The credit rating downgrade of the Western economy is a big blow to the US and European economy because it will make everything much more expensive. As Americans or Europeans, most of us have little clue to what it means when our country’s credit rating is downgraded. The downgrade of our country’s credit rating means more inflation or worse hyperinflation. Below is an excerpt from my ebook Money Does Grow On Trees about how inflation is nothing more than a hidden tax on the public, and why it is the number one threat for destroying your financial health during an economic crisis.
To help clarify why inflation is a hidden tax, lets look at how the fiat monetary system (a monetary system backed with little or no value) works behind the scene. Most countries that have a fiat monetary system also have a central bank that prints their money for their government. In the case of the USA, the Federal Reserve (Fed) is the central bank that prints its money. However, this was not always the case. Before the Fed was established in 1913, the USA’s government had the power to print its own money free of interest.
Behind the scenes, this is how the Fed works. When the USA’s government needs money, it relies on the Fed, which has the power to print money. The Fed agrees to give the USA’s government money in exchange for government bonds. Once all is said and done, the Fed prints out the amount of money requested by the USA’s government. So, why is this a bad thing? It is bad because the Fed is basically creating money out of thin air and loaning it to the USA’s government. This is no different than borrowing money from a foreign country. Money that is created out of thin air has no value. If you understand economics, you know that this will decrease the value of the current existing money supply, which can lead to inflation. Inflation is nothing more than a hidden tax on the public. The value of a country’s currency is mostly dependent on the goods and services of that country, not its injection of more money into the current money supply. With this type of money system, it is impossible to get our nation out of debt.
The Fed has been printing trillions of dollars to bail out companies and help stimulate the economy. This is not a good way to stimulate the economy. In the short term, printing money out of thin air can briefly stimulate the economy, but in the long run, it will compound the problem and cause the economy to collapse. Most of us do not understand how the economy truly works; therefore, we do not understand that printing money out of thin air will cause economic disasters in the long run. If printing money out of thin air is the solution, no countries in the world would be poor, because they could just print more money when they run out.
The reason why printing money out of thin air causes inflation is because the value of that money has to come from somewhere. When a central bank prints money to loan it to the government, it decreases the purchasing power of the existing currency of that country by sucking some of its value into the new printed money. In order for businesses of that country to stay competitive, they have to increase the price of their goods and services, causing inflation. Otherwise these businesses would go bankrupt because their profit margin would shrink. This is because it costs these businesses more money to produce goods or services due to the devaluation of their country’s currency.
On the other hand, it costs the government very little to have the paper money printed. It is almost free money for the government. This is how inflation truly works. This version of inflation is never taught in public educational institutions because the government does not want you to know how inflation truly works. Inflation is not a natural thing but is artificially created when the government prints more money. Fortunately, there are ways to protect your assets from inflation. I will go into more detail on how to protect your assets from inflation in chapter 2.
If you want to protect your savings from inflation or worse hyperinflation, there are three critical things that you must do. One of them is to put some of your savings in precious metals and another one is to put some of your savings in “recession proof stocks”. The last one can be found in my ebook called Money Does Grow On Trees. This ebook will show you how to protect your savings from inflation and teach you how to make money during an economic crisis.
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- Money Does Grow on Trees: Learn how to Protect and Exponentially Grow Your Investment Portfolio During Economic Boom or Bust
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