One of the best aspects of the book is its ability to explain complex economic principles in a simplistic fashion. This allows the book to communicate to a wide range of audiences – especially novice investors. This allegorical tale sheds light on topics that are so frequently discussed but so poorly understood.

From the Back Cover of the Book

• Why governments can spend without ever seeming to run out of money?
• Why some countries are rich while others are poor?
• Whether spending or saving is the best cure for a bad economy?
• Where inflation comes from?
• Why it’s so hard to catch a fish with your bare hands?

Coming off his popular book, Crash Proof 2.0, Schiff compares the United States economy to a small island economy. He describes how an economy that was once on top of the world, is now burdened with unfunded liabilities and massive deficits. Moreover, he presents a case for the United States no longer being the engine of the global economy, but the caboose.

“The conventional wisdom is that foreign economies depend on Americans to buy their exports. This is false. The global expansion of the past decade has created new demand everywhere, and people and businesses in all corners of the world are spending. However, in America, spending has largely been achieved through a massive vendor financing scheme. Foreign supplied credit has allowed Americans to continue buying, even while American income and savings have dropped. As this credit goes bad, the losses are landing on the bottom lines of foreign financial firms. In other words, the global pain is not resulting from American contraction but from having financed our preceding expansion. This is a critical distinction few have been able to make, and it is vital to appreciating the decoupling that has already occurred beneath the surface.”

The lack of education on the difference between assets and liabilities is why many people struggle financially. Although some areas of the subject can become gray in nature others are black and white. Always remember, assets will put money in your pocket while liabilities take money from your pocket. One of the worst mistakes you can make in your financial life is thinking that liabilities are assets. With that being said here are some examples of common liabilities.

Liabilities

• Homes
• Cars
• Boats
• Clothes
• Electronics

Contrary to popular belief a house is not an asset. As many people found out during the recent crash of the real estate market in 2008, houses do not put money in your pocket. Houses have more expenses than most people think. They do not generate positive cash flow for the owner. A home mortgage is the first major expense associated with owning a home. Most Americans think they own their own home – in actuality the bank does. A typical 30-year fixed mortgage at 5.5% will incur nearly 100% interest on the principal. In other words, you will pay $100,000 in interest for a $100,000 loan.

If you are fortunate enough to have enough money to purchase your home outright you will still have monthly liabilities associated with your home. Property tax is a universal expense associated with home ownership. Homes in the city are usually subject to higher taxes than those in the county. Varying with climate, homes need energy for heating and air conditioning. A house in cold regions would obviously need to be heated for comfort and to prevent water pipes from cracking. Homes in southern regions with high humidity need air conditioning both for comfort and to prevent mold damage. Maintenance expenses may also contribute to your home as a liability. Will you need to repair a worn out roof? What about replacing an old water heater or furnace? Over the course of time maintenance expense can really add up.

Cars are another heavily misunderstood liability. One of the worst financial decisions made by people today is purchasing a new luxury automobile. Vehicles rapidly deteriorate in value when going from a new to a used condition. It is said that many vehicles drop 10-20% in value within the first week of use. Not only that, automobiles have associated expenses like fuel costs, maintenance and insurance. Although having a reliable car for commuting to work and back is a good idea, cars are not assets.

Assets

• Rental Property
• Dividend Paying Stocks
• Patents/ Inventions
• Royalties

When are houses considered assets? Although rental units incur many of the same costs as homes, rental property puts money in your pocket. Rental units that generate positive cash flow are assets. A typical single family rental property in the midwest  can reasonably demand around $700 per month in rent. Expenses for that same rental property usually cost around $500 (electric, water, cable etc), leaving $200 in positive cash flow. Because rental units have the ability to put money in your pocket, they are usually assets.

Just like houses, not all stocks are considered assets. Shares of stock in publicly traded companies are actually liabilities until you sell them at a profit. However, some stocks provide monthly payments called dividends to their shareholders. These dividend payments turn stocks into assets because they generate positive cash flow for their owner. Finding stocks that you think will increase dividend payments in the future is a great way to invest in the stock market.

