TL;DR: Explanation of why the “collapse” we constantly hear about is likely to happen during the term of our next president, what it will look like, and how to deal with it. It’s going to be concrete instead of the usual fluffy talk. Challenges and questions are welcome and encouraged; something in here is probably unclear or incomplete.

"Nobody saw this coming." – Every "expert," eight years from now

When:

The national debt has been doubled by the last two presidents (congress too) during their eight years in office, respectively. The first guy from $5 trillion to $10 trillion and the current guy from $10 trillion to $20 trillion (he knew this was how to bring the U.S. to its knees by the way; he is no dummy- unfortunately quite brilliant). Can the next guy do it again?

Logic says guy #1 did it, and guy #2 did it after him, so guy #3 should be able to as well. If it happened twice, it can happen again. However, the reason those guys have been able to double the debt is at the expense of other economic tools; namely interest rates (price of money) and money printing (they call it inflation). If these tools had no limits, sure, we could double the debt as many times as we want.  

Interest rates: Lowering interest rates allows them to get more debt. Problem: Interest rates have hit their lower limit. Interest rate=the price of money. The price of money needs to be positive to make sense; that money is scarce. Interest rates are at zero, and have trouble going below zero for this reason. Interest rate manipulation as a tool by central banks is now exhausted. Yet, the budget screams for more. Uh-oh.

Money printing: Always the last resort. Always the last remaining tool in the central bankers’ toolbox. Always the end of the road. “Eventually they printed too much money and the citizenry couldn’t buy anything and there was a revolt (and/or collapse).” Where interest rates have a lower limit of zero, money printing is limited only by how much the citizens are willing to put up with. Only when people feel it (like not affording a loaf of bread) do they become interested in the problem; unfortunately too late. History books talk about the cost of food, but rarely mention all the money in peoples’ retirement accounts that became worthless overnight. Too scary.

Why:
All these “tools” central bankers (try not to think of these people as evil; more like they have an impossible job) have are really economic forces and laws that have limits. They can be bent, but not broken.

Every tool that has been exhausted and manipulated will come back with a vengeance by the market; it will take its pound of flesh. The market will force interest rates up; they have been bent down, the market will bend them back up - sharply. Worse than the 18% mortgages is the ‘80s because the underlying problems are worse and because the Fed will lose control. Effect #1: Extremely high interest rates.

Money printing doesn’t bend back; it breaks when people dump it for a more stable, scarce source. They just print more; it’s all they can do. Rising prices; noticeably higher, as in double within five years, while wages stay the same (wage and price controls). Concurrent effect #2: Prices rising extremely quickly.

Trade deficit: Other countries no longer want to trade their tangible goods for our money that is backed only by confidence; dwindling by the day, week, and month. Concurrent effect #3: No more goods from trade partners.

Jobs: Who manufactures most of our goods? They stop trading with us, but we still need goods. The skills and infrastructure to make goods cannot be shipped back over here overnight. It will take some time to re-tool and re-skill. Our “service economy” only exists because someone else makes tangible goods and trades them for our paper currency. Concurrent effect #4: High unemployment.

Also, add in everything government usually does to make the problems worse: https://mises.org/library/how-fdr-made-depression-worse

The reason it’s referred to as an economic “collapse” is because these things will hit all at once; a perfect storm borne out of the complete control they have over the economy. If they had control over only interest rates, their incompetence would be contained only to that area. A guy who wants to open up a factory to make goods can’t because interest rates are too high to borrow, he has no skilled workers to make the goods, and materials are too expensive to buy. Also because the currency is debt-based vs. sound; more on that in a bit.

Who:
The powers that be need to extract the value from whatever dollars are left. The more dollars someone holds, the worse it feels. The guy just starting out in life is ok; he has little wealth saved up. The people who get hit are the one who saved up their entire lives. Their nest egg is wiped out overnight. Our minds still see a $1,000,000 nest egg, but it only buys $100,000 on the street; no exaggeration. Retirement is always out of reach; a thing of the past.

How:
The historical context of today is a brief, unique time in the lifecycle of a nation. Governments always get control of the money printing machine (or make one like the Fed). Temptation of theft through manipulation of the money is too great. It ramps up over time as the public demand for more freebies rises at an increasing rate.

Eventually they mess it up so much that it blows up in their faces. Everything is exhausted. That is where we are today. When national debt to GDP reaches a ratio of 120, game over. In 2007, it was 65; currently it is about 105. It has hit 120 before, in 1946. However, those “tools” were available to use at that time (which really kicks the can down the road and makes the can heavier); none are left today.

Debt-based currency: “This time it’s different,” because the value of dollars will be called into question. That’s never happened before. Since they printed too many, the rest of the world gives them back. We experience a flood of our own dollars we had been duping the world into holding for decades. Debt-based currencies always collapse under their own massive weight. We won’t know which way is up at this point. In a very concrete way, the U.S. will fee like a third-world country for a few years.

Good News:
“Well, thanks RINO, you’ve officially ruined my day.” The wonderful thing about finance, investing, and financial planning is that we can have our cake and eat it, too. It’s beautifully simple; anyone not insuring their dollars with gold is going to feel the burn. 5-10% is plenty, and will provide enough insurance against their printing press. More than 10% and it starts to become a tradeoff most people do not need to take. On one side is dollars printed by irresponsible people, the other is gold that isn’t subject to human temptation.

It’s a process and an event. The value is driven down as quickly as they can do it over time without a revolt, yet it eventually gets out of control and falls apart quickly. We are right on the precipice of the really fast part. Eight years is a blink of the eye economically speaking, and most of us will still be alive eight years from now.

What if all of this is incorrect, or does not happen that soon?

What is the downside to someone who exchanges 5-10% of his assets for gold? The central bankers have told us they’re going to print; they don’t have a choice anyway. But, if somehow all of the above if wrong, what is the downside?

The guy who buys gold for this reason is planning on having it forever because he knows the one-trick pony is about to keel over. He shouldn’t care whether it goes to $5,000 or $50 if he isn’t planning on selling it. The only downside is a little extra money that can’t be put into investments like retirement accounts or IRA’s. If he is worried about 5% of his wealth being in insurance (gold for dollar-value risk) and not investments, he isn’t saving enough money in the first place.

Even if all of the above is untrue or has different implications, the price of gold in dollars has risen steadily over time. It wouldn't be a horrible place to park 5%.

Other:
It’s funny, the national conversations contain the silliest dialogue of “social issues;” issues the government has no business deciding. It’s all a distraction from concrete monetary problems that demand concrete answers. Potential presidents get on stage debating these inappropriate (governmentally speaking) topics, one of them gets elected, and finally sits down at his desk to $20 trillion dollars of debt; not one word had been spoken about it. Government spends our money and writes checks on our behalf; yet it’s constantly swept under the rug. Politicians simply hope it doesn’t blow up on their watch.

“Nobody saw this coming.”

FAQ: