Dave Ramsey’s Followers Are Going Broke. Here’s Why:

A whole bunch of Dave Ramsey followers are going broke. Here’s why:

For decades now, Americans have enjoyed an historically rare trifecta of low interest rates, low inflation, and low unemployment.

At the same time, people ranging from Peter Schiff, to Ron Paul, and Robert Kiyosaki were warning people that the US Dollar is backed by nothing, the US Government has massive and unsustainable debt, and that the house of cards is going to come crashing down around us.

I got introduced to Dave Ramsey at church many moons ago, and I immediately recognized the problem with his Depression-era formula for financial security. You can’t do money “God’s Way” with man-made fake fiat currency. I’ve always said that Dave is largely correct about money. His problem is that he doesn’t seem to know or understand that we no longer have money.

My question, which Dave nor his acolytes haven’t been able to answer, is this: Isn’t it extremely risky to “save” fiat currency knowing it is certain to be worth nothing? It’s like knowing you’re in a Ponzi scheme, but keeping quiet in hopes that you will be paid out before it is revealed that it’s all a scam.

Mind you, he doesn’t care. He’s already rich and he makes plenty of money shilling for the financial services, insurance, and real estate industries- which his gateway drug, “Financial Peace”, introduces you to. And in exchange for the promise of 10% of your gross income (because you know, you want a “gross” blessing, not a “net” blessing), your pastor pitched it to you like a carnival barker…step right up. And if you disagree, well, it’s not Dave or your pastor saying this, it’s God. Do you really want to argue with God?

In 1971, President Richard Nixon, in an illegal and unconstitutional act, took the US Dollar off the gold standard. God’s money is GOLD & SILVER. Ever since that time, savers have been betting they’re going to have a chair when the music stops. God’s people need to be “wise as serpents” here. It’s no sin to play the game by the rules.

My opinion? Earn, and borrow and use it to buy assets.

In the end, the money goes to zero- but the assets remain.

And if you don’t? You’ll have nothing. Your savings will be worth nothing. You won’t own property, you won’t be able to afford basic necessities, and you’ll never, ever, ever retire.

Allow me to offer an example:

Approximately a year ago, you could have purchased a $750,000 house for about $500,000. You could have put very little money down and gotten a 30 year mortgage for 2.99% (or lower).

Then, you could have paid back the loan with money worth less every month than the money you borrowed.

This is vitally important to understand- inflation makes your money worth less and less over time.

Value is purchasing power. And in an inflationary environment, you always have more purchasing power today than you do tomorrow. You can’t out-save rising prices in this situation.

The house would now be worth $250,000 more than you paid for it. Yes, that $250,000 is worth less now than it would have been a year ago, but still…

But let’s say you “saved up” for it- or you were or are continuing to “save up” so you can be in a good position to buy it using Dave’s arbitrary Great Depression-era formula. Is there any way that in one year you could have “saved up” $250,000? Some people may have been able to do that. It’s not impossible.

But wouldn’t it be easier to let the house do the heavy lifting?

However, now you’ve got another problem. In addition to the house you were “saving up” for now being $250,000 more than last year, mortgage rates are now between 4.66% and 5.46%.

Rising interest rates reduce your purchasing power. What I’m referring to here is the amount you can afford based on your available budget.

Now, admittedly in ordinary economic environments, rising interest rates would slow, or even depress housing prices- but real estate tends to track with inflation.

In the era of Jimmy Carter, the economic miracle of double-digit inflation and double-digit interest rates, which “Reaganomics” was able to eventually fix, was referred to as “Stagflation” (because it also coincided with double-digit unemployment).

A year ago, $50,000 down on a $500,000 house would have gotten you a monthly Principle Interest Taxes and Insurance (PITI) of roughly $2,100.

Let’s say you waited and “saved up” an additional $50,000 for the same house. Your $100,000 down on a $750,000 house now gets you a monthly PITI of $3,500.

FOR THE SAME HOUSE.

Congratulations on being “debt free”. You’re also renting, your rent is going up- reducing what you can save, while the price of housing and mortgage interest rates rise- you’re further from home ownership than you ever were. Oh, and your ability to save has been reduced by the rising price of fuel, and just about everything else.

I’m not saying to go run up your credit cards (though you would have made 9% on a six months’ supply of toilet paper purchased in January) on consumer purchases, dinner out, vacations, furniture, and finance new cars. Dave is largely right about consumer debt, especially the uniquely foolish decision to finance cars. But if you need a car, you need a car. Doesn’t much matter if you have the cash, now, does it?

The bottom line is that in a fiat currency system, there is no value to the money- it isn’t backed by anything. If you want to talk about “Doing money God’s way”, then it helps if you begin with God’s money- gold and silver. As long as they’re going to saddle us with fiat, we may as well learn how to play the fiat currency game well.