August 15th, 1971 will stand as an important event in economic history for many generations, in fact, hundreds of years from now people will look back to that day.

The sun rices today as it has million times before, commuters wake up & travel to their offices to begin the day's work. Farmers tend to their crops, instruction workers build new infrastructure, today is a day like any other or is it?

In 2008 the world experienced one of the greatest financial turmoils in history. Markets around the world started crashing & major financial institutions once thought to be invincible, started showing signs of collapse. Governments responded quickly issuing massive bailouts & stimulus packages, in an effort to keep the world economy afloat & it worked. The global economy recovered much quicker than most predicted & soon it was back to business as usual, & yet something still isn't quite right. A growing sense of unease fills the population. In the world of finance, indeed in all facets of modern Life, cracks have started to appear.

A lot of people are feeling unsure about the world today, concerned that something terrible is waiting in the wings. We’re told that the global financial crisis of a few years ago has been fixed but what if the crisis isn't the cause of the angst so many of us feel, but rather the symptom of a much deeper problem.

Our story begins in 1944, with World War II coming to an end, the Allied Nations met at Bretton Woods conference in New Hampshire, to create a new financial system which would stabilize the world once the war ended. With America poised to enter a golden age of prosperity, the US dollar was chosen as the world's reserve currency. The U.S dollar would be tied to gold at a price of 35 dollars per ounce. This meant that countries around the world could trade their currencies for U.S dollars, which they could then exchange for gold. This created a system where all currencies were essentially backed by gold. To avoid the logistics of shipping physical gold across the world, when countries did exchange their currencies for gold, it was usually stored safely in the U.S.

With all the new spending programs in the United States - guns & butter economy (Great Society Program under President Lyndon Johnson, the Vietnam War, funding manned missions to the moon in the whole Space Program), other countries became concerned that the U.S was spending more money than it had gold reserves. They started exchanging their dollars for gold & demanded physical delivery, as they felt that there were more dollars being printed than the gold that backed it. To prevent this outflow of gold from American vaults, President Nixon called for an emergency suspension of the gold convertibility system.

All of the problems that we see today in the monetary system are a direct result of the decision made in August 15, 1971, to abandon a fixed link back to gold. What gold did is it provided discipline on governments spending. Under the old system, if you ran a budget deficit, then what would happen is gold would flow out of your country until there was a balance again. Well without any gold backing, countries ran perpetual deficits. If you look at for example the U.S., from 1971 on the U.S. has never run a surplus, ever since they went off the gold standard. It’s just been perpetual stimulus. Good times or bad times - always run a deficit.

By removing the link between gold & the US dollar, President Nixon created a system where all currencies were backed by nothing. This is what is known as a Fiat currency. Fiat currency is currency that's backed by nothing, except government promises. The word Fiat is a Latin word & it basically means “currency that's circulating by force”. If people have confidence in that currency & if there's enough government force that will enable the currency to circulate for a period of time, until people lose confidence in the currency. There is no nation on this planet that currently uses money, we all use currency. There will come a day, when everybody knows the difference. Money is a medium of exchange & the way it has evolved is that it's always something of intrinsic value until the Modern Age, when the politicians say - “well, we don't need anything of intrinsic value anymore. All we need is political decree, we can say this is money - this piece of paper is money”. Now money has a new characteristic but underneath it all, there's this same concept in place that nobody ever seems to challenge & that is that governments have a right to declare it's something of no value to be money & you MUST accept it. That's really the problem & it's still the problem today, it's destroying the economies of the world.

With currencies no longer backed by anything real or tangible, their value was measured only in relation to each other & because countries with relatively weak currencies can make products cheaply, countries devalue their own currencies to make them desirable trading partners.

Every paper currency measures itself against the dollar, so if the dollar goes down, the other central banks respond to that & they try & intervene in the foreign exchange markets to ensure that the impact doesn't hit their domestic economies.

What is a Ponzi scheme??

