Understanding Inflation and Its Counterparts

Inflation is the term used when the demand for general goods exceeds their supply or the cost to
produce them becomes prohibitive. This simultaneously causes prices for the things we buy to become higher and the purchasing power of the country's currency to become lower. Therefore, it costs more to buy the things we need and inflation results in the loss of value in money.

The Fed employs various methods to control inflation, attempting to maintain a rate between 2-
3% per annum. An example is a candy bar that cost $1.00 this year would rise to $1.02 the following year, based on a 2% rise in inflation. Some theorize that inflation is also directly connected to the money supply of the economy as well.

Meaning, if a large amount of ―money‖ is funneled into the economy it causes a sharp rise in the cost
of goods. And history has shown that if, as money supplies rapidly increased, prices spiked and the value of money fell drastically, thus contributing to today's economy. Being that most world currencies are fiat money, the money supply could increase expeditiously for political reasons, causing rapid inflation. A marked example of this is the hyperinflation that struck the German Weimar Republic in the early 1920's. War reparation was demanded and Germany sought to pay their debts with foreign currency they had purchased with hastily printed notes. This deed failed miserably and led to the rapid devaluation of the German Mark. German citizens exacerbated the situation by frantically spending the new money in circulation, causing more money to flood the economy and accelerated the plummet to the point where money was used to paper household walls! Inflation is generally measured through the consumer price index, or CPI, which tracks the cost of a core group of products and services.

While excessive inflation and hyperinflation have negative economic consequences, deflation's effect
on the economy can be worse. This occurs when the inflation rate falls below 0%, allowing more goods to be purchased with less money. Although this sounds like an ideal situation to the general consumer, if declining prices persist, they often lead to a vicious downward spiral. Negative conditions such as, falling profits, closing factories, unemployment, shrinking incomes, increases in
loan defaults and economic depression are then realized.

Deflation occurs due to such economic climates as a reduction in the supply of money or credit or a decrease in government, personal or investment spending. Japan's ―lost decade(s)‖ is a relevant example of the lasting negative effects of deflation. They have been attempting an economic rebound for almost 20 years. Perhaps the most unfavorable economic state for a country to be in would be stagnation. This is a marrying of inflation and stagnation. When economic growth is sluggish,
prices of goods and services rise and unemployment rates are elevated. This occurred on an international level in the 70's, when world oil prices rose dramatically, fueling colossal inflation in
developed countries.

The rise and fall of inflation are the primary reason why consumers decide that investing the bulk of
their money is the most prudent course of action. Just as the candy bar would rise to $1.02, a savings
account of $1,000 would fall to 903.92 after 5 years, assuming no interest is earned on the deposit. That is why, buying a tangible asset like gold, makes the most sense for people living in an unstable economy.

Source of Information : Ask About Gold By Michael Ruge
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Why Was the Federal Reserve Created?

The Federal Reserve is widely considered to be one of the most important financial institutions in the
world. The Fed can either be your kindly grandmother or the mother-in-law from hell, and its character is usually a function of the Federal Reserve's board of governors. Its monetary policy decisions can send waves through not only the U.S. markets, but also the world.

The United States was considerably more unstable financially before the creation of the Federal
Reserve. Panics, seasonal cash crunches and a high rate of bank failures made the U.S. economy a riskier place for international and domestic investors to place their capital. The lack of dependable credit stunted growth in many sectors, including agriculture and industry.

It was J.P. Morgan who forced the government into acting on the central banking plans it had been the Bank Panic of 1907, Wall Street turned to J.P. Morgan to steer the country through the crisis that
was threatening to push the economy over the edge into a full crash and depression. Morgan was able
to convene all the principal players at his mansion and command all their capital to flood the system,
thus floating the banks that, in turn, helped to float the businesses until the panic passed. The fact that the government owed its economic survival to a private banker forced the necessary legislation to create a central bank and the Federal Reserve.

