borrowing VS saving VS stocking up

It is no accident that normal people do not understand economics whether it is the macro-economics of nations and the world, the micro-economics of their own household or anywhere in between. If enough of us did, those living off their arbitrary printing of fiat currencies would hang from the lampposts by the morning after the mass awakening.

In the last couple of days I found myself explaining borrowing money that the banksters print out of thin air so they can “earn” regular interest payments from our meager incomes. I realized I should develop a picture that would better explain how this all works on a personal level.

I did that with the two charts on the right.

Since it costs them nothing at all to print new money out of thin air (or make magic digits appear electronically), the fraudsters are happy to hand us thousands or even hundreds of thousands of their fiat money . They transfer to us something that had zero cost to them. We transfer rent payments to them for the use of that stuff. They may even hope to gain ownership of some asset we sign over as part of the process, like your house, for instance.

Paying the loan off early to clear the debt is ingrained in our psyche. Debt is bad. Savings is good. Debt free with savings is wonderful.

But is all that true?

Not when they continue to throw their fiat currency around like confetti on New Year’s Eve.

First we look at the current picture of a 30-year fixed mortgage at today’s 4% rate. I used $1,000, but you can convert that easily to $100,000 or other number for comparison sake. If you made NO PAYMENTS at all, the debt would rise 4% every year … to $1040 in one year and all the way to $3,119 in 30 years.

However, the number they do not want to talk about, in fact that they constantly LIE ABOUT is what their profligate printing and spending is doing to their fiat money. Whether we understand it or not, inflation is eroding the value of every single one of the central bank printed currencies in the world.

The red line on the rate-of-inflation chart is what our government reports. They claim that including energy, food and housing in inflation figures would confuse you. I trust your capacities more than that. So does John Williams with his economic reality site: ShadowStats.com. So he gives you the real number in the blue line.

My look at a 30-year loan includes the effect of inflation in the middle column. While as of June 2020 it was around 13%, that number will rise. Thirteen percent per year is an optimistic number. The rate will get worse and worse to a ridiculous level. Fiat currencies ALWAYS do this. Your dollar will be no different. However, using the gentlest numbers you can still see what happens to the value of money.

The right-hand column of my 30-year-bank-loan chart is your rising debt multiplied times the purchasing power it represents. Again, we assume you paid off none of it for purposes of illustrating what a bad idea it is to pay off your loan EARLY.

At the outset, your $1,000 loan is current, unaffected by inflation, worth $1,000. However, one year later you owe $1,040 on our theoretical loan, but 13% inflation reduced the value of $1,000 to $870. Thus your $1,040 debt really only retains $905 in purchasing power. One year later you now owe 1,082 in dollars, but it is really only worth $819 in the purchasing power it had two years earlier.

My loan chart carries the loan out for 30 years to a frighteningly high $3,119 owed on the original $1,000, BUT LOOK AT THE PURCHASING POWER it represents: $55 in 2021 dollars.

The other half of this economics lesson is about savings

If we are good little citizens, we strive to put our extra dollars into savings accounts where they earn interest.

This Savings Account chart uses the same $1,000 starting amount. We put our cash into a savings account where the national average is 0.04% interest. While your savings IS GROWING by that amount, the banksters’ inflation is reducing its value by 13% (and that rate will increase – that is, get A LOT worse).

Thus your current number is $1,000 deposited into savings with a net purchasing power of $1,000 at the other end.

One year later it is 2022 and your savings HAS GROWN to $1,004 which, thanks to inflation, has a purchasing power of $873. In two years your savings account can now buy what $763 would have bought in 2021. Ten years down the road your savings is a whopping $1,041 which will buy what $259 would have bought in 2021.

In the year 2050, the Good Citizens who paid off their loans early and squirreled away paper dollars in savings accounts can now buy $20 worth of goods with the $1,000 they faithfully deposited in 2021.

Kind-of makes you proud to be Murricun.

Okay, it would be unkind to leave it there. Just exactly, Ted, what do you suggest?

1) Borrow as much as you can for as long as you can. Their money is turning to dust. Don’t bank on it. Don’t hoard it. Do not place any future value on it.

2) Buy things with long shelf lives. Silver, gold, beans and bullets. Here you have to use your own crystal ball, knowledge of what THINGS are currently worth and which ones are solid, tangible and will be valuable NO MATTER WHAT.

Default is silver coins … or second to that, gold coins. However, many will remind you that silver doesn’t taste great and has very little nutritional value. Select things you know you can use in the long run and those that do not decay.

Forty years ago our silver coins were made with known amounts of real silver. Those will retain their value forever. Today’s copper/nickel composites are worth a lot less, but will retain SOME VALUE which cannot be said for pretty little pieces of paper with large numbers printed on them.