A Ponzi scheme is a fraudulent investment scheme that promises high returns for investors with little or no risk. Sounds too good to be true, right? That's because it is.

In a legitimate investment scheme, the money invested is used to build wealth, typically through low risk ventures like stock or real estate portfolios. Over time this generates enough income to pay the investor back their initial investment plus some profit.

A Ponzi scheme on the other hand promises massive returns quickly. How does it accomplish this? Instead of using the money invested to build wealth, a Ponzi scheme simply brings in more investors to pay off the previous investors & because these new investors have also been promised large returns, the scheme must then find an even bigger group of investors to pay them off, all the while the creators of the scheme are skimming cash from each group of investors. Because a Ponzi scheme doesn't generate any wealth itself, it must constantly bring in larger & larger groups of investors to keep functioning. Eventually no more new investors can be found or large numbers of previous investors all cash out at the same time & the scheme collapses in on itself. By this time the perpetrators of the scheme have siphoned off tremendous amounts of money for themselves, while the investors are left out of pocket & out of luck.

Without a fixed link to gold, the U.S Treasury has been able to borrow & spend as much money as it wanted. When the U.S government needs money, it takes out a loan with the Federal Reserve. The Federal Reserve prints the currency required for the loan & in return receives an IOUs from the U.S Treasury. These IOUs are called government bonds. With the money provided from these loans or bonds, the U.S government pays its bills & obligations. Meanwhile the U.S Treasury & the Federal Reserve work closely together to sell these bonds at auction, where foreign central banks, pension funds & even individuals buy these U.S government loans & why wouldn't they, loaning money to the U.S government is virtually a risk-free investment. But if the loans are spent on bills & paying off previous loans, where does the government get the money to pay back the current loan & the interest that is charged on it. Is investing in a U.S government Bond simply one small part in a giant Ponzi scheme??

YES!! The Federal Reserve System is definitely a Ponzi scheme, there's no question about it!! They go through the appearance of lending money to the government & the government agrees to pay back the money plus interest. So this money comes into being, they created it just for that purpose, they give it to the government, it didn't exist before that.

Understand, central banks just make it out of nothing & click a few keys on a keyboard of a computer & the treasury of the United States government now has another trillion dollars that it can spend. That's where money came from. That creates a liability on the part of the federal government to pay it back plus interest. Now think about that, plus interest! Well, when it comes time to pay it back plus the interest, they can't pay it back & they certainly can't pay it back plus interest too. So what they do is they borrow more to cover the original loan plus the interest & then by that time Congress wants more money anyway, so the debt just keeps going up & up & up & up.

Under the current monetary system, we borrow all of our currency into existence & we promise to pay it back plus interest. If you borrow the very first dollar into existence & that's the only dollar that exists on the planet that you promise to pay it back plus another dollar's worth of interest… Where do you get the second dollar?? The answer is you have to borrow that!! It's a Ponzi scheme because you can never pay it off, it always requires that we go deeper into debt.

Since 1971 the United States has been running trade deficits with the rest of the world, meaning they have been buying a lot more products from the rest of the world, than they have been buying from the U.S. The Japanese & Korean sell cars & electronics, the Middle East sells the U.S. oil & the Chinese sell the U.S. seemingly everything on Walmart shelves. The U.S. pays for these products with U.S dollars & everyone is happy. But if countries were to convert these U.S dollar profits back into their own currencies, their currencies would rise in value, making their economies less desirable to trade with. Instead countries invest their dollar profits by buying U.S government bonds. So countries around the world sell their goods to the U.S in exchange for U.S dollars, which have been borrowed through the Federal Reserve creating IOUs & countries then loan their U.S dollar profits back to the U.S by buying more IOUs. The money from these loans is spent on paying government expenses as well as paying back previous IOUs. But in order to do this, larger & larger loans must be made, in order to pay back the principal & the interest. By paying back old loans with new & larger loans, it would appear as if the entire world has been investing their hard-earned money into a Ponzi scheme of epic proportions.