In the years between 1907 and 1913, the top bankers and government officials in the U.S. formed the National Monetary Commission and travelled to Europe to see how the central banking was handled
there. They came back with favorable impressions of the British and German systems, using them as the base and adding some improvements gleaned from other The Federal Reserve was given power over the money supply and, by extension, the economy. Although many forces within the public and government were calling for a central bank that printed money on demand, President Wilson was swayed by Wall Street arguments against a system that would cause rampant inflation. So the government created the Federal Reserve, yet it was by no means under government control.

The government soon came to regret the freedom it had granted the Federal Reserve as it stood by during the crash of 1929 and refused to prevent the Great Depression that followed.

Even now, it is hotly debated whether the Fed could have stopped the depression, yet there is little doubt that it could have done more to soften and shorten it by providing lower interest rates to allow farmers to keep planting and businesses to keep producing. The high-interest rates may even have been responsible for the unplanted fields that turned into dust bowls. By restricting the money supply at a bad time, the Fed starved out many individuals and businesses that might otherwise have survived.

It was World War II, not the Federal Reserve, that lifted the economy out of the depression. The war
benefited the Federal Reserve as well, by expanding its power and the amount of capital it was called on, to control for the Allies. After the war, the Fed was able to erase some of the bad memories from the depression by keeping interest rates low as the U.S. economy went on a bull run that was virtually uninterrupted until the '60s. Stagflation and inflation hit the U.S. in the '70s, slapping the economy across the face, yet hurting the public far more than business. The Nixon administration ended the nation's on and off again affair with the gold standard, making the Fed that much more important in controlling the value of the U.S. dollar. The big question for the Fed was whether the nation was better off with inflation or unemployment.

By controlling interest rates, the Fed can make corporate credit easy to obtain, thus encouraging
businesses to expand and create jobs. Unfortunately, this increases inflation as well. On the flip side, the Fed can slow inflation by raising interest rates and slowing down the economy, causing unemployment. The history of the Fed is simply each chairman's answer to this central question.

Criticisms of the Federal Reserve continue to this day. Boiled down, these arguments center on the
image people have of the caretaker of the economy. You can either have a Fed that feeds the economy
with ideal interest rates leading to low unemployment - possibly leading to future problems - or you can have a Fed that offers little help, ultimately forcing the economy to learn to help itself. The ideal Fed would be willing to do both. Although there have been calls for the elimination of the Federal Reserve as the U.S. economy matures, the value of the US dollar will very likely become virtually worthless before another economic system replaces the Fed.

Source of Information : Ask About Gold By Michael Ruge
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The Fatal Illusion of Debt

According to a recent survey by Pew Charitable Trusts, more than 80% of Americans are in debt. An
analysis of that survey showed that most Americans in debt have been tricked into believing that it is ―good debt‖.

While they‘re not begging for spare change on the side of the freeway off-ramps, most Americans
living in debt are working full-time jobs – sometimes two jobs – and own a house with multiple mortgages.

Meanwhile, many Americans work to get themselves out of the same debt that they previously described as good. Some people are born into debt, while others create debt for themselves – and the debt perpetuates itself; there is no way out. Sadly, thousands of people around the world commit suicide every year because of their financial problems, i.e. farmers in India etc. Yet debt is only partially the fault of the debtor. Debt is a man-made problem and a child of the economy – of all economies around the world. And as the debt of individual‘s stacks precariously higher and higher, it‘s only a matter of time until we see a true economic collapse in every country around the world.

No country‘s economy can support a majority of their people living in debt their entire life. As we will soon see, this will have disastrous repercussions for the global economy.

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What Purpose Does Money Serve Today?

The Fed financially dominates the lives of nearly every American person and has a massive influence over their daily spending habits. An unsuccessful monetary policy can have substantially detrimental effects on an economy and the commonwealth that depends on it. These negative impacts include hyperinflation, stag-flation, high unemployment, recession, shortages of imported goods, inability to export goods, and even total monetary collapse and reversion to an ineffectual bartering system.

