Anyone who may be watching the stock market has seen the S&P 500 nearly reach 2000 in an all time high. In fact, much of what is happening on Wall Street seems downright positive, but don’t be mislead. Trading on the markets is at an all time low as buyers and sellers seem to be sitting on the hands they are holding, like poker players in a high stakes game. What could possibly be causing such a dry run in the trading game? Do they know something most folks are not aware of? They very well could, indeed. Way back in the year 2010, the House of Representatives passed a bill called H. R. 2847. Deeply tucked away inside of this bill is something called FACTA: the Foreign Account Tax Compliance Act, and it could very well destroy much of your money, holdings and security.
On July 1st, 2014, this bill will begin to perform some very troublesome things. Firstly, it requires all worldwide banks to answer to the IRS, the United States IRS, if they do any business with United States dollars in their transactions. The U.S. dollar is still the world’s reserve currency, at least at the time I am writing this, and this essentially means that all banks, everywhere, must comply. That is, with a few exceptions of smaller community banks. They will be required to dig into their own funds, costing thousands and thousands of their own currency in order to track down, ferreting out and then tax their U.S, dollar transactions by as much as 30%. Failure to comply with this directive will require them to disavow all of their U.S. customers.
The wave of reaction that will come from this directive will be gargantuan. This will entice more and more institutions world wide to move away from using the United States dollar as currency, more so than has been happening for a while now. This also means that Americans in North America will have the hardest time getting their money out of U.S dollars and utilizing banks like Everbank, to help them keep money in whatever the highest yield currency of the day might be. As I write this, international wire transfers are being eliminated around the globe as institutions follow the lead of J.P. Morgan Chase and HSBC. When I say eliminated, I mean OUTLAWED. Yes, international wire transfers are being outlawed to keep United States money out of foreign currency holdings.
What could FACTA possibly do to you and I as it destroys the money in our pockets? The savings of millions of Americans could be wiped out over night, for one thing. It’ll change the way you live your life on a daily basis, where you shop for food, where you send your kids to school, how you protect your family and home. Things could get very bad, very quickly and those FEMA camps don’t seem so far away for those who might not want to tow the line with the Government. The debts that America has run up just won’t disappear, and bailing out crashing companies has its effects.
Commodity prices are about to skyrocket. You and I may find ourselves paying $20 for the loaf of bread you just bought for $1.29 at the local mart. Many well thought of banks, who seem quite stable, will suddenly start closing their branches all over the country. Our credit cards will stop working. We won’t be allowed to by gold as well as those foreign currencies I spoke of earlier. Will food stamps suddenly fail? Will Social Security checks stop coming in? I personally know a small group of people who live on the edge, who would find themselves out in the street tomorrow if such a thing happened.
You may laugh at what I have told you as being the rantings of “sky is falling” fear mongering, but let’s talk a bit about why this could all happen. The United States government has been borrowing way too much money for a long time now, often with short term loans, and very soon even the interest will not be affordable. Every single HOUR the Government spends about 200 million that it does not have. In two months time, the Government borrows more money than the annual profits of the 100 biggest traded companies in America.
We began 2014 with a net public debt that has doubled and more since the year before Obama took office. Government agencies and businesses taken over by the Government have their own 5 trillion dollar obligations. What is the full burden of these debts? We have no idea at the moment due to the Federal Reserve’s power to tweak interest rates, and that power is unlimited. How much of Fannie and Freddie Mac’s bad debts will be covered by the treasury? We have no idea. We also don’t know what long term effects will happen, due to the Reserve’s ongoing expansion of the monetary base. The United States now has more debt than any country in known history. If you combined the debt of every nation in the European Union, you could not equal United States debt.
The Federal Reserve has interest rates down to practically zero at this time. The benchmark rate has been lowered ten times since 2007 from around 5.25% to almost 0%. But that rate couldn’t last forever. In 2014, the rate is now back to about 3%, and could go up 4% each year. If the rate stops around 6%, we’ll need $43.1 trillion dollars just to cover our debts to the world.
The easy answer, of course, is to simply have the Government prevent the Reserve from ever raising these rates to those levels. The bad news is that politicians seem to belive that they can fix anything with more deficit spending, kicking the can down the road for the next generation; since we’ll all be dead by then anyway.
Money, however, and the related idea of credit, is always based upon terms of soundness. It allows the sale and exchange of good and services, which are also taxed, by the way, even though you already pay an income tax. (Add that all up one day and see if you aren’t paying way more than 33% on your overall tax burden.) This helps to specialize labor, and fuel competitive advantage. Pricing guides production and consumption. But, when the money can’t be trusted, the whole system goes to hell.