In this business of creating money for federal governments & national governments around the world, if they didn't keep creating new money in larger & larger amounts, the whole thing would crash, because that's where the money comes from - to pay off the previous loans, it's the new loans. So that's why it's a Ponzi scheme, it's a classic Ponzi scheme.

In order for the U.S economy to function, they have to borrow more & more money from the rest of the world. & the more money they loan the U.S. government today, the more money they have to loan the US in the future, & if they ever stop loaning, the whole thing collapses & the U.S. can't pay them back.

Remember when a chocolate bar cost a quarter, when you could fill your car up for five dollars & feed a family of six for 35 dollars a week? Whatever happened to those days?

Without anything tangible backing currencies, governments could borrow & print as much currency as it wanted. This has gradually led to the value of our currency being eroded.

With the creation of all this money that dilutes the value of all of the dollars that were out there before, so that the purchasing power of the dollar gets crowded down, down & down. We used to be able to buy a gallon of gas for 31 cents, now it's hitting around five dollars.

The average guy on the streets is affected by inflation because of the loss of purchasing power & as a consequence, his standard of living is declining if he can't keep up with the inflation rate. With inflation rising faster than incomes, people are forced into more & more drastic measures to maintain their standard of living.

The U.S. went off gold backing of the dollar, what used to happen prior to that is the husband went to work, the wife stayed at home, raised the family. Because of inflation in the 70s, the wife went to work. So now you had two incomes that were necessary to produce & buy the same goods & services. In the 90s we stopped saving, the savings rate basically got down to zero because people were spending, hey couldn't save in order to buy the same goods & services. Then we got to the last decade, the wife was already working, the savings were down to zero, they borrowed money. So we've gone from one earner, two earners, getting rid of our savings rate, to borrowing money to keep pace with inflation.

The average person is now forced to borrow well beyond their means, getting themselves deeply into debt. At first this was to maintain a nice standard of living, but slowly, it has become necessary just to survive. By printing so much currency & devaluing it so heavily, it would seem that governments are essentially levying a hidden tax on their people.

Central banks tried to say that two percent or three percent inflation is a good thing & they make that a target. Well, it's still a tax!! Why is two percent inflation or three percent inflation better for the country than no inflation?? You will be told of course that’s better that deflation & you'll be told that people like to feel that their money or their jobs or their wages are going up by two percent, & this is something where the fact that two percent is robbery & what they get is going down by that amount. We are experiencing inflation these days, they say the CPIs of whatever is two or three percent. Anybody who's alive knows that inflation is well beyond that, probably running double digits.

The purchasing power of the average person has been deteriorating drastically, but in order to disguise this, governments have been skewing the figures in their reports, to make it seem as if inflation is much lower than it really is.

This curious distinction made which most people don't understand between core inflation & headline inflation. The core inflation is a basic two percent target which doesn't matter & the headline inflation is once you include all sorts of things like energy prices & sudden tax raises & the rest.

Well the inflation rate is skewed, they use all kinds of contrivances to make the inflation rate look lower than what it really is. If the US government were using the same CPI model that they did when President Carter was in the White House in the late 1970s, the inflation rate today in the United States would be nine, ten percent or higher. That's how badly the currency is being debased. Now the reason why they do that, is there are a lot of inflation-adjusted responsibilities that the US government has to pay out money, for example people on the social security system on an inflation-adjusted basis. If they keep the inflation rate low according to their own statistic, that means they're paying out less, that means the government budget deficit is less.

In a global economy where currencies are measured only against each other, countries are able to artificially lower the value of their own currency, making their industries more competitive. A country with a weak currency can make products cheaper, causing entire industrial centers to move overseas. This effect has been seen countless times in cities around the world, some of which still haven't recovered from the loss of their industrial base.

