What are the economic and financial system early warning signs that we should heed rather than get caught up in fearmongering? When should we start to worry about ballooning budget deficits, the national debt, a currency collapse, or the stock market?
Topics covered include:
- Signals to monitor to see if things are falling apart
- How much government debt is too much and why interest rates are key
- Why central banks don’t control the stock market
- Why the dollar remains dominant, and what has to change for it to plummet in value
Show Notes
The Dawn of Everything: A New History of Humanity by David Graeber and David Wengrow—Macmillan
U.S. National Deficit—Treasury.gov
Budget and Economic Data—Congressional Budget Office
Japan’s growing debt mountain: Crisis, what crisis? by Andrew Sharp—Nikkei Asia
Currency Composition of Official Foreign Exchange Reserves—International Monetary Fund
Total credit to non-bank borrowers by currency of denomination: US dollar—BIS
Wonking Out: The Mysteries of the Almighty Dollar by Paul Krugman—The New York Times
Revisiting the international role of the US dollar by Bafundi Maronoti—BIS
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Related Episodes
404: Why Is the U.S. Dollar So Strong? Will It Continue?
416: Your Nation’s National Debt: 5 Things You Need To Know
433: What Happens If The U.S. Defaults On Its Debt? Here’s Why It Won’t
Transcript
Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today is episode 449. It’s titled “The House of Cards: Evaluating Economic and Financial Warning Signs.”
Fear Mongering
I have a friend that shares with me paid Instagram reels that invariably warn about something bad that is going to happen economically or financially. I sometimes watch a portion of the video or read the transcript. Usually, it’s the repeat of some dire prediction in which the doomsday day event keeps getting pushed back because the thing never happens.
Or it’s some financial or economic news item such as the Federal Reserve studying central bank digital currencies, and it gets totally blown out of proportion. Fear-mongering is highly lucrative because we all crave solutions that alleviate fears. We want somebody to tell us “It’s gonna be okay.”
We don’t engage in fear-mongering at Money for the Rest of Us, but we also don’t stick our head in the sand. There are times when we step back and ask, “What if the house of cards comes crashing down?” Be it the stock market, or our home currency. At what point should we start to worry that economic and financial developments are off track, and heading toward a major disaster?
Fortunately, there are actually things that we can look at to decide whether things are really, really going wrong.
Listener and Member Questions
I occasionally get thoughtful emails from listeners and Plus members who are level-headed investors, but they sometimes begin to worry, as they consider things that could go wrong. For example, here are some recent questions from listeners and members, which I’ll address in this episode.
First, “At what point do you get concerned enough to have serious doubts about the house of cards, the stock market collapsing? It appears to me that the stock market is just juiced with the Federal Reserve printing money. What personally gives you the confidence to stay in the market given our country’s financial situation?”
Another question: “At what point does our level of debt and interest payments on the debt begin to cause serious problems for America, in your opinion? How would one diversify to protect assets against the loss of political stability?”
And finally, a listener read about Brazil, Russia, India, and China intending to set up their own international banking system in order to bypass the SWIFT system, which is a system of banks for transferring funds, and to generate their own currency.
And the listener asked, “Does that change anything with respect to the dollar collapsing?” Notice all of these questions have some element that involves what I consider the most ludicrous thing about our financial system—money.
Money Is Nothing
Aristotle, in politics, wrote “Wealth is often assumed to consist of a quantity of money. But money is the thing with which business and trade are employed. Money is used for transactions. Wealth is not having a stack of currency”.
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