thesurefire,
I don't know the answer to that question, but I can tell you that it won't be all that long before the dollar loses a lot more buying power. Every month billions of USD go out of the country--essentially I.O.U's to foreign entities--and those dollars are held because it is thought that the dollar is a good investment, a safe holding for value. In Mexico, when I was there, people would take USD happily. But once the illusion of the strong US economic situation disappears, people will be scrambling to get something, anything, for all those dollars, and they will all come home to roost, and the fed won't be able to do a damn thing about it. Contracting the money supply by raising prime, or increasing M1 won't help in the least--on the contrary. It's going to happen sometime in the next 10 years, in my opinion, and when it does there is going to be a serious revaluation of goods and services.
It's astonishing how bamboozled the public is about very basic issues such as inflation and the basis of our money supply. People think that inflation is "the natural result of an expanding economy" when the exact opposite is true! Inflation results when the power of the economy decreases for the same money supply, or when the money supply increases faster than the economy grows. We have inflation because the Fed is increasing the money supply more than is warranted. This is essentially stealing value, or if you prefer, it is taxation. However, as the Federal Reserve is not a government agency, nor is there anything held in reserve, it's not really taxation per se. But whatever.
Or people have this idea that when the bank lends you money that they are taking their depositors hard earned cash and lending it out to you, and thus that they need to take care regarding the soundness of the loan.
Not true.
The money that you are given is actually created. The strange and uncanny truth is that the money is the debt; the debt is the money. If all debt, including the National Debt, were paid off, there would be no money left. Not Federal Reserve Notes, anyway. The Fed controls when and how the banks can create money out of nothing via various policies, and this allows the Fed to dramatically increase or decrease the money supply and spending power of consumers.
The Fed and the government both have a vested interest in keeping the price of gold and other precious metals low, and they have reserves and powers on hand specifically do accomplish this. But they've been unable to keep gold down, and it's been on the rise for about the last decade. I think the low point was about 265 USD per ounce and it's now about 675. It should, by rights, be about two or three thousand dollars an ounce, given the current purchasing power of the dollar, so gold is still a good investment. Although, if the economy completely collapses, the best thing would be a self-sufficient estate like a small farm, owned free and clear. (or, obviously, BOTH).
I've felt for years that real estate prices and the attitudes of people towards mortgages and home ownership have been INSANE. I had one guy here at work telling me I should buy a home (this was a couple or so years ago) because "money was cheap". What he meant was that lending rates were low, historically low, and thus you could get a low monthly payment ("cheap") on any given sum ("money"). I have to say that that one sentence flabergasted me. It's not that it was any revelation about economics to me, but it WAS a revelation about peoples attitudes towards money and loans.
Most people are only looking at the low monthly payments. That's just about all they see. As if the PRINCIPLE + INTEREST + TAXES + INSURANCE summed up over the 20 or 30 years of repayment were insignificant. You have people buying a house with zero money down! CRAZY! These people aren't home owners! No more than someone who rents! The bank owns their house, just like the land lord owns the house of a renter.
There have been record foreclosures this past year, all due to people over extending themselves and then being unable to keep up when the prime rate went up. Not to mention all those people who took out second mortgages on their homes, which means they monetized their houses. There was a whole lot of money injected into the economy just from all they people that did that--but it didn't represent any actual increase of production or service value in the economy.
Insane. Insane. Insane.
And then there are all the people graduating from colleges with HUGE debt--like $80,000 or $100,000 even--and without any high powered skill to balance that debt out. $80K for a liberal arts degree? WTF? I love the liberal arts and don't for a second think that everyone should be a doctor or an engineer, but COME ON! You can educate yourself and save the 80 grand, or go to a cheaper college. When I went to school, I paid about $5,000 a year, and this included room and board, and I feel pretty happy about my education, and would definitely not have increased my debt fourfold in exchange for graduating from Harvard or MIT or Cornell instead.
And, even more crazy, there are a lot of people who really would be happier and more suited for a trade or skill, such as training to be a plumber or an electrician or a carpenter, and so on. You can even get trained for free, or even get paid to learn the trade, by apprenticing. Why does everyone have to go to college now? It's dilluting the value of a college education, and is dumbing down the curriculum because the colleges can't count on the same minimum level of education and ability that they used to.
There will be signs, I suspect. If I ever hear that China is no longer pegging their currency to ours, that will be a scary bit of news for example.
But, I'll cut myself off as I still haven't answered the question posed by this thread, nor will I be able to anytime today.
