Well, not in a single headline. But how many economic experts have you heard cautioning that the government ought to stop trying to fix our economy? Here’s some insight to help you avoid the next crash.
This video sums up most of the conventional thought on how to make our economy successful. It’s 30 minutes in length, but pretty easy to follow. Take a look when you have some time, and consider some of the points I share BELOW as you watch.
This is pretty standard economic thinking and teaching. Nothing revolutionary or unconventional here.
But business and financial success often come from recognizing something that everyone else missed, and playing it to your advantage.
What’s wrong? Oh, how we can count the ways.
- 0:38 “The economy works in a simple mechanical way…” The ‘simple parts’ underlying economic transactions are human beings, and they are anything BUT simple or mechanical. Human beings are dynamic, complex, and can be irrational. As they make economic transactions, they often make decisions that defy reason and common sense. Any model with an expectation of people at the bottom making predictable decisions like robots is a model doomed to failure.
- 5:13 “[Increased] Spending drives the Economy.” There have been two ways of looking at economic drivers: supply side and consumption side. Consumption side has been dominant since the FDR era and the opinion that insufficient buying led to the Great Depression. If people would just stop putting cash in a savings account and instead go spend that dough, then our economy would take off. The supply side view focuses on production. If you make T-shirts and make them so well that the market becomes flooded with t-shirts, you’d have to drop your price to keep selling according to the law of supply and demand. The price coming down puts the product within the debt-free budget of more buyers. Prices going up (inflation) will eventually require credit (and debt) to obtain the good. Ultimately, spending is only one way of looking at what drives the economy. Producing a worthwhile good and pricing appropriately is also an economic driver; one that doesn’t require credit.
- 6:10 “More income = more borrowing = more spending = more income…” I hope you see the problem here. If the 1st person makes $100 and uses credit to spend $110, then the 2nd person gets $110 and spends $121, and the 3rd guy spends $133, and then $146, $161, $177, $194, $214, etc. then we are only 9 people into the chain and have created over $100 dollars out of thin air. But this is all based on that initial real $100. When the 1st man’s debt comes due, he’s only going to spend $90 that month. The 2nd guy gets $90, pays back his debt and has $79 left to spend. 3rd man spends $67 after paying his debt, 4th man spends $54, 5th man: $39, 6th man: $23, 7th man: $5, and the 8th and 9th default on their debt. Actually, it would probably happen sooner because the man who spent $177 probably doesn’t have a cost of living he can cover with $5 when his “income” tanks and his debt comes due. This also assumes interest rates of 0% on the debt. You will see my numbers illustrated later at 11:42.
- 7:10 “Productivity Growth vs. Debt Cycles” Take a moment and think about the overlap of these graphs. Productivity growth is the REAL economic growth: a new way of making a product, a more efficient way of making a product. And do businesses and economic growth depend on steady, predictable trends or unpredictable fluctuations? Do financial experts tell you to invest in the stock market because it historically grows at 10% or because wild, unpredictable fluctuations might suddenly make you rich? Did anyone predict that market crash? So why throw on a debt cycle and lose the steady, predictable growth?
- 8:48 Just pause there and look at those spotlights. How many folks or businesses spending what they don’t have envision a future self crushed under debt repayment?
- 9:44 How many bartenders charge you an interest rate on your bar tab?
- 9:59 “$50 trillion in credit, $3 trillion in cash” Think back to what I said at 6:10 above, how when the debts came due we hit default before we got to 8th man in the chain, and that at 0% interest. See a problem looming for the economy at large?
- 12:10 “Expansion” Here you see the inflation occurring, which ties back to what I said at 5:13 about production vs. consumption. If your growth is credit-driven, rather than production-driven, then you’ve artificially created more demand without creating more supply. So prices go up. This is the 2006 housing market. Everyone is spending money they don’t have for a limited supply of houses being built. So house prices soar until they cannot be bought without massive amounts of borrowing.
That Omnipotent, Omniscient, Benevolent Government…
- 14:00 Look at that central bank perfectly adjusting interest rates to perfectly control the borrowing and spending of all the perfectly predictable people. As if this has ever happened in reality.
- 14:40-15:10 Doesn’t this party seem a lot like the celebration of the DOW recently hitting 20,000 points?
- 15:37 There’s those spiked house prices again… Was it really a good move for all of us? Who enjoyed the 2008 collapse?
- 16:35-18:25 “Deleveraging”: The story here is a good description of what’s been going on. And look at that central bank unable to reduce interest below 0%. What happens next?
