can cover for days. We will come back to that. So essentially the only thing that gives our current US dollar, which is the global leader in currency, is it is backed by the good faith of the people. That it is recognized as a standard across the globe for a medium of exchange. Okay, cool so we all agree that one green piece of paper with some faces, numbers, and symbols is what has value. But other than that, the dollar has zero value. Literally zero intrinsic value, it isn't backed by anything. Good luck going back to the gold standard now. That would be way too hard to try to accomplish. The gold standard was great, but it also had its flaws. One being that ones reserves could be stolen easily. Also a massive black market for illegal gold had a massive value, and unless you were an expert or had the tools up front to detect fake gold, it was very easy to pull a scam on someone. So the dollar did fix the problem of carrying heavy gold bars around, but you would have the problem of having huge wads of cash stuff in wallet. So what came out and solved this problem? The issuance of debt and credit cards. A way to have your bank account balance and purchase power, without having to have the physical cash on hand. So where does this leave us? Well clearly a new asset is needed.