I think the guy on the street is kind of frustrated, they go: “gosh, I went to college, I don't have a job, I can’t get a job, I spent all this money, I've got student loans, it's costing me more to live. The FED is telling me there's no inflation, yet I go to the store & I see the price of milk going up, eggs, meat, I pull into a gas station it's costing me more for gas…”

They don't really understand how all this affects them on a personal level & that's why I think they're frustrated, because there isn't an educational system that explains that - look when you print money, when you have nothing backing it & when you debase it, you have all the side effects that you see. Higher inflation costs, corruption, cronyism, all the things that would have been in headlines that we've seen over the last years.

The protest movements are an interesting phenomenon, a lot of people are terribly upset with Wall Street. They're upset to what's happening to their purchasing power, they're upset with the news that they hear of the fact that the executives of these giant banks are getting million dollar bonuses at the same time they're dipping into the pockets of the taxpayers to get all this bailout money & so they're angry. Unfortunately people are demonstrating against the crisis, the economic crisis, & yet at the same time they're demanding more welfare & demanding more medical benefits, they're demanding more state control & regulation of their lives. They're demanding more money being created & pumped into the society. They don't realize that those are the very things that have brought them onto the street in the first place in their anger.

While the person on the street is struggling to get by, we're told that what we're experiencing is a typical recession. Why then does this current crisis feel different to previous economic recessions? 

This is far from typical, I think, this is the end game. I think what we're experiencing now are the pains of the +50 year experiment in fiat currency coming to an end & it is an absolute failure not only for America, but for the entire world. Up until 2008, we've been borrowing more & more money to maintain our standard of living. Are we now at the point where we're maxed out & cannot take on any more new debt?

What we're seeing today is deleveraging, at all levels of society. I mean consumers are maxed out. Each succession that we had in the economy when we went through this boom & bust period, we'd go through a bust, they would re-inflate again, the economy would start up again but we kept piling on, piling on, piling on levels of debt & finally we reached the point where you just can't pile any more debt.

Banks are no longer willing to give out credit so freely & many people are more concerned with paying off existing debt, as opposed to taking on new debt. While this is prudent sensible behavior, it's also a serious threat to the global economy. Having set itself up as a giant Ponzi scheme, the global economy is reliant on more & larger debt being issued to keep itself functioning.

If you try to just live within your means & get by with just the amount of dollars that we have today, paying the interest on them, collapses the currency supply. So we continually have to borrow more units of currency into existence every month than we extinguish by paying off debt

The system as it's been presently structured is that they have to continue expanding the money supply otherwise the system is going to die. Politicians & pundits talk about living within our means & paying down the debt, you can't do that without collapsing the entire economy. We would just vanish into this black hole. All the politicians are in a situation where if they don't come to the rescue, we could just have an overnight shutdown, which they can't ever imagine happening while they're in power. So there's always this wish to move it on & as you know the expression - kick the can down the road - which is really what we're doing.

The problem is we've run out of road, there is no place to kick the can anymore, but we've got to deal with the can. & it's not simply a can, because every time we kicked it down the road, unfortunately it got bigger. Now it's an enormous can & you know it's going to crush us.

While the financial crisis of 2008 may have been the first death throws of the Ponzi scheme, governments around the world weren't about to sit back & let it fail. So they delayed the inevitable collapse, pushing it down the road by bailing out struggling financial institutions, buying toxic mortgages & taking on debt on behalf of its citizens.

In 2009 & 2010 what happened was the crisis was papered over through bailouts, guarantees, money printing, expansion of the money supply. Governments can do that, don't underestimate the ability of governments to dictate results in the short run but in the long run, none of the problems were solved. The bad debts are still there, the banks are still insolvent, the banks are not landing, the economy is not growing. We haven't really solved anything. By buying their way out of these crises, by creating money out of nothing & flooding it into the economy & deluding the purchasing power, they're not really solving the problem. What they're doing is pushing it off a little bit into the future & making it worse.

Now do we keep going down this road, do we print more money, the FED balance sheet went from 800 billion to 3 trillion to 9 trillion. We had a 800 billion dollar stimulus, should we now have a 2 trillion dollar stimulus? I mean in theory you could, but this is where people could lose faith entirely in the currency & the currency could collapse.