- 19:58 “Austerity”: Governments cut their spending? Excuse me while I laugh hysterically for a minute. Look back at economic “expert” headline recommendations over the past decade and you’ll see them saying Austerity is completely the wrong move. If only governments would spend even more, maybe the economy will get better.
- 21:12 “Much of what people thought was their wealth, isn’t really there.” KEY POINT. Is your wealth made up of paper assets, or real, tangible assets?
- 21:45 “Debt Restructuring” This is how and why the bailouts didn’t simply payoff the defaulting mortgages in 2008. Instead, new terms were drafted in which debts were still going to be repaid, so that those profiting from all that interest would still profit.
- 22:40 Here’s that assumption that government exists to provide welfare to the people. Worship the state, because the state is what provides for you…
- 23:30-24:10 Civil unrest and war await. If only those “haves” would give away their hard earned wealth to all those grasshopper “have nots” who didn’t save…then we’d have peace on earth. Hooray for socialism! It’s going to work anytime now! With less bloodshed this time (we hope)!
- 24:25 Hooray for the central bank (the Fed) here to save the day. Just print your way to economic growth. It’s not like the ballooning supply of dollars would make the dollar worth less, in accordance with the law of supply and demand…right? Nah, this totally saved the bacon for the Weimar Republic and for Zimbabwe.
- 26:00-26:20 “Beautiful Deleveraging” So, we just need the government and the Fed to perfectly balance 3 deflationary effects which lead to civil chaos and war with the inflationary process of printing more money (assuming that doesn’t make the money less valuable when everyone has a wheelbarrow-full)? Wow. Trust in the omnipotent, omniscient, benevolent government. It knows all and can do all, and will totally balance all these fragile dynamic human factors that typically lead to famine, war, and death. Has a beautiful deleveraging even happened once in history? Is our Federal behemoth the destined one who will be the first government to perfectly balance these delicate factors and print our way to freedom with no bloodshed?
- 27:18 “Spending is what matters. A dollar…” Right. Assuming that dollar is still desirable and not hyper-inflated.
What to Do?
- 30:23 “Rule 3: Do all that you can to raise your productivity, because in the long run that’s what matters most.” This is probably the only good and true piece of advice in the video.
How do you raise your productivity? First, move somewhere that productivity is allowed. Want to buy a chicken to produce some eggs? In the Eastern States, regulatory burden might require you to first sink thousands of dollars into trying to get your 1-acre rural lot rezoned from residential to farm before you’re legally allowed to have that chicken. You’re probably better off to move someplace like the American Redoubt where freedom still lives, and nobody cares what you do with your land in the country.
Second, invest in capital assets. These come in four basic varieties:
- Raw Materials
- Tools to convert raw materials into finished goods
- Land or facilities in which to produce the raw materials or use the tools
- Skills and training to put the others together
If you own land which produces a raw material, tools to work the raw material, a facility or shop in which to do your work, and the skills and training to put it together, then you are able to generate real wealth. And if you have all these things debt free, than your cost to generate the wealth is going to be very, very low.
Third, if you are producing a good from which you can enjoy direct benefit (food, furniture, soap, herbal tinctures, etc.) then you lower your cost of living even further because you don’t need to sell or barter your goods in order to obtain other goods necessary for living.
Now, we wouldn’t have the technology of today if everyone still lived on a self-sufficient homestead producing only that which they needed to survive. However, if you can perform your trade or service while living on a fairly self-sufficient and efficient homestead in the American Redoubt, you’ve greatly increased your time and resources available.
Imagine if you eliminated the mortgage (or rent), the car payment, every utility bill, and the majority of your grocery bill. Would you still need to work as hard as you do today? Would you need as much money to survive? Would the money you do make with your hours of labor buy you more of the stuff you want, when you’re not paying all those bills?
It’s not about having lots of money. Money is only a means to an end. It’s about having enough to be happy. What’s really going to make you happy? Well, on your deathbed, will you want to be surrounded by friends and family and loved ones, grateful for the good you brought into their lives? Or will you be saying, “Quick, quick, bring me my achievements and accolades and bank statements for me to look at one last time before I go!”
Where are you more likely to achieve that happiness?
If you need some ideas to get started, you might consider a book like How to Make Money Homesteading. It’s not as if you must change your career, but a book like this can give you great ideas of what you can do to make your land profitable on the side, and producing products you can directly use. The inclusion of interviews with successful folks adds some inspiration as well. I’ll be doing an in-depth review of this book in the future. Get it now to start brainstorming, even though your first real move is going to be acquiring the land in the Redoubt.