Factors That Cause Economic Collapse

Taxes and government regulations are often blamed (justifiably) for economic stagnation, slow growth, and unemployment.  But these government imposed barriers miss a glaring and much larger cause for an economic collapse to occur.  This cause unfortunately does not even register with mainstream Keynesian economists, the people who the government currently listens to for making economic policy.

The most significant factor in the growth (or lack of) of an economy and how prone it is to an economic collapse, is how interest rates are determined.  Interest rates serve a very important function in an economy just as all other prices do.  They coordinate production and consumption over time.  In a true free market economy interest rates are set by the market and are based entirely on supply and demand.  Because an interest rate is basically the price of renting money, a lower rate signifies greater savings accumulation in the economy.  Conversely, a higher interest rate occurs when there are relatively less savings.

For borrowing to be facilitated there must be savings by some people from which to borrow.  Saving occurs when people produce more than they consume.  And the presence of savings also indicates that some production must have taken place which released resources into the economy that can be used.  All capital comes from savings.  For an economy to grow and for productivity to increase there must be savings to be invested into capital.

In essence when one saves he is foregoing current consumption for future consumption.  When the amount of savings in an economy increases of course the cost of borrowing goes down because there is more supply available.  This lower interest rate stimulates borrowing by investors and producers for long term projects because it is cheaper to borrow over a longer period of time.  And this also coincides with the fact that since there are savings people wish to prolong there consumption into the future – at the same time the projects taken on by producers will have completed goods people wish to purchase.  It is a very complex process but generally it is in this way that interest rates coordinate production and consumption over time.

The Role Of Central Banking In The Economic Collapse

Now what is the effect on the economy when a central bank such as the Federal Reserve manipulates interest rates to artificially low levels in an attempt to “stimulate” the economy?  One serious consequence is that it will cause inflation because in order to lower the interest rate the Fed must print money to increase its supply.  But this new money does not represent real wealth or capital.  It is only an increase in the money stock, which will eventually lead to higher prices and an economic collapse.

But the consequences get worse than that.  The lower interest rate also stimulates people to save less, spend more and borrow more.  This causes society to live off its savings and deplete capital rather than accumulate it.  That means less jobs will be created and productivity will go down.  The economic collapse will get worse from this lowering of productivity.

Now add the fact that the artificially low interest rate will also give false signals to investors and producers causing them to undertake projects which are are not viable.  An example would be the housing boom which was made possible by the Fed’s inflation combined with government policies that encouraged capital to be diverted to the housing sector.  When the mistakes are realized and start to be corrected you get a recession.  It’s important to realize that the damage is done during the boom and the necessary correction occurs during a recession.  If the Fed and government try to prevent this correction to avoid the short term pain it can only succeed in causing more damage to the economy and eventually a catastrophic economic collapse.

All of the above phenomena are described in the Austrian theory of the business cycle.  Check out Mises.org to learn more about the Austrian school of thought in economics.

In short, government intervention and central bank manipulation of interest rates in the economy cause massive miss-allocation of resources, capital depletion,  unemployment, and the possibility of a severe economic collapse.  There can be a very strong case made for abolishing the Federal Reserve, as it causes massive economic instability and has no place in a free market economy.  To learn more about the Fed and its role in causing the economic collapse I highly recommend reading End the Fed by Ron Paul.

What Role Do Interest Rates Play In The Economic Collapse? is an article from: Economic Collapse

However, what has really happened is that both the mainstream media and the government have been infiltrated and taken over by international banks and mega-corporations.  And that is why you basically see the media acting as a propaganda mouthpiece for the government.  They work as one to promote an agenda that is completely at odds with the interests of middle class Americans.

Something the media routinely omits from their reporting on the economy is the role of the Federal Reserve in creating the conditions for an economic collapse in 2011.  For instance, you will never hear the truth that the Fed is a cartel of private banks that has been given monopoly privileges over the supply of money and credit in the economy.  In a free market economy we’re supposed to be against government sanctioned monopolies, right?  Yet when it comes to money, which makes up one half of every transaction in the economy, a central bank manipulating the supply and demand of money, and therefore interests rates, is acceptable and even a desirable part a free market capitalist system.  Nevermind that setting up a central bank and administering a heavy progressive income tax are both planks of the Communist Manifesto.  No, citizen, this is capitalism.  Of course since most people are still under the delusion that America has a capitalist economy, the free market will be blamed for the economic collapse despite it actually being caused by central planning and government intervention.