The current Fed's mandate is "to promote sustainable growth, high levels of employment, the
stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest
rates," according to the Federal Reserve's website. This means the Fed has to make sure the US has a sound banking system and a healthy economy for its citizens.

The Federal Reserve Board harbors some powerful tools in its armory and works incessantly with all of them to meet this goal. The Fed's most common undertaking is to make money--and lots of it, with open market operations, with which the Fed is active in on a daily basis. The nation's money supply is easily manipulated by the buying and selling of government securities, like treasury bonds, from the public. If the Fed cuts back on buying securities (quantitative easing) it then lowers the amount of money circulating in the economy and therefore, forces consumers to spend less money. Other Fed revenue is generated through sales of financial services like cheque and electronic payment processing and discount loans to banks, taxation and tax breaks on imports or exports of capital into a country. However, the Fed doesn't keep any money it makes. The federal government receives all of the net profits generated. It's the regulation of interest rates and the availability of money that provides economic growth and prevents downturns. If the economy needs to see rapid growth and a large
increase in job creation, the Fed can issue additional credit and give the go ahead for banks to increase lending. It can also lower interest rates that banks use to borrow the money from the Fed, making it cheaper for banks to lend. This lowers the cost for consumers on essentials like homes and vehicles, as well as encourages them to engage in unnecessary expenditures, such as vacations.

This is referred to as the discount rate or the interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve bank. The Fed can also lower banks' reserves—meaning banks would be permitted to carry less money on their books, which
in turn enables them to lend more to businesses and consumers as well as to other banks. This tactic also increases the flow of money into the economy.

Another facet of the Fed is to supervise and regulate banks to make sure they are safe places for people to keep their money, and to protect consumers' credit rights. In order to apply all of these important tools effectively, the Fed must conduct extensive, ongoing research. They, in turn, disclose their findings to the general public through published articles, speeches by board members, seminars, and websites.

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The Origin of Gold and Silver Currency

Metals have long since been favored as money over such commodities as cattle, shells, or salt because metals are durable, portable, and easily divisible and stored. Gold has proven to be a more important player in the international monetary system, long favored over silver because it is tarnish resistant, more plentiful and packs more value into smaller coins.

King Croesus of ancient Lydia ordered the first coins forged around 550 BC. These were rudimentary lumps, a naturally occurring mixture of 63% gold and 27% silver known as ―electrum‖. They were weighed and stamped with pictures to indicate different denominations. This standardized unit of value helped Croesus amass an impressive hoard of wealth.

Not to be outdone, as Lydia was ―inventing coins, China was moving from their system of recognizable miniatures of common items traded, to the first form of paper money history identifies. In the place where U.S. bills say ―In God we trust China's pronounced ―all counterfeiters will be decapitated‖!

Egyptians were known to use a set weight of gold bars as a medium of exchange starting in 3000 BC. Around the same time, Mesopotamia used the ―shekel‖ to define both mass (of barley etc.) and currency (gold, bronze, silver) during exchanges. For over 2500 years, gold has proven itself as the
ultimate currency. In fact, it was the chosen currency to be circulated in almost every country before the introduction of paper money in 1862.

Following Queen Anne's proclamation of 1704, the British West Indies was one of the first regions to adopt a gold standard. In fact, the late 19th Century saw many of the world‘s major currencies fixed to gold at a set price per ounce, under the 'Gold Standard'.

The Gold Standard persisted in different forms for about one hundred years. Even after paper money was introduced, the gold standard was not abolished, currencies still maintained that the paper is exchangeable for gold on demand. Also, many nations still harbor substantial gold reserves to this day. Congress passed the Mint and Coinage Act in 1792. It authorized the federal government's use of the Bank of the United States to hold its reserves, as well as establish a fixed ratio of gold to the U.S. dollar. Legal tender included gold and silver coins, as well as the Spanish Real. At that time, the market price of gold was about 15 times that of silver. Silver coins were taken out of circulation and
exported to finance the American Revolutionary War.

