February 22, 2009

Commentary: The Global Financial Crisis


Most people would have agreed that saving is the noblest of act in this time of crisis but if bank failures and the whole financial system on the brink of collapse how can we recommend saving to an ordinary man?

The crisis that we have right now is far from the common person’s understanding since the jargon that are being used by economist and bankers are complicatedly designed to keep the ordinary man blank of the events and deprived of facts.

If a common person would have asked the most reputable and highly respected financial consultants that we have today, they would always recommend everybody to do the cliche and na├»ve advice that is “to go to the bank and deposit their money as savings.”

Certainly that would have made everybody agreed that it is the rightful thing to do but of course, would you deposit your money in a bank that is on edge of bankruptcy?

To understand money, we have to trace its history, evolution, and significant changes in order to keep track of its meaning and intention. Basically, money as we understand it is, is not the same money that we have today contrary to what the experts have been explaining to us.

History narrates that money evolved through trade and the necessity of convenience. Before money become tangible enough to be held by a single hand it took several forms such as wheel curve out of a rock, that should have made an ordinary market day a feat for a common man.

That suggested the theory that the cumbersome nature of the stone age money made man seek other medium until they found Gold. Gold has been the modern man's money since ancient times due to its aesthetic appeal, scarcity, and convenience.

Aside from Gold's aesthetic value, the recent industrial revolution and technological innovations increase the value of Gold into several more folds, and together with that it pulled other precious metals such as Silver & Platinum, and metals such as Copper & Nickel to join the trend as man's way of life become dependent to technology.

Unknown to many, Gold, Silver, and Platinum are so useful that majority of their household appliances, gadgets, vehicles, power supplies, and devices cannot function without these.

Intrinsically, these metals have proven their worth to the modern man as more and more advancement in science and technology will be expected, demand for more of these metals will definitely increase.

Until 1964, currency and coins are either redeemable in Silver or made out of Silver, and in 1931, either redeemable in Gold or made out of Gold. Gold and Silver were used as reserves to back-up all the notes printed by the government so they can become legal tender.

Technically, even though in the form of paper, they represent Gold & Silver value which you could notice written on notes printed in the early up to the mid 1900 the caption "Gold Certificate" or "Silver Certificate" together with "redeemable in silver or gold coin" written on the notes front.

After the Gold standard was abolished, the financial system moved to a seemingly attractive but very unstable period of Fiat currency.

In a Fiat monetary system, there is no restrain on the amount of money that can be created. This allows unlimited credit creation. Initially, a rapid growth in the availability of credit is often mistaken for economic growth, as spending and business profits grow and frequently there is a rapid growth in equity prices. In the long run, however, the economy tends to suffer much more by the following contraction than it gained from the expansion in credit.

The inflationary & magical characteristic of the Fiat monetary system is vulnerable to predation, usury, greed, corruption, speculation, manipulation, and of course, magic!

Sounds funny, but "magic" is literally inherent in today's monetary system. For a common man who have been bombarded by deceptions and the constant lies by the false economic experts such statement would have been automatically discredited or perhaps the person making such statement would have been maliciously ridiculed.

Unknown to many, the collapse of the entire financial system is caused not by an accident or by a temporary but normal cyclical glitch in the system itself but because of the unregulated power of credit which should be expected of that of the current Fiat monetary system.

The Modern Money Mechanics explain that banks have the power to create 90% money out of the 10% reserve that they have which enable them to facilitate loans at speed and without much effort.

However, the creation of money that is needed by the public can only be accomplished by way of loans, and loans as we know require attachment of property or properties as guaranty for repayment. Therefore, enabling the banks to hold a person's property in exchange of a loan from the 90% they created on top the 10% money reserve they have in their books.

Of course, the money that is 90% money created from the 10% reserve money that a certain bank possesses which has been collected by the borrower shall be deposited to another bank which would again become part of the reserve money of that bank, and so the process repeats itself up to infinity.

And of course, after all these, the bank's "INTEREST" has not yet been discussed which when equated to the whole process would have produced a catastrophic financial blackhole, which by the way, is the current crisis that we have right now.

Since banks are the only entities allowed to issue and print money, it is impossible for the public to pay its debt literally because even the banks themselves don't have the capacity to meet the obligations they themselves issued. As a consequence, future generations will be drowned in debt hundred of years before they will even be conceived.

The funny thing is, after all these, bankers are still the one being consulted regarding "savings" and other important financial matters. Its like putting a sticker saying "smoking is dangerous to your health" on the side of a cigarette pack as part of a campaign against the increase of cases of lung cancer.

I have heard and read recently advices concerning on how to adapt to the current financial crisis and all of them are in a chorus. For a very short term solution, that can become fairly effective but if you would like to be in the safe side, change should come in the form of inner discipline and not about the tautology of what has already been proven wrong for so many times.

The influence of the United States has aggravated the effects of the crisis. Basically,their transformation from a producing country to a service industry have destroyed their capacity of self-sufficiency which has otherwise become the role model for other emerging and industrialized countries.

Another factor that should be considered is the public's perception of wealth which is inclined toward over consumption and materialism. Since the Earth's resources is limited, our attitude and consumption should correspond to what is available and what can only be provided. It is dangerous to believe that we are on top of the situation.

Saving should not be in the form of money but conservation. Remember, money has no intrinsic value. You can't save something that can either be declared demonetized in a snap of finger or losing value on a daily basis.

For those who would like to preserve their wealth; Gold, Silver, and other precious metals are highly recommended safehavens. In this time of crisis, the most effective & advisable strategy that I can recommend is for you not getting poorer by hedging your wealth against inflationary moves.

And of course, one should become less dependent with the system and that is, as much as possible, your capacity of providing your own basic needs. Learning some fundamental and survival skills should do the trick.

Finally, keep your life simple. Life has no other purpose except "LIVING", and the only way you could appreciate and fulfill your life is if you still have it.

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