Mainstream economists have also been a major culprit in the misunderstanding of the causes of economic collapse.  Because they have been trained in the Keynesian school of thought, which promotes government intervention in the economy, they themselves often do not understand economics in the real world.  They promulgate blatant economic fallacies such as the broken window fallacy that Frederic Bastiat first propounded in That Which is Seen, and That Which is Not Seen.  Henry Hazlitt later expanded on the broken window fallacy in his book Economics in One Lesson.   So when the government relies on advice from these so called economists you can imagine the disastrous consequences.  Economists that hail from the Austrian tradition, however, are much more reliable in terms of understanding the makings of an economic collapse.  While Austrian economists shy away from making timed economic predictions, they do assert that certain trends can be followed and extrapolated into the future.  So while it could be predicted that the dollar will collapse eventually, there are too many psychological factors and others to make a prediction such as:  the economy will collapse in 2011.  You should generally beware of people who make exactly timed economic predictions such as this.

This can be frustrating for a lot of people who want an exact prediction of when the economy will collapse.  But seeing as mainstream economists are absolutely no help in this regard, at least you can rely on the Austrians to forecast trends.  If you think the dollar will eventually collapse you can and should prepare for it.  Maybe the economy won’t collapse in 2011 but it could in 2012 and so on.  Contrary to what the media and government would have you believe, the general trend is indeed pointing towards a total economic collapse at some point in the next few years.  Hopefully it will happen later rather than sooner so you and other Americans can do as much as you can to prepare for it and weather the coming economic storm.

Economic Collapse 2011: The Truth the Media Won’t Tell You is an article from: Economic Collapse

The writing has been on the wall for quite some time.  So it would serve Americans well to finally admit the ugly truth of how the big-government statists in Washington have wrecked the American economy.  What follows are just a few warning signs of economic collapse that simply cannot be ignored.

With the housing market still in a horrible state, ghost towns are appearing all across the United States.  Since the federal government induced a huge boom in home building there is still a massive surplus of homes on the market.  Many home owners are underwater because of the drop in value of their homes, especially the ones who bought at the peak of the bubble.  Housing prices could be falling for some time during the economic collapse as there is still quite a glut of homes on the market.  The silver lining though is that this will make it easier for other people to buy homes at more affordable prices.  I say silver lining because Americans who bought and held on to physical silver before the economic collapse will be in a position to buy a median price home with as little as 500 ounces of silver in the future.

Deloitte Consulting published a new survey that indicated 74% of Americans plan to decrease their spending in the near future for fear of an impending economic collapse.  They stated in the survey that the main reason for their spending cuts is because of rising prices.  If these Americans are able to save money then that would be an encouraging sign for the economy.  But the reality is Americans will probably not be able to save.  And with the Federal Reserve keeping interest rates at nearly zero, they will not have any incentive to save.  This will be very bad for economic growth and a major cause of economic collapse.

China has said they will curtail their exposure to US debt holdings.  With China holding about $1.6 trillion of US debt, this could be a significant factor in the economic collapse.  It could mean a much weaker dollar as those dollars from China come back here and flood the American economy with excess currency.

Gas prices hit record highs in April, 2011.  In Washington DC they rose to $5/gallon.  Dollar devaluation and Middle East conflicts are some major contributing factors in the increasing cost of petroleum.  Some economists are forecasting $7/gallon gas by this time next year, which by itself could cause an economic collapse.

Unemployment rates are still astonishingly high at around 20%.  This number is based on “real unemployment” which includes people who are underemployed and the discouraged worker who has stopped looking.  Government statistics don’t include these figures because they reflect badly on the failed economic stimulus, which has only served to make the economy worse.  By further misallocating resources, the government has prevented the necessary correction that is necessary for an economic recovery.  Indeed, government ineptitude will be responsible for a total economic collapse.

