The Financial Crisis of 2008 and How It Affects you (Part 2)

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Federal ReserveBen Bernanke (more info), the former chairman of the Federal Reserve (photo left) during the height of the Great Recessionwas quoted in a news article saying that the Fed had the most powerful weapon wherein he was referring to the printing press. In a nutshell, what he said was that the Fed was really powerful because they had the ability to print money. However, this is a terrible mistake to understand that printing money would automatically mean that it has value. As a matter of fact, it isn’t just that simple.

The printing of money without any gold or any reserve to back up its value would mean that printed money wouldn’t even be worth its weight of the paper it is printed on. This is what is referred to as hyperinflation. The perfect example for this is what happened to Zimbabwe.

You see, the African nation of Zimbabwe was a progressive country which had a lot of promise, but its government had this policy of printing more and more money in order to pay for its debts. The printing however, was made in contemplation of a shortage of reserves to back it up. What happened there was that there was a rapid devaluation of their currency. What was once a rising economy has now become a country where you see billion dollar notes being printed in that country which can buy you only very little. Thankfully, the financial crisis did not come to this.

hyperinflation - printing USDIf hyperinflation occurs in the United States, it will be total and utter chaos – a world superpower being brought down to its knees because of its own fiscal policies. This was a possible outcome of the Great Recession. A literal implosion is what it is. Prices will skyrocket, and people’s life savings, the money in their bank accounts, and even in their very own pockets would no longer be of much value. What you can buy with a hundred dollars now would cost perhaps a hundred fold if hyperinflation sets in. And when it does set in, you’ll see bread lines, riots, and economic depression.

This spells trouble for you and every other Joe in Main Street just as much as for those investment bankers in Wall Street. This means that things would be just like the way it was during the great depression. And it was heavily speculated that the recession was turning into a depression.

If the United States followed down this path during this major economic event, you will see a dramatic devaluation of the U.S. dollar, which, thankfully, has not happened. But it can, and that’s what we need to remember about the frailty of paper currency and how one day, everything could just go belly up. You see, paper currency operates on the idea that the notes we possess represent its value in gold or any type of reserve being held by a country’s Central Bank.

Sure, you might scoff at the idea, and the probability of that happening would be one in a million, or perhaps even in a billion; but you need to know that this is a very real possibility and you simply can’t place all your wealth in the form of paper currency. People who are financially literate are well aware of this, and that’s precisely the reason why they invest in things like gold, oil, and other high value commodities. This is what investors did during the financial crisis  of 2008.

Don’t be fooled at how strong a country’s economy may be, because it’s always susceptible to one or more factors. The problem with globalization is that one country may be too entangled with other economies. When the financial crisis struck the United States, it set off a chain reaction that nearly crippled the entire world’s financial system. So don’t be too confident in the American dollar or in your bank account. Be safe and diversify, make sure that your portfolio and your wealth would be resilient enough to withstand any internal or external shocks. Investing in gold or silver is a common method for consumers to protect their family’s financial future as it has effectively stood the test of time for thousands of years.