One of my expat friends from New Zealand has asked me what the heck is going on in America. Everyday there is some crazy news, mass shootings and the government shutdown, Syria, on and on.
He asked me to make my explanation simple. That is a big challenge because there are so many things involved, but I will do my best to explain what is happening and why.
I REALLY DON’T CARE!
Some expats here in the Philippines are saying they don’t care about US politics. That the government shutdown is no big deal – it doesn’t affect anyone else. US politics affects the whole world in very serious ways. Millions of lives are affected as well as the whole global economy can be deeply impacted.
Why Should I Care About the US Government Shutdown?
The shutdown is costing around 1.2 billion dollars a week to an already fragile economy. Social services that help children are cut, many other things of that nature. That is nothing compared to what will happen if they don’t get a budget together by October 17.
If the USG isn’t able to pay the billions of dollars of debt payment due on the 17th to all their debt holders all over the globe, it can be disastrous. It can wreak havoc on countries like China who own a large portion of the debt in the form of government bonds and other financial instruments. This is what all the stuff about raising the debt ceiling is about, mostly.
That is just the beginning and not the worst part. The US dollar is the RESERVE DOLLAR – used all over the world to trade between countries with different currencies. Today, more than 60% of all foreign currency reserves in the world are in U.S. dollars.
This subject requires some study to understand. Follow this link to one article I found at random that does a good job of explaining it.
Trust me when I say it is very important, and this is why. The “Federal Reserve” which isn’t really a government body but owned privately, is printing money that is NOT BACKED BY GOLD or anything. It is not worth the paper it is printed on. Look up fiat money. Fiat money is based solely on faith or an agreement to accept it for trade.
The world is already trying to move away from the US reserve dollar. If the US defaults on its debt for even one payment cycle, the confidence in the US dollar will further crumble and there will be a run on the US dollar. Meaning people will be trading in their US dollars for other currencies.
When the US dollar is no longer accepted as the reserve dollar, and has no value, the US will no longer be able to make good on its debt using its toy monopoly money.
The Shut Down For Dummies
Are any of you getting this yet? Just imagine – suddenly all your money is worthless. If you are a millionaire – and you haven’t put your money in gold, precious metals, real estate, or other hard assets – you are BROKE!
If the US dollar goes down in value, let alone be of no value, countries like China, who hold so many US dollars, will be severely impacted.
But China has nothing to do with the economy of the world right? In addition, there are 2 million Filipinos in America, and many of them are sending remittances to the tune of billions home. What happens when those remissions slow down or stop? You don’t think the Philippines will be affected?
It Gets Worse
The Petrol Dollar
In the 1970s, the U.S. Government made a deal with the major oil producing countries that they would only sell oil for U.S. dollars. Therefore, other nations have to exchange their currencies for dollars in order to buy oil.
Because of this, the U.S. can print all the fiat money it wants to buy oil. When Saddam Hussein got the brilliant idea to sell his oil for Euros, well we know what happened to him. And of course, the same thing happened to Gaddafi and Libya when they wanted gold for their oil. Ain’t the USG grand? And you though it was because Saddam was an evil dictator with non-existent weapons of mass destruction!
The main thing that is supporting the U.S. dollar now, as the world is losing confidence in the US dollar as the reserve – is this Petrol Dollar deal. If the Petrodollar collapses, the US dollar will lose most if not all of its value, and hyperinflation will start.
War! War! What is it Good For?
The US has a lot to lose if this happens. So what do we do now – ATTACK!