Have you met Uncle Sam?

Well just like you he has bills to pay and at this point it is just over 14Trillion dollars every year. Like many of us it is not the amount of bills that we have to pay that is the issue but rather the amount of income that we generate to pay for such bills.

At this point in time Uncle Sam is only making 2.2 Trillion a year in income even though he has expenses that amount to 14 Trillion, can you see a problem here?

Well to fix this problem from week to week, month to month and year to year Uncle Sam does what many of us do, that is he borrows money to fill in the gap of 1.8 Trillion a year, this 1.8Trillion is referred to as the deficit.

Now when Uncle Sam takes out his loans, unlike our loans that we get from a bank via mortgages, credit cards or personal loans, Uncle Sam’s loans are called U.S. Bonds. Essentially a Bond is a promise to pay back with interest the amount of money that the bond is sold for to the purchaser of such a bond. This is just the same as you promising to pay back the bank with interest for the money that you borrow from them. Bonds can be held by banks, personal investors or even foreign governments.

Have you ever used a loan or a credit card to pay off another debt or loan?

Well this is exactly what Uncle Sam does with US Bonds; he continually sells more bonds to pay of the principle and interest on the previous bonds that he has sold. This allows Uncle Sam the ability to keep paying his debts but it also has the same devastating effect that you may have become a victim of when you use loans to pay of loans, eventually the interest repayments on the total amount you have borrowed becomes larger than your income and you suddenly find yourself in a position where no-one will lend you any more money to pay your loans off and you default.

Now unlike you and I, Uncle Sam does have one other way that he can get hold of some money to pay of his debts, he can simply call his local central bank and just have them print some more money for them to pay off the debt.

The problem with this printing of money is that the more of something there is the less value it has. Just think like buying in bulk, the more of an item that can be sold in bulk the more of the item there is so the less value it actually has, and the same principle applies to fiat currencies like the currency or dollars that are used in your country.

This is the reason why commodities like petrol, food and silver become more expensive when governments ask their central banks to print more money for them out of thin air. Let’s be clear here, it is not that these commodities actually become more expensive it is just that your currency (money) is worth less and by definition this is called inflation.

The fact that your government may sell bonds to other countries to raise the money it needs to pay off its own debts has a major downside effect as well, but this downside effect is really seen by the general public as having a direct correlation to the selling of bonds to other countries.

The selling of bonds may make your country look richer and the country that is buying the bonds look poorer. How?

Notice that we said “looks poorer” not that they are actually poorer. When a country looks poorer you will find that $1 in your currency buys more than $1 in their currency, so they can actually pay less money to produce goods that you consume in your currency than you can produce the goods for in your own country.

This reduction in labour costs allows the so called poorer countries the power to sell their products in your country for less than any manufacturer can produce and sell the same products in your own country, and what is the end result?

Well more often than not the manufactures leave your country and set up shop in another country so that they can compete, because the only thing they have to compete on in a general sense is price and price alone.

This movement offshore of your countries manufacturing business causes job losses and ultimately a recession in your country. So your country has more people who are out of work and can’t find work due to the lack of industries that can supply jobs. Those that are not working ultimately are not paying taxes and start collecting benefits that are supplied by the government. This situation just causes your government to have less income coming in with a decline in the taxes it can collect but more expenses going out.

When your dollars are worth less and you are not earning any more of them it is called “Stagflation” and this is why many governments around the world are in a catch 22. They can’t raise taxes or cut spending without causing or making a current recession worse and they can’t have the central banks print more money without making inflation worse.

So for now all they can do is to keep borrowing money, but since many governments are struggling to pay for the interest on the loans that they already have, it just makes the eventual default and bankruptcy even worse.

Now whether it is in a few weeks, months or years the day will come when your government will no longer be able to pay its bills and when that happens the banks investors and foreign governments who have lent money to your country and are relying on your government to pay its bills to them so that these banks, individuals and other countries can pay their own bills, will not be able to pay their bills either.

If investors can’t pay their bills then corporations will not have the money needed to pay their employees. If banks can’t pay their bills you will not be able to take out a loan, use your credit card or even withdraw your savings as the banks won’t have the money to give to you. If foreign governments can’t pay their bills their own banks and corporations will suffer the same problems and this is called a “Global Economic Collapse” and this is really scary!

Taking into consideration that a Global Economic Collapse has never happened before, no-one knows how bad it will be, how long it may last, or even how the world would recover from such an event.

The only thing that you can do for certain right now is to educate yourself further on what is going on and start preparing for the worst by ensuring you have some sound money like silver bullion and some food stocked away.

1 ounce Silver Bullion coins are recognised the world over as a form of sound money and have been used for thousands of years as a means for completing transactions for the purchase of food and clothing.