In 1806, President  Jefferson suspendedthe minting of silver coins altogether. Passage of the Independent Treasury Act of 1848 placed the U.S. on a strict hard-money standard. Transactions with the American government now required gold or silver coins. Uncle Sam's accounts became permanently separated from the banking system. However, the fixed exchange rate between gold and silver at the mint continued to overvalue gold. In 1853, the U.S. reduced the silver weight of coins in an attempt to keep them in circulation.

Soon after, all American banks suspended payments in silver. In 1862 paper money was made legal tender. It was a fiat money (currency that agovernment has declared to be legal tender, yet isnot backed by a physical commodity) These notes came to be called "greenbacks".

On August 15, 1971, the world began being operated on a 100% fiat currency reserve and faith based monetary system. This was the date when former U.S. President Richard Nixon cut the last ties between gold and the U.S. Federal Reservenote (mistakenly called U.S. dollars to this day).

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Determining a New World Currency

It should come as no surprise that in 2015, many countries around the world including China, Russia, and Japan, were calling for one world currency. However, only one of them is succeeding.

China‘s Renminbi (get used to pronouncing that, because you‘re going to be hearing it a lot) has been approved by the IMF as the first world currency. That‘s because, even though China‘s economy was the slowest it‘s been in 15 years in 2015, they still currently have one of the strongest economies in the world. That makes the Renminbi the most valuable currency in the world and, naturally, it‘s in high demand.

Yet it‘s not a complete victory for China. In order to make that happen, the government had to give up a lot of the tight control it had over the currency, which resulted in an abrupt devaluation of the  Renminbi after their economy was already slowing down.

What‘s more, bilateral trade agreements throughout  East Asia have agreed to stop accepting the US dollar for trading purposes. If one fiat currency hasany chance of prevailing, it China‘s Renminbi – not  the US dollar.

Now with the most valuable fiat currency in theworld and their biggest economic competitor, theUS dollar vanquishing, the Chinese government is buying as much gold as they can as quickly as possible. While they won‘t give an exact figure on the amount of gold that they current have, public records indicate that gold imports going to China have increased 700% since 2010. According to John LaForge, head of the Wells Fargo commodities team, China consumes 40% of the gold that comes out of the ground every year.

"Next to oil, Gold is probably the most important commodity in the world." adds LaForge.

And that gold will become a massive bargaining chip for China and anyone else who invests in gold when the inevitable global economic collapse happens.

Source of Information : Ask About Gold By Michael Ruge
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What about Crypto currency?

Whether the Chinese Yuan becomes the first global reserve currency before the IMF can steal their thunder (and their gold), one question remains – what about Crypto Currency, like the increasingly popular Bitcoin?

It could actually mean a lot of good things, as far as U.S. Dollar values are concerned, if that is what‘s important to you. If the Yuan goes global, or viral, officially, demand for dollars will go down noticeably. This will likely not be a full collapse, yet a devaluation of unprecedented proportions.

Yet, regardless if the Yuan prevails as the world‘s strongest globally traded currency, it‘s still a fiat currency at heart and simply cannot hold the same value – not for China, and certainly not for the rest of the world. That‘s why a lot of economists believe that the final showdown between globally traded currencies will be between Gold and Bitcoin.

If you know how the blockchain works, then you already know how easy it is for Bitcoin ―miners‖ to simply build a room full of massive computers to essentially make money for them while they kick back and watch their digital wallets get fatter and fatter. However, that creates another massive problem for the world, one which no amount of Bitcoins could fix.

The technology the professional Bitcoin miners use to make money use an enormous amount of electricity. Plus, they‘re always in a race to scale up the mining process with new hardware that consumes more electricity. While once an exciting and promising new form of digital money, it‘s clear that Crypto Currency is yet another form of fiat currency that will inevitably lead to more problems for the world‘s economy. Simply put, Bitcoin is not only unsustainable – it‘s potentially hazardous to the environment.

Bitcoin may look like a very promising alternative to paper money, yet the fact of the matter is that Bitcoin itself is a fiat currency.

Source of Information : Ask About Gold By Michael Ruge
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