Our economy refuses to pay those who save money, any real pay back above the rate of inflation on their money. Dividend stocks are a great way to find extra income but they belong to the super rich. A dividend stock may pay 11 cents to a share and if the stock is bought at $30,000 for about $10 a share, then it will pay about $330 dollars monthly. This is hardly an attractive offer, no matter what some will tell you.
The bottom line here is that a default on the American economy would have already happened by this point, if not for one thing. The United States can legally print it’s own money even though it owes a fortune to the world. The debt doesn’t get paid, but the country stays afloat. If you and I tried that with any credit card or student loan we were way behind on, we would be in court and possibly jail within days.
The dollar forms the basis of the world’s financial system. Banks around the world hold it in reserve against their loans. We don’t go broke, simply because we just print more money beyond the debt ceiling. But, keep in mind that America is the only country that doesn’t have to pay for its imports in a foreign currency. In America we have been able to consume as much as we want without worrying about the means for paying for it, because dollars are accepted everywhere around the world. We haven’t had to produce anything, or export anything to get all the dollars we need to buy oil and such, because the money is accepted everywhere, and the pricing for goods is also in dollars. We just borrow and print more money.
In the latest round of “Quantitative Easing”, the Federal Reserve began printing about $85 billion dollars a month, over a trillion dollars a year. Creditors WILL, in our lifetime, begin to call in their chips. They will stop accepting the dollar as repayment. Already, China is taking big steps to phase out the dollar as a form of monetary payment. They have already signed international currency agreements with Germany, Brazil, Russia, Australia, Japan, Chile, The United Arab Emirates, India and South Africa. They will put together their own unified currency for replacing the U.S. dollar. FACTA will be a big push to accelerate the destruction of the money in your pocket as more and more nations quickly follow suit and join China in its directive. The U.S, dollar has been the world’s reserve currency for most of the lives of those living today, so most don’t have a clue of the danger that lies ahead. It’s happened before in other places and America is no angel that will be protected from what must, and will happen in the same vein as other historical victims of too much debt and too much consumption.
Most of America doesn’t know of Britain’s winter of discontent when the Government put a freeze on wages while at the same time devaluing the currency 14% overnight. The country went broke and couldn’t make any money. This was the 1970's. Inflation was 26.9% and they attempted a three day work week for the whole nation. Higher prices for living and less money for the people made for some very angry voters. Electricity was rationed and even garbage couldn’t be picked up and it littered the streets as it lay rotting and endangering the public health.
The U.S. dollar has fallen about 10% since 2010 and continues to fall to this day. But you must understand, the Government cannot simply stop printing money, because we simply cannot pay our debts any other way. As the country devalues everything it prints, more and more, the stocks you hold will devalue perhaps by 40%. U.S. assets will be destroyed by FACTA’s ravaging of the money in our pockets. Everything is priced in our currency, so everything devalues as it devalues.
In the history of our nation, no asset has ever gone up in price for 12 straight years. But, gold has; and the reason is that people are “getting out” of the dollar while they can. As we lose our position as the world’s currency, there will be a brutal downturn in our economy which hasn’t been seen since Germany in the 1920's, just before the rise of Naziism. Massive inflation is something we can look forward to, as they did back then.
These are basic laws of economics and finance, and America is not going to be spared. This kind of problem has arrived at the door step of a dozen or so other nations over the last 100 years and it is always the same. Our Government is a runaway train with the bridge out and “NERO” fiddling as the train races faster and faster towards its inevitable conclusion.
One need only look at local government to see the politicians running for the hills. A small town in Ohio turned off a large number of street lights to save money and those lights have been off for a few years now. Philadelphia closed 37 schools because they have no other choice. California releases prisoners and mental patients to the streets on a regular basis, and if you have ever been to a big city there, you know the homeless population is a major crying shame. New Jersey is seeking to slash its pension benefits to government employees. Six U.S. communities have declared bankruptcy. And we need not mention Detroit, which has become the poster child for the disassembly of American life. The city of Baltimore is right behind them.
FACTA is coming for you and for me on July 1st, and it has its hand in your pocket, destroying your money from the inside. You’ll see prices go up, jobs being lost, unemployment sky rocketing, the government doing strange things like building FEMA camps (which are surrounded by barbed wire) and there will be rioting in the streets. Whatever happens, there will be a new world around us, and I hate to think just who might step forward to take the reigns.
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