How to prepare your family to survive and thrive in todays uncertain world

Monthly Archives: June 2011

The Inevitable Debt Bomb

The Inevitable Debt Bomb

Full disclosure time. I’ve been in a pretty big funk lately. There’s a number of reasons, and probably quite a few that I don’t know about. All in all, I haven’t felt the writing muse for a while.

It’s tough to write about preparedness related stuff while keeping a positive tilt on things, and lately it’s all gotten to me. I look at the things that are making the news, and the things that don’t make headlines but should.

Why are we talking about some idiot congressman sending crotch shots to women he isn’t married to? Why aren’t we talking about things that are actually important, such as the fact that Greece (and half of Europe, quite frankly) is imploding? Or the fact that S&P has yet again issued warnings about downgrading our credit rating.

Go back a few years and you’ll hear them saying the same things about Greece. And now there is rioting in the streets there. But are we talking about it? Nope.

Warning: Currency Geekery Ahead (But it’s important stuff!)

Take a look at this chart. It’s a picture of the value of the US Dollar against the Swiss Franc, a historically stable currency, from 1992 to now. In ten years, we went from a high of around 1.80 Francs to the Dollar to 0.84 Francs to the Dollar today. That’s a 53% drop.

Think about that for a minute.

In ten years your dollar has lost half of its buying power.

But hey, that’s just against the Swiss Franc! What about everything else?

Check out this chart. Australian Dollar (Aussie) vs US Dollar, same time frame. In this chart, the US Dollar went from a value of 0.47 US Dollars per Aussie to $1.06 US Dollars per Australian Dollar. A drop in value of … 55.6%

Now we have two different currencies to compare against. The Franc, which is historically rock solid and stable, and the Australian Dollar which is a commodity currency.

Rudy’s Note: A commodity currency is the currency of a country that has a significant amount of commodities or natural resources, and the strength of that countries economy is usually pretty dependant upon the value of those resources on the open market.

The most common commodity currencies are the Australian Dollar (AUD), the Canadian Dollar (CAD) and the New Zealand Dollar (NZD)

Now if you recall, we talked about the European economy as well. It hasn’t fared much better against the Franc. Charts look pretty familiar, don’t they?

That’s a drop of 40% in value of the Euro against the Swiss Franc.

I know that’s a bunch of currency geekery, but the numbers are pretty straight forward. On the world market we have lost HALF of our buying power. And if you take a look back at the first chart, you can tell that this isn’t really a new problem, but a longer term trend.

Folks, our currency value IS our credit rating. As the value of our currency plummets, the value of the dollar we repay our debts with goes down. This leads to higher interest rates. It MUST. The market demands it.

The Fed can only keep this ball rolling for so long. And believe me, they’re going to do their best to do it. They will do WHATEVER they can. But these chickens will come home to roost.

The market demands it.

We can print money by fiat, but we can not change the rules by which economies operate in the same way.  And like a pressure vessel that was pumped a little too full, when it blows, it’s gonna be ugly.

Let’s Put Some Real Numbers On This

Five years ago, Greek two year government bonds had a yield of about 4%. Today, they yield about 28%. This means that the Greek government is paying 28% interest on that sovereign debt. An increase of 600%.

Five years ago, US two year government bonds had a yield of about 5%. Through the Fed interventions and rate drops, it currently yields 0.44%. Guess what happens when we get downgraded and market forces take over? Can you say 30% interest rates?

So what does that mean in concrete numbers?

Today we pay about 3% (blended rate) on the national debt. In FY 2010 we spent $414 Billion on 13,561 Billion in debt (13.5 Trillion). If we apply similar increases based on bond market yields, we end up with a blended rate of about 18%.

Using FY 2010 as a basis, that would mean spending 2.44 TRILLION DOLLARS in interest payments alone. Oh, by the way, TOTAL federal revenue including Social Security and FICA taxes in FY 2010 was a glorious 2.16 Trillion.

Look at that again. 2.4 trillion in interest alone on 2.16 trillion revenue.

That’s paying about 13% more in interest payments alone than the government brings in.  In household numbers, this is just like making $45,000 a year and paying $50,800 every year for your credit card’s minimum payment.  MINIMUM payment, since this is only interest, and is putting exactly $0 against the principal debt.

And that’s not even the worst case scenario. That scenario is actually reasonable based on what we are seeing today in other parts of the world. And it doesn’t include the fact that the clowns in Washington are spending more money than an entire Navy full of drunken sailors and can’t seem to stop.

Which means that we’re rolling down hill faster and that snowball of debt is growing. When it hits and explodes, it’ll hurt. The longer it rolls down hill and the larger it gets, it’ll hurt more.

Got preps?

Hive Inspection – June 11, 2011

Hive Inspection – June 11, 2011

So this last weekend my gorgeous wife accompanied me to the bee yard to see how the bees were doing with the second deep box I added the week before. I also expected to see hatched bees and an increased population. I wasn’t disappointed on the population front, there were definitely quite a few more… Continue Reading

Hugelkultur In Action!

Hugelkultur In Action!

I’ve written about Hugelkultur concepts before. It’s basically taking a pile of wood and covering it with dirt. Longer term you end up with beds full of great organic materials … rich, healthy, fertile soil. The wood also soaks up water like a sponge, which helps with the whole irrigation thing. I heard about Hugelkultur… Continue Reading

Bolting Spinach, My Oh My

Bolting Spinach, My Oh My

The Pacific Northwest hasn’t been exactly sunny and warm this year.  In fact, we had a ton of snow recently in the mountains, and it’s been downright cold. Except for recently, when we had a bit of a warm stretch.  Which we enjoyed, but some of our plants … not so much. Specifically, our favorite… Continue Reading

Last Weekends Hive Inspection(s)

Last Weekends Hive Inspection(s)

I had originally planned to blog about each of my hive inspections, but with as busy as I’ve been lately, that just didn’t happen. So instead, I’ll skip to the latest inspection. Technically it’s two inspections, but I’ll write about them as one. Last Friday I cruised over to the bee yard after dinner to… Continue Reading

Planting Our Orchard

Planting Our Orchard

This spring we planted a total of 51 trees in our new orchard. We have a nice hill with perfect southern exposure so it gets plenty of light. It’s not too steep so water shouldn’t run off too fast. We’re also considering putting in a few swales to keep more water on the hill, but… Continue Reading

A Holiday Weekend With The Kearneys

A Holiday Weekend With The Kearneys

So as I mentioned in my last post, we had an extended visit to the Property, or ‘The Farm’ as the kids like to call it. I despise crossing the Cascades west-bound on any holiday weekend, so instead of coming back Monday, we stayed until Tuesday. While most of the weekend was spent relaxing and… Continue Reading

And … He’s Back!

And … He’s Back!

And predictably…life happens again! So it’s been a while since I wrote last, and life has been pretty busy. We took some extra time over the long weekend, which I’ll write about in a separate post. The weekend before that, my wife went back East for her sisters wedding, and was gone for four days.… Continue Reading

Related Posts Plugin for WordPress, Blogger...