Why is your dollar worthless?  The answer is because it has no tangible backing.  For over 4000 years of human history the most common backing of currencies was either gold or silver.  The reason why nations for over 40 centuries backed their currencies with gold or silver was that it tied or anchored their currency to the earth.  They could only expand their monetary unit in tandem with the production of gold or silver.  It took monetary control away from the political class to manipulate the supply of money and its eventual debasement. Today, the U.S. dollar is a true fiat currency (meaning it...

All games come to an end including the game of trying to jump-start the U.S. economy by using massive amount of federal government debt. As this debt accumulates, so does the interest on it. At a certain point this debt becomes unsustainable and a burden on the American taxpayer. Those in power (namely politicians) will say that this time it is different. No it isn’t! Looking back at eight centuries of financial idiocy, the key marker that signals when the game is over happens when the ratio of government debt to GDP reaches 90%. Beyond that point financial instability and a loss of...

One of the more popular and often repeated business and societal themes is that we live and work in an economy that is changing quickly.  This is especially true with individuals who make their living selling programs or seminars dealing and adjusting to rapid and turbulent change.  The myth is partially true.  You must ask yourself the question of what is changing rapidly—is it trends or events?   As Aesop illustrated in one his old and respected fables, every truth has two sides.   What you see on television, hear on the radio, and read in the papers are events, and these change quickly. ...

When it comes to debt there are no free lunches.  All debt has to be satisfied even by governments.  There are three ways to satisfy all debt.  These are: 1. By paying it back 2. For governments–inflating it away 3. For both governments and individuals–outright default. For the U.S. Government, its debt is increasing far faster than the rate of growth of the economy.   When the level of this debt gets close to or exceeds the level of GDP (gross domestic product), the temptation will be strong for the government (politicians) to inflate it away.  This can happen as early as...

Why is there a business cycle?   Someone once noted that people could tolerate any condition except the possibility of one.  This one condition is prolong periods of prosperity.  Incredible as it seems, this observation contains more than just a kernel of truth, and helps to explain where we are in our current business cycle.  When the economy starts to recover from a stiff downturn, people are understandably doubtful about the tenacity of the young expansion.  They hold back on their discretionary spending and their use of debt.  As the upswing continues to gather force, people tend to become...

Hello, We all try to divine the direction of the economy whether for business or personal gain. Friedman’s Law, named after the late Nobel economist Milton Friedman, can give us a reliable tool for gauging the economy’s direction.  It states that when the size of government is growing faster than growth in the economy, the national economy at best will stagnate and at worst will decline.   Why?  Government spending extracts real resources from the productive private use and puts them to unproductive public use. With the latest stimulus package that Congress passed, government spending will be...