Devaluing The Dollar To Deal With The National Debt

The United States faces a national debt that it realistically has no chance of ever paying. The government and financial powers have started to quietly deal with this problem in a number of ways. One is the classic approach of devaluing our currency so that it becomes easier to pay off the debt.

False National Debt

With all the commentary about the debt ceiling debate going on, few people really know enough about the overall national debt problem to grasp what a mess we are in. Could we as a nation pay off the $14.3 trillion dollar debt? We probably could, but it would be extremely painful. The solution would be higher taxes and steep cuts in the military, Social Security, Medicare and other government programs. Finding leaders who have the political will to make these moves is dubious at best. Things are even more complicated when you realize the $14.3 trillion dollar number actually reflects a false national debt figure. The real one is much worse.

Real National Debt

The real national debt is so large that it is hard to calculate. The current estimates are it is anywhere from $75 to $120 trillion dollars depending on who is doing the calculation. How could these numbers be possible? The answer is found in two words – unfunded liabilities.

Unfunded liabilities are debts the government is legal required to pay, but which are not listed in the government books as part of the national debt because they are future obligations. In this case, the unfunded liabilities are found in Medicare, Medicaid, the Prescription Plan B passed under Bush and Social Security. The government has no money to pay its obligations to these entitlement programs over the next thirty years. Yes, we are going to owe $75 to $120 trillion in the next 30 years. $14.3 trillion looks like spare change in comparison!

Kill The Dollar

Have you noticed things are getting more expensive? Well, they are despite what the government tries to tell you. A single visit to the grocery store or to buy clothes tells you as much. This is because the Federal Reserve is making a concerted effort to devalue the dollar. Why do this? A weaker dollar makes it easier to pay off our debts. An example helps explain why.

In the 1980s, Italy had huge currency problems. While visiting as a child with my parents, I remember paying something like 11,000 lira for a coke. It wasn’t always this way. At one point in time, the lira had been worth something akin to a dollar. Now imagine someone who went into debt at that point. Let’s say they borrowed 300,000 lira to buy a home with a 30 year note. Now assume 10 years later that Italy had a currency crisis and now the lira was worth next to nothing. The average Italian would be paid hundreds of thousands of lira for their salary, but the debt on their home would not have gone up. They could literally pay off their home in a few months. Of course the banks would have failed with such a huge change, but you can see how devaluing the currency makes it easier to pay off debts.

Strategies

What can you do to fight of the devaluation of the dollar? The answer is to buy hard, tangible assets like land, homes, gold, silver and what have you. These items have a physical value and will rise against the dollar as it loses value. This is why gold has risen so amazingly the last decade.

Devaluing the dollar to deal with the national debt may be a good strategy for the federal government, but it can wipe out the finances of citizens. Make sure you don’t let it happen to you.



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