The Best Time to Prepare For a Crash
I still remember this story I heard as a child in Sunday school.
One night, an Egyptian Pharaoh had an unsettling dream. He saw seven fat cattle being eaten by seven skinny cattle. Disturbed, he searched for a person who would interpret his dream.
Finally, he came upon a young slave boy who told him his dream meant the world would have seven years of abundance followed by seven years of famine. The pharaoh immediately began preparing for a famine, and Egypt went on to become a powerful nation, feeding that part of the world.
Years later, when I discovered the teachings of futurist Buckminster Fuller, I saw a similar warning.
After reading Dr. Fuller’s book Grunch of Giants in 1983, I began preparing for a financial crisis. It worked. Through the 2008 crisis, and again during the Covid-19 pandemic, my wife and I, our company, and our investments continue to prosper simply because we are always preparing for bad times.
My generation — the baby boom generation — and their kids have only known the biggest economic boom in history. The baby boomers do not know what depression is. For the most part, all they know are good times. The baby boomers were blessed by being born into a massive economic boom, a boom that began in 1971 when all the world’s money became fake money. Many people in my generation made wheelbarrows full of money. After the crash of 2007, many of my generation lost their wheelbarrows of money.
I’m afraid my generation and their kids are not prepared for the economic decline, a depression that may be ahead. If a person has only known an expanding economy, he or she may not be prepared for life in a deflationary or hyperinflationary economy.
The Importance of History and the Future
To increase financial intelligence and financial literacy, the first step is to learn history. Through the lens of the past you can better see the future.
Over the course of history, the actions of the rich and powerful have done both much good and much harm. I don’t fault the rich for looking out for their interests or their family’s interests. Rather than placing blame, I studied the history of the rich, learned their game, and lived my life aware of their rules of money — and created some of my own rules along the way.
Most people who know the rules of the game of the rich are not in financial trouble today. For the most part, it’s only those people who have low financial intelligence and live by the old rules of money who are hurting financially.
Rich Dad’s Prophecy Is Coming True
Yes, it’s true, I’ve written for years about a coming crash, including in my 2002 book Rich Dad’s Prophecy. The cause of the prophesied crash is a flaw in the 401(k) retirement plan, a plan blessed by Congress in 1974 as an attempted fix to the dying pension system.
At the time of the book’s publication, the stock market was breaking records left and right, at least numerically. There was little doubt in the establishment’s mind that the stock market and mutual funds would solve the retirement problem for many Americans.
As would be expected, the Wall Street media trashed the book.
The 401(k) plan was a primary catalyst for pushing the retirement money of the baby boomers, the biggest generation in U.S. history, into the stock market, which created immense demand for stocks and mutual funds. As the baby boomers retire, they will need to begin drawing on that money in order to live — which means they will be selling stocks, not buying them. And when there are more people selling than buying, the market goes down. This means that today those who are 45 or younger and have retirement plans connected to the stock market are in trouble.
Many people believe they are safe because the stock market will recover. But the market will not recover; it will only continue to fall. The idea of a comfortable retirement is becoming a myth for young and old.
Ancient History Comes Alive
I have one final point about history. The Founding Fathers opposed central banks like the Federal Reserve. President George Washington experienced the pain of government-made money when he had to pay his troops with the continental, a currency that eventually went to its true value — zero.
Thomas Jefferson adamantly opposed the creation of a central bank.
Yet today, central banks control the financial world, and we’ve granted them the power to solve our financial crises for us, the very crises they helped create.
Simply said, a central bank can create money out of nothing and then charge us interest on money it did not earn.
The policies of the Fed aren’t abstract realities. They are powerful actions that determine your financial well-being in both open and hidden ways.
Anyone who purchases a home knows that for the first years most of your mortgage payment goes to the bank to pay down interest, and that very little goes toward reducing the principal. The bank effectively receives interest payments for money it did not earn but rather created out of thin air.
We Are Architects of the Future, Not Victims
As Bucky Fuller said, “We are called to be architects of the future, not its victims.”
In 1984, I began talking to Kim about what I saw as the future of the economy and why we had to prepare for it. Rather than being frightened, she simply took my hand, and we began our life journey together — and together we built a strong house of bricks.
At the start of our journey, we were in debt. I still owed about $400,000 out of a $790,000 loss from the failure of a past business, and I had no money, job, home, or car.
All we had were the clothes on our backs, two small suitcases, our love, and a dream for our future.
By preparing for bad times you have a better chance of seeing the silver lining when storm clouds gather, and a better chance of finding a pot of gold at the end of the rainbow.
For those in houses made of straw and sticks, the coming years could be bad ones; for people in brick houses, a silver lining can be seen in those approaching storm clouds and a pot of gold can be found at the end of the rainbow.
Play it smart,
Editor, Rich Dad Poor Dad Daily