In order to get out of the “rat race” you must generate enough cash flow to cover your liabilities. The best way to achieve this is to accumulate assets instead of liabilities. Once you accumulate assets with positive cash flow you can use that money to buy even more assets. Reinvesting your profits to buy more assets is one of the only ways to achieve wealth. The rich buy assets, while the poor and middle class buy liabilities that they think are assets.


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We are a society that has lived beyond its means for a long time. In the last five years, it has gone off the deep end.  Americans are relying on foreigners more and more to produce goods, rather than producing them themselves.

The fact that Peter Schiff’s predictions and theories haven’t fully played out yet makes his new book even more intriguing. His new book not only describes why the US economy is on the verge of collapse, but also serves as a financial survival guide. He views the United States as a house of cards with problems brought on by growing federal, personal, and corporate debt; a lack of savings and a weakening dollar. As a candidate for senate in the state of Connecticut, Peter now aims to educate our very own government on its destructive policies.

A few of his major themes are listed below:

• Highlights measures you can take to protect yourself-as well as profit-during these difficult times
• Offers an insightful examination of the structural weaknesses underlying the economic meltdown
• Outlines a plan that will allow you to preserve wealth and protect the purchasing power of your savings

This video serves as proof of Peter’s ability to forecast market direction. Most importantly it demonstrates his ability to understand exactly what caused the market meltdown. Schiff is currently running for a senate seat in Connecticut and begs the question, "how will the same people who got us in to this mess be able to get us out of it?"  His predictions are downright scary and usually go against mainstream media and well known rivals. Schiff’s uncanny ability to forecast our economy thus far makes his future predictions worthy of our attention.


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Dollar Devaluation and Inflation

Although prices haven’t immediately risen, inflation is alive and well. By nature inflation is caused by an increase of the money supply or a large change in supply and demand for goods.  Simply stated, increasing money supply  always causes inflation because the underlying currency is devalued. Currency devaluation is very negative, despite what you might have been told. Devaluation through inflation steals from people who save their money. At the same time debtors are rewarded since the debt owed is  devalued. Worse yet, inflation and devaluation discourage savings and encourage spending. Hence the reason, both tactics are used during weak economic periods of time.  This key point also explains why Ben Bernanke has chosen to trash the dollar – the average US consumer is heavily saturated in debt.

Free Report: Get a Complete US Dollar Analysis Today!

US Dollar Carry Trade Beginning

Up until recent months the Japanese Yen was the currency of choice for the Carry Trade. For those who don’t already know, a carry trade exists when one country has much lower interest rates than other countries. The country with low interest rates buys up currency and assets of other countries with higher interest rates in order to achieve a better return.  With the recent decrease in US interest rates the Yen Carry Trade is unwinding and the new US Carry Trade is starting.  Now countries like Japan are selling the US dollar and buying back stronger currencies and assets. This unwinding process will put even more pressure on the US Dollar.

Trapped Inside a Box

Nothing has changed from a fiscal perspective in relation to the federal reserve. While the Obama administration boasts a policy of change, nothing has changed for the federal reserve. Ben Bernanke is well on his way to an unprecedented dollar destruction with Alan Greenspan at a distant second. Current policies could easily result in the most sever dollar destruction in history. With the economy still being fragile despite massive stimulus and spending, further dollar dilution will surely be on the way. After all, the federal reserve is trapped inside a box. If they let interest rates linger this low for long periods of time hyper-inflation will occur. If the fed tightens monetary policy to defend the dollar, the economy will go into a deflationary recession. We know this scenario won’t occur since Bernanke once stated that he would rather drop money from helicopters than suffer another deflationary depression. In either scenario bad consequences exist for the economy.

Consequences of Inflation

• Increased money supply is always inflationary
• Inflation steals value from existing currency
• Inflation helps debtors – hurts savers
• Commodity prices increase
• Middle Class and Poor Lose
• Upper Class Wins

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