Dave Ramsey’s Money Misfire

Here I am in 2009 at the Boise Tea Party

I’ve been a fan of Dave’s for some time. His common-sense admonition to get out of debt and save cash has helped quite a few people in unchaining themselves from the looming debt that is so common today. I wish that our leaders would implement his “Total Money Makeover” in our government and quit spending money that they do not have, adding another ball to the chain of the American people.

Unfortunately, even Dave Ramsey fails to understand a few economic principles that could seriously hamper one’s financial preparedness as the dollar as a currency becomes devalued.

Many of us are becoming more aware of what the Federal Reserve’s role in managing the currency has done and know that they are largely responsible for the dilution of the dollar, to the tune of ninety-five percent or better. And this is from the Bureau of Labor Statistics.

It seems that holding dollars for such a long time as that would not have been a good play for one’s cash, and holding precious metals for the 97 years of the Fed’s existence would have been better. Of course, wages have increased as the inflation did, although certainly not proportionately with inflation. Unfortunately for those long-term savers in cash, the value of their holdings have been reduced and the fiat-created currency has been used to the benefit of government power brokers and the banks for which the Federal Reserve was created. (A fantastic read to support this claim is The Creature from Jekyll Island by G. Edward Griffin. I’ll have some interesting insights to share after I finish his book, which is a page-turner so far.)

But what does Dave have to say about this? It seems he holds all of his stored value in dollars, in one way or another.  In this video, he called Peter Schiff an “idiot” and said he trusts the complexity of the market system and the FDIC “insurance” to protect his dollars. Sharing his view that the fundamentals of the American market and monetary system are sound, he cited evidence that “The market is probably a hundred times more sophisticated and complicated than it was in 1929.”

That quote seems to be a logical fallacy, because a thing’s complexity does not establish it’s validity in accomplishing it’s purpose. Just because the monetary system is complex doesn’t mean it is sound.

Speaking about the possibility of a complete economic crash Dave said, “There is no indication out there sufficient for this kook’s kid, who’s probably a kook too, to say this.”

“I do not own any gold, nor am I buying any. It’s a stupid investment.”

After watching this video and the very poignant and ironic slideshow that accompanies, I was rather taken aback. It seems to me that it is foolish not to invest something in precious metals and commodities because of the possibility of a market crash or aggressive inflationary period. Those things will do well during inflation and if the whole thing crashes and will probably have monetary value.

Dave misses several very significant things here.

1. Despite the market’s complexity, the probability of a large crash exists and is growing. China is calling for the world to dump the dollar as the reserve currency, China is also dumping the dollar for trade between themselves and their friends, oil producing countries are working on agreements to trade for oil with other currencies, the United States government is spending money with debt in a way that would make a drunken sailor look like he just attended Financial Peace University in comparison, and the Federal Reserve just instituted it’s second round of “quantitative easing,” or money printing. If the U.S. was a company that had to turn a profit or go bankrupt, certainly bankruptcy it would be. Unfortunately, this corporation that is the federal government has the power of the “law” which says “since we claim the right to force others at gunpoint, we will be passing around this paper and you all must accept it for goods and services. Don’t worry, we’ll manage it well because we’re the government and we employ alot of smart people to do this.”

No, Dave, the fundamentals of the market are not sound, especially in light of history. In the past, empires always resorted to coin clipping, mixing more base metals to the coins, or printing more paper banknotes. The economic law TANSTAAFL, which is “There Ain’t No Such Thing As A Free Lunch” must take effect, sooner or later. Diversifying one’s store of value is a way to protect oneself against the inevitable correction. And it’s simply a good idea to be ready for all kinds of circumstances.

2. Cash is a universal means to trade for wealth, but it is not wealth itself. The reason to have cash is that you can trade it for the things that you desire. You don’t necessarily desire the cash, but the things you can get with the cash. That cash may tumble in value, and may take more to buy the same things. Obtaining those things that you were going to buy with the cash anyway is a way to protect yourself from inflation.

