America’s Secret Elixir

What happens to the American Miracle when America can no longer take on more debt?

America is the most powerful county this Earth has ever known. Not even the Ming Dynasty came close to the power and influence that modern day America has.

So how did this happen?

Are Americans smarter, taller, faster or better looking than the rest of the world? Maybe Americans just work harder or longer than anyone else on this planet, maybe that’s it. Or maybe Americans are just better at educating their kids…maybe that’s it?

Well, I went looking to figure out if there was one thing, one thing that set America and Americans apart from the rest of the planet.

And guess what? I found it.

I found the one thing that Americans have over every other county. They didn’t always have this “one thing”. But once America acquired it, they exploited it.

And I mean America exploited it, like Sarah Palin exploited her Vice President nomination in 2008.  

So what is this “one thing”?

If I had to give you one chart to define the last 40 years of America’s rise to power it would be the chart below. 

 

Yes, I know. The point of the chart doesn’t necessarily hit you over the head. The chart is a bit deceptive and maybe even boring.

So what are you looking at?

The chart above measures total US debt (corporate, government and personal). Let me be clear about total debt. Total debt is a measure of all debt within the borders of the United States. From a 23 year old with student loan debt of $35k, to Social Security’s $30 trillion debt, to all of Corporate Americas debt in between. Total debt is the thick dark red line on the chart.  

Next on the chart are the inverted blue triangles. These inverted triangles indicate how often United States' total debt has doubled.

Notice how it has doubled five times since 1970. FIVE TIMES!

Starting point:
1970 – Total debt of $1,500,000,000,000 ($1.5 trillion dollars).

Seven years later:
1977 – Total debt doubled to $3,000,000,000,000 ($3 trillion dollars).

Six years later:
1983 – Total debt doubled to $6,000,000,000,000 ($6 trillion dollars).

Six years later:
1989 – Total debt doubled to  $12,500,000,000,000 ($12.5 trillion dollars).

Ten years later:
1999 – Total debt doubled to $25,000,000,000,000 ($25 trillion dollars).

Eight years later:
2007 – Total debt doubled to $50,000,000,000,000 ($50 trillion dollars)

Never, ever in the history of the planet has there been a sovereign country (or anything) with $50 trillion dollars (and counting) of debt.

It is a number so large that it almost has no meaning.

And lastly, on the chart is the blue line that is consistently increasing in steepness. Do you notice at the top of the curve a funky looking number (an R2 number)?

Do you see how the R2 number is 0.9898? Well a R2 number of 0.9999 represents a perfect exponential curve. Meaning the doubling of the USA's debt is exponentially growing…

…Or was growing exponentially up until 2008.

That means if the US keeps growing her debt like she has for the past 40 years then her total debt will be $100,000,000,000,000 ($100 trillion) by June 1st 2015. Is that sustainable?

But before we answer that question, let’s go back to the first question I posed at the beginning.

What has made the US so great?

Free markets?
Smart people?
Capitalism?
Democracy?
A two party system?
Silicon Valley?
Cheap resources?

Or was it having the reserve currency of the world since 1945?

No, that would not have been enough. Was it taking that reserve currency off the gold standard on August 15th 1971? And then being able to simply double her debt every seven and a half years for the past four decades?

What do you think? Was that what made the difference?

Let me ask another question, do you think the world will allow America to double her debt again (read: will they continue to buy America’s debt)?

I think the answer is clear.

Go back and look at that chart. Notice how the big thick red line has gone flat since 2008. America’s doubling of debt has stopped even though the Fed has printed trillions of dollars since 2008.

That means for every dollar the Fed prints there is [at least] one dollar that is being destroyed (foreclosures, bankruptcies, loan defaults, etc.). Take a minute and let that fact sink in.

That also means when the Fed stops printing money we should see that thick red line start to drop.

The American Elixir seems to have been debt. And the increase of that debt seems to have stopped three and a half years ago.   

Could this be why (the bottom) 90% of Americans are feeling poorer?  Is it because their credit cards have been taken away?

What does this mean for the stock market? The bond market? The commodities market? The price of houses sitting in the middle of two of America’s deserts (Las Vegas and Phoenix)?

What does it mean for the conventional big box financial advisors’ clients? And what should I do? If the US cannot or is not allowed to double their debt again, what does it mean for people’s retirement…and for the future of the US?

These are all good questions.

First and foremost, the US has been through this before in the 1930s.

And remember not everyone in the US got poorer in the 1930s. John Templeton built the foundation of his billion dollar empire in the middle of the great depression.

I think, more than ever, your peer group will define the limitations of your wealth, and lifestyle. Outside of your health and natural abilities, it is your peer group that influences the limits of your life.

Being a part of like-minded group, people who want to grow their money and create security for themselves and their families, will motivate you to reach the next level. Want to find out more? Find out here.

Second, with the US Dollar clearly on the downside slope of its reserve status, a healthy dose of non-US Dollars in your savings would be prudent. My preference of a currency other than US Dollars would be either the Singaporian Dollar or the Norwegian Krone.   

Up until August 15th 1971, the world’s reserve currency has ALWAYS been gold or a gold-backed paper currency. This 40 year experiment officially stopped January 1st 2008. And now the US is in the painful deleveraging stage.

Like an addict going into detox the beginning won’t be pretty but the patient will be stronger and healthier once they have eliminated the drug (excess debt) from their body.

I want to be clear. There are a few people that are not only avoiding the pain but are getting richer. Their accounts are growing and their retirement has never looked better. Just because the US is detoxing doesn’t mean you have to.

Once a month I help my peer group build their foundation of their empire. If you have ever wanted to have a secure and safe future, or maybe even an empire, check us out. Empire builders accepted.

Together, we are growing and protecting your wealth,
RC Peck

0 Comments