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Ludwig Von Mises literally wrote the book on money, credit and how business cycles and the banking system collide to create a credit crisis.  This Austrian economist accurately predicted the banking and credit collapse of the 1920s, and he most assuredly would have nailed our present disasters as well. 

In 1912 Von Mises published his first tome “The Theory of Money and Credit”, the contents of which blew the doors off on our (yes the great USA) government’s game of hide the credit enhancement bill; there by creating unnatural money supply imbalances in our economy.  It happened back then; the script was perfectly in place for a repeat performance.

Endowed with its singular ability to expand credit and with it the money supply, the Fed directly manipulated interest rates, consumer and business credit availability and ultimately taxes and inflation.  Those of us who are Ayn Rand fans have placed extraordinary trust in Von Mises and his disciples such as Andrew Galambos of the Free Enterprise Institute previously incubated at UCLA.

Rand’s theories embodied Von Mise’s economic laws in a most profound manner; in our language for us to understand.  Simply put, he broke the code for the average student of day to day living; even employment, investment values, and most crucially dependable trends of money flows.  Left alone, interest rates for your mortgage, savings instruments, credit cards and consumer loans will find their manifest equilibrium. This means that your “financial behavior” is natural, not weirdly distorted.  When credit is force-fed like now (bailouts, TARP, FHA gifts, tax credits, etc Fed funds rates for banks) really bad stuff MUST eventually happen.  Mostly, absurdly low savings rates meaning the nation’s “savings capital” is woefully inadequate to fund capital investment = more borrowing = temporarily higher (artificial) wages, employment and consumption stats.

Is this pure fabrication?  Costly?  Wrong?  Yes, yes and yes!  this addictive smoke and mirrors rules the day and this particular melt-down incredibly is only beginning for many Americans; hardly ending.  We must encourage savings and repayment of debt; not increased consumption of artificially pump up retail figures. 

Here’s where the Washington/Wall Street rubber meets your John/Jane Doe road; how you identify interference and how you exploit this to your advantage.  First, recognize that our system does not validate or even respect the natural physics espoused by Von Mises’s “Theory”.  Rather we march to the beat of quite another drum, that of John Maynard Keynes and his Keynesian Economics originally laid out in 1936 as “The General Theory of Employment, Interest and Money”; about as anit- Von Mises as possible. 

The #1 biggest mistake we made was a complete departure from the gold standard.  The predicament will be made more awful upon the real days of reckoning, so be prepared.  The coming deficit disaster tells us that the individual consumer should consider taking six primary steps to make the macro economy work to your advantage:

1. 1.      “Sell” the dollar and other major currencies such as the pound and euro
2. 2.      Buy gold and silver
3. 3.      Buy large-cap, blue chip dividend paying stocks.
4. 4.      Pay off all consumer and non investment or mortgage debt.
5. 5.      Increase savings in T-Bills, bonds, etc.
6. 6.      Rent/Lease your home for now or buy and hold for at least seven years.

Leearn more at Your Credit Company