3. The FDIC only holds about 2% of the cash to cover it’s liabilities. When depositors start demanding their cash en mass, (not just individuals, but companies, corporations and other banks,) the Federal Reserve and the taxpayer are expected to loan the necessary funds to bail out those banks that played the line of fractional-reserve loan profit-making too heavily. The FDIC’s coverage was temporarily boosted because of failing banks after the 2008 crash, but if even a moderate bank run occurs the FDIC will have to be bailed out. An FDIC bailout by the Treasury means more money printing.

Certainly it seems that Dave Ramsey is not even considering the possibility of monetary problems in the future and trusts the FDIC to protect his cash. This, by the evidence I’ve cited, is not a good idea, and is certainly bad advice for his listening audience.

Don’t get me wrong, I think it would also be foolish to run out and buy gold with all of your money today, but certainly precious metals have a place in your store of wealth and have performed quite well despite it’s seeming volatility compared to dollars. Also it’s simply a smart idea to hold one’s wealth in more ways than a shaky medium of exchange like the dollar.

This just goes to show us that even the better financial advisers can offer a profound display of ignorance at times.

By A.J. Ellis

A.J. Ellis is a Christian libertarian writer in Idaho and writes the Musings from the Empire blog.

7 comments to Dave Ramsey’s Money Misfire

  • Kathy

    Great article, thanks. I’m glad I read Schiff’s book and bought some gold and silver back in 2007. I don’t have much use for Ramsey’s advice other than “get rid of all debt”.

  • It seems at the current pricing, you’re holding a pretty decent profit right now, with silver having broken 30 bucks an ounce. I think it’s pretty good in comparison to the fiat currencywe are now beholden to, though it could fluctuate.

  • Randall Bachman

    Dave Ramsey’s program frankly saved our finacial lives. Almost everything he perscribed, I did. And it all went well. They only thing I did not buy into was his view of buying “good growth mutual funds”, instead I went to cash. All of my debts paid off, all of my credit cards cut up, and all my investments in cash. And then came the crash. Thank you Dave for all your finanical advice, I am just glad I didn’t listen to your investment advice. Didn’t then, and wouldn’t now. His errors seem to be in an overal trust in the system. Even though he more than most folks has been great at exposing the untrustworthy underbelly of the system (credit cards, etc.)

    Go Figure

  • Spencer Watkins

    Thanks for a great article. I, too, am a Dave Ramsey fan and I want to pull my hair out every time He disses gold or silver. He being a christian man ought to know a lie and fraud when he see’s it in federal reserve notes (dollar bills.) I wonder when he’s going to wake up from his ignorance and realize that gold/silver/copper can and will be used as real money when this money printing ponzi scheme collapses under it’s own weight? My family and I have been working diligently getting out of debt, but it seems just as prudent to buy silver, then sell later to pay of cheaper frn’s.

  • Great article. I actually posted a short video on “Dave Ramsey is Wrong about Gold” a few weeks ago. I have gotten some flak for it, but would love to hear your thoughts.

    http://www.youtube.com/watch?v=iH_rvWIsNls

    As I mention in the video, Dave is RIGHT about many things, but he does not understand the money system, and can actually do great harm with some of his advice.

    • Pretty good, I’d say. I’ve really gotta laugh, that Dave would say “money is spiritual.”
      Might have something to do with that pyramid and the eye on the dollar bill, a worshipper perhaps? Just a joke.
      What’s crazier is that he wouldn’t encourage diversification, especially with QE2. I mean, you can’t print so much money without prices rising, and people always need commodities.

  • Cherlynn

    Dave Ramsey rocks when it comes to getting out of debt but I think he is way to trusting of our economy and what is happening right now. I’m not big on buying a lot of gold but sure do advise people to stockpile food and water. I have a feeling things are going to go south much sooner than any of us ever dreamed of. Pour money in to mutual funds? No thanks, I can think of better ways to invest locally that will help us if things go down.

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