Economic Collapse Warning Signs is an article from: Economic Collapse

The first thing you should do is to make sure you have access to safe and clean water to drink should there be utility and infrastructure failures (this could happen in a dollar collapse).  Remember you can go weeks without food but only three days without water.  Some type of filtration system will work well if you have access to water that may not be drinkable as is – say, from a river or lake.  Berkey water filters do the job well.  They are gravity fed and require no electricity.  Another option that works well if you have electricity but no source of water is an EcoloBlue atmospheric water generator.  An atmospheric water generator pulls humidity out of the air and can produce several gallons of water per day.

You should have at least three months worth of food on hand to prepare for the economic collapse.  A years worth or more would be even better.  You should stock up on foods that you usually like to eat.  But if those are foods that do not keep for a long time you should also stock up on non-perishable dried or canned foods.  If you can, plant a garden.  And try to get healthy foods that are organic rather than typical survival freeze-dried foods, which may not be very good for you.  You’ll want to be consuming high quality nutrition so you are better able to deal with the economic collapse and a stressful situation.

Medicine could also prove to be very important when surviving an economic collapse.  If you can, have your doctor prescribe antibiotics to stock up on and whatever medications you are currently taking.  Some doctors will not do this, however, but there are effective alternative medicines and natural therapies you can use too.  Look into essential oils and colloidal silver as antibiotic substitutes.  These can be purchased at health food stores and on the internet without a prescription.

Keep in mind that when things get tough and the SHTF, people can be more likely to use violence to get what they need.  You’ll want to be able to effectively defend yourself from such people during an economic collapse.  You can use various self-defense methods but a firearm is hands down the most effective self-defense weapon available to you.  Learn what type of firearm will best suit your needs and then get trained on how to use it safely and capably.  Do not take gun-safety lightly.  Firearms are very serious weapons and should be respected as such.

As far as how to make money during the economic collapse is concerned, the simplest way is to buy physical gold and silver.  Do this now rather than later because by the time the masses realize what’s going on and go on a buying frenzy, it will be too late.  Big money is always made by a minority of people who were smart enough to position themselves well ahead of the mainstream.  Right now hardly any Americans own gold and silver because they do not understand the likelihood of catastrophic economic collapse.  When everyone else starts loading up on gold and silver, that will be the time for you to sell and take your profit.  Gold and silver stocks and other commodities are also worth looking into if you have substantial capital to invest, but these are much more speculative and, therefore, dangerous investments.  However, they also offer a way to multiply your wealth many times.  Learn as much as you can before taking the plunge into these types of investments.

How to Survive an Economic Collapse is an article from: Economic Collapse

The Federal Reserve seems undeterred to continue inflating under what they term “Quantitative Easing.” It’s really just an attempt to prop up the stock market and give the false illusion of an economic recovery.  However, the continued devaluation of the dollar will just serve to perpetuate the economic collapse.  In fact, an overdose of Quantitative Easing could cause hyperinflation, although I don’t expect to see that happen in 2011.

The economic collapse is posing an impossible fiscal situation to cities and municipalities.  Tax revenues are not keeping up with the desired spending of these local governments.  Their unwillingness to cut spending to balance their budgets is causing bond investors to leave the market in droves.  So during the second half of 2011 I expect bond yields to rise and defaults to quickly follow.

Amid the economic collapse we are already seeing serious food inflation.  I’ll bet you’ve noticed the rising prices at the grocery store.  Some of that is due to decreased production of food and its consequent falling supply.  And also, inflation tends to develop more in goods that people cannot cut back on, such as food.  More dollars chasing fewer goods will always produce higher prices.  And as food prices continue to rise, people will be stimulated to buy more food before prices go up any further, which will in turn  drive them up even more.  So it’s a good idea to stock up on non-perishable food today so you won’t have to worry if there is a food buying panic during the economic collapse, when it becomes evident that shortages are imminent.