The federal reserve's money printing exercises may help prop up the economy in the short term. What are the consequences of money printing on such a large scale?

I think you're going to see a very rapid decline in the value of the dollar in a matter of days, whether it's 20%, 30%, 40%. A lot of people have been buying the dollar as a safe haven. When they find out that there's no safety there, in fact they need a safe haven from the dollar. Right now the dollar is benefiting from the fear trade. What if the fear trade is afraid of the dollar?

Aside from causing an enormous amount of inflation, the federal reserve's reckless money printing exercises also run the very real risk of creating a worldwide loss of confidence in the U.S dollar.

A currency crisis is highly likely, but it'll be very difficult to know exactly what will cause it & when. It'll be something unforeseen, could be a natural disaster, it could be a political shock, It could be another global pandemic, it could be just a general loss of confidence, it could be something as simple as a treasury auction that goes bad, there's no buyers & all of a sudden the interest rate starts to go up, then the financial players, the big hedge funds start to react to dumping dollars. Then all of a sudden you have foreign central banks that also begin dumping dollars - get me out - & when that happens, the dollar can go down fast.

At some point just like all Ponzi schemes, the participants wake up to the con, they don't want to participate anymore & the whole thing implodes. Now when privat factors, when people who are voluntarily participating, foreigners, foreign central banks, when they stop buying, the one difference is the Federal Reserve can come & supply the demand for the people who are waking up to the Ponzi nature of what the U.S. is doing but of course when the Fed becomes the only buyer, that's the end game or be the beginning of the hyperinflation.

Hyperinflation is a rapid increase in the inflation rate, so much so that people lose faith in the currency & you see what is in effect a flight from the currency.

What happens is the government spends so much money forcing it to borrow, it gets to the stage where it's borrowing more money than the market is willing to lend to it. The central bank then steps in & turns that government debt into currency. The great question is & I don't know the answer, is at what level of inflation, 10%, 15%, 20% or 25% do start the panic. All I know is when that level comes, everybody panics together. Consequence of a hyperinflation is the price of goods & services rises very rapidly & that feeds upon itself, causing people to get rid of the currency even more quickly. So you then have a situation where people go out & they buy things just to get the hell out of paper money, & paradoxically that then starts driving an accelerating demand for paper money because they want more paper money to go & buy things. So you have the situation where the value of paper money starts collapsing in advance of its issue.

In everyday life you'll be scrambling from day to day to get tangible things. If you're thinking of buying one can of tuna, you're going to buy two because you know that tomorrow or even later on that day or the next hour, that can of tuna could be costing you more. You're going to be scrambling to get anything that's tangible.

This period is going to involve a lot of economic pain, a lot of people who are currently retired are going to have to get jobs. Their retirement is gone, it's been bankrupted because they put their faith in a Bernie Madoff type national Ponzi scheme, & of course a lot of the property is going to decay. If people are spending money on those necessities, they don't have money to make the repairs necessary to maintain their properties. If the landlords can't collect rents from their tenants, how are they going to maintain the properties? How are they going to pay the taxes?

The whole economy is going to crumble beneath the weight of this runaway inflation & of course the initial reaction by the Fed will be to create even more inflation, to try to stimulate the economy by printing even more money, which of course is the source of the problem.

On the surface it would appear that this is a problem facing the United States alone, but with so many countries holding their savings in U.S. government bonds, a loss of confidence in the U.S. dollar could trigger a global crisis which would affect every nation on Earth.

If the US dollar hyperinflates, the implications are really profound because you can go to a country like Zimbabwe, Venezuela, Argentina, Lebanon, Sudan, Turkey and see the impact of a hyperinflation. But what happens when the world's reserve currency hyperinflates? We've never been in this situation before, it's impossible to predict what the outcome is going to be. Logic suggests that if the U.S. dollar hyperinflates, most if not all of the currencies of the world will also have severe economic problems because at the end of the day, the reserves of all of these currencies are basically dollars.