Thoughts on Our Money System

Ever since March, when Troy left a comment on my blog, I’ve been thinking about what he said. His comment was in response to my post on hyperinflation. Troy writes:

Ryan, just found your blog and am a bit confused. I believe that the scenario in some form as described in “Ushering in a New Era of Hyperinflation” will materialize. Whether it is nasty inflation or hyperinflation, we will see the value/purchasing power of our dollars decreased. It seems that you are focusing on debt reduction. A very noble and valuable exercise but probably not in this paradigm.

May I suggest an alternative approach? Keep your debt. What is the benefit of debt reduction right now? What is your current debt load preventing you from accomplishing? What opportunities are you missing because you a focused on singular goal — debt reduction. What about investing to expand your business? What about investing some portion of your debt reduction funds on acquisition of physical assests such as silver or gold… as a hedge? What about taking on debt backed property?

If inflation happens, savings become worth less and at worse worthless. If inflation is going to occur, then debt-backed properties and physical assets are the way to go. I am not suggesting one extreme or the other. Simply that debt reduction should be balanced with other strategies. The most important issues is to make sure all variable rates are FIXED. Best of luck. Keep the faith, brother.

I’ve been reading and learning about our money system for a few years now (I’m currently reading The Creature from Jekyll Island by G. Edward Griffin), and I’ve been struggling with what to do.

Because, in a way, what might seem logical in an economy with real money is illogical in an economy with fiat money.

The money I have today has more purchasing power than the money I earn tomorrow. Which means there is a strong incentive to spend that money on physical goods now — and a strong disincentive to save.

I distinctly remember when the real estate bubble was expanding in the early 2000s because Steph and I wanted to buy a home for our growing family. But it was insane. Builders were raising their prices by as much as $15,000 every couple weeks.

If you waited two weeks to make a decision, you would have to pay an extra $15,000. But who could possibly save that much money in only two weeks? Because of price inflation, waiting to buy didn’t make a whole lot of sense. (By the way, I still refused to buy.)

We may be on the verge of a similar situation, not just with real estate, but with the prices of everything. If hyperinflation takes hold, we’ll all be wishing we’d spent our money before it became totally worthless.

Assuming hyperinflation is in our future, it makes no sense at all to pay off debt right now. It actually makes more sense to take on debt, then pay it back quickly with worthless dollars.

I’ve studied the history of hyperinflationary situations, and from what I can tell, most people are able to pay off their debts quickly because the money supply is expanding so rapidly.

I know this probably sounds all weird and strange and topsy-turvy — and it is! You can’t think the same way when you’re dealing with a currency that is being devalued as much and as fast as the U.S. dollar.

All is to say, this line of thinking is influencing my decision about whether to buy a new car or not. I have one in mind, and it would make my debt go up quite a bit. But the car manufacturer is offering 0% interest on a 63-month car loan through July 31st.

Question: Do I buy the car using a 0% interest loan? Or do I go with one car for now and continue paying off debt?

Under normal circumstances, the “logical” thing to do would be to pay off debt. But in today’s circumstances, what is normally logical is illogical. And what is normally illogical becomes more logical.

Which is to say I’m leaning toward buying the new car.

Am I crazy? Leave a comment and let me know.

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2 thoughts on “Thoughts on Our Money System”

  1. Ryan, I’m curious about where you found your information on hyperinflation and debt reduction. Can you share your references?

    Thanks,
    Victoria

  2. Victoria,

    Here are some links for you to research:

    Wikipedia – The Weimar Republic

    Look under the “Years of crisis” subheading for some interesting information about hyperinflation.

    The Worst Episode of Hyperinflation in History: Yugoslavia 1993-94

    Make sure you read to Page 3 of this article. Explains how people would wait to pay phone bills because inflation was happening so quickly.

    Hyperinflation History: When Hard Cash Goes Soft

    Direct quote: “Restaurant bills could double before diners finished their meal, and ministers passed laundry baskets around for the collection in their church.”

    Overall, a good article, but the closing quote is total B.S. The author writes:

    “For years now, there have also been many doomsayers prophesying a murky future for the US in which the economy would collapse under hyperinflation. There is little chance of that happening. The US has learned its lessons and has a good grip on monetary mechanisms.”

    Uh, no.

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