Even though the Fed could be successful at stabilizing housing prices with its massive inflation, it probably will also be successful at destroying the value of the dollar and guaranteeing economic collapse.  Ironically, this dollar devaluation will make it easier for homeowners to pay off their mortgages with cheaper dollars.  However, homes prices are still likely to continue falling, while at the same time silver will be appreciating in price significantly.  That will give people holding silver a tremendous opportunity of being able to purchase a home without a mortgage in years to come.  It’s estimated that the median home price could go to as low as 4000 ounces of silver this year.  But continued falling home prices combined with currency devaluation could send the  median home price down to 500 ounces of silver this decade.  Think about that.  A $17,000 investment today could get you a $170,000 house within five years.  If that interests you, I suggest looking more into silver investment.

Not very many Americans own gold, or even know what its price is.  That will soon change.  As the dollar continues losing value people will gravitate towards real money, which is gold.  The media will continue saying there is a gold bubble due to its phenomenal gains in the past few years but right now that notion is just plain silly.  Hardly any Americans currently own gold.  When your friends and neighbors start telling you about all the gold they are buying, then you can worry about a gold bubble.  And that will be the time you want to get out of gold and buy something else of value.  But until then, buying gold should be at the top of your list (after food of course).  It’s not cheap anymore but is still an excellent way to protect and enhance your future purchasing power and ride out the coming economic collapse.

Economic Collapse Predictions is an article from: Economic Collapse

To understand the relation between inflation and the economic collapse it is important to first define what we mean by inflation.  Most people use the term in the context of “price-inflation.” They use the term to describe rising prices across the board.  However, rising prices are actually just a consequence of “monetary inflation,” which is the expansion of the money supply at a rate faster than the growth of productive output.  In a free economy, generally there is little or no inflation and there could be some degree of deflation, which generally is a good thing.  Deflation is the shrinkage of the money supply relative to production.  It means that the purchasing power of your money goes up instead of being eroded by inflation.  You get more goods and services for the same amount of money.

So how is inflation causing the economic collapse in the United States?  And what or who is causing the inflation in the first place?  A lot of people who do not understand economics blame rising prices on “greedy” businesses or speculators.  But what’s really happening is that the value of the monetary unit is going down and businesses are simply passing on the higher costs to customers.  If they didn’t then they would simply go out of business.  And the reason the value of the dollar is going down is because of the monetary policy of the Federal Reserve, America’s central bank.  A central bank is a cartel of private banks, sanctioned by law.  In the United States this law is the Federal Reserve Act, which was passed by Congress in 1913.  The law is unconstitutional but that is a whole other topic.

Since the last of the gold standard was abandoned in 1971, the Federal Reserve is able to print money with nothing backing it up.  And so there is no limit to how much money can be created.  This is convenient for the Congress who then does not have to tax or borrow to finance their largess.  They can just rely on the Fed to print the money.  But that has serious consequences.  The low interest rates generated by the monetary expansion causes booms or bubbles in certain areas of the economy.  The unnaturally low interest rates produced by inflationary monetary policy send false signals to investors.  Normally low interest rates are a signal that there are a lot of accumulated savings in the economy which can be devoted to long term projects.  But because those savings do not really exist projects which were planned with faulty information cannot be completed because the resources are not there, nor is the demand for the products or services.  Then you have the bust and, if it is severe enough, an economic collapse.

But the damage was really done during the boom, when resources were miss-allocated to untenable projects.  During the bust the mistakes made during the boom are corrected.  We call that correction process a “recession.” But there is a problem.  The Federal Reserve won’t let the correction occur.  Instead, to avoid the painful but necessary recession, the Fed attempts to re-inflate the bubble, setting up the economy for an even bigger economic collapse in the future.  That’s what we saw happen after the NASDAQ bubble.  Under Alan Greenspan, the Federal Reserve re-inflated that bubble which turned into the housing bubble.  Then, when that bubble burst we had the housing market crash.  In their attempt to re-inflate that bubble the Fed has more than doubled the money supply in the past three years.  This will eventually lead to the creation of another bubble and a total economic collapse.

Economic Collapse and Inflation is an article from: Economic Collapse