5 Reasons a Financial Storm Is Brewing
The stage is set for great economic upheaval. Such upheavals have always marked the end of an old era and the birth of a new one. At the end of every age, some people move forward, and other people cling to ideas of the past…
I’m afraid that people who still believe their financial security is the responsibility of a big company or big government will be disappointed in the coming years. Those are ideas of the Industrial Age, not the Information Age.
If history is any indicator, a person who lives to the age of 75 should anticipate going through one depression and two major recessions during his or her lifetime. My parents went through their depression, but the baby boomers have not — yet.
Today, we all need to be concerned with more than just job security. We must also focus on our own long-term financial security and not leave that responsibility to a company or the government.
No one has a crystal ball. I subscribe to many investment news services and each one says something different. Some say the near future is bright. Some say a market crash and major depression are right around the corner.
To remain objective, I listen to both sides, because both have points worth listening to.
Instead, I work at staying educated as a business owner and investor. I prepare for whatever happens. A person who is prepared will prosper no matter which direction the economy goes, whenever it goes.
But while I don’t play fortune-teller, I’m always thinking about the potential future outcomes that I need to prepare for…
Decades of Crisis
The problem is, I believe the coming decade could prove to be the most volatile world-changing decade in world history.
The people clinging to the relics of the past — relics such as job security, savings, a home, and a retirement plan — will be those who are most ravaged by the global financial storm approaching.
Here are the five reasons I believe this:
- It’s the end of the Industrial Age
The Industrial Age began around 1500 and ended around 2000. In 1945, at the end of World War II, the United States was the world’s most powerful nation, the biggest of the few remaining empires of the Industrial Age. During the Industrial Age, countries with industrial technology, factories, great schools, and weapons ruled the world.
During the Industrial Age, the auto industry, airline industry, radio and television industry, and the weapons industry dominated the world of business. A worker could find a high-paying job for life, be protected by a labor union, and receive a retirement paycheck for life.
- The rules of money were changed in 1971
In 1971, President Nixon took the U.S. dollar off the gold standard, and the rules of money changed. The U.S. dollar stopped being money and became an instrument of debt. After 1971, savers became losers. Since 1971, the U.S. dollar has lost 95% of its purchasing power. It will not take another forty years to lose the remaining 5%.
- After 1971, bank bailouts increased in size
By 2010, most people were aware of the subprime mess and the trillions in bank bailouts all over the world.
Today, many are angry that the governments bailed out the rich bank owners and passed the bill on to the taxpayers. Unfortunately, few people are aware that these bailouts have been going on for years and have increased in size since 1971. In the 1980s, the bank bailouts were only in the millions. By the 1990s, the bank bailouts were in the billions. After 2007, the bailouts became international and are now measured in the trillions.
Most people without a sound financial education think debt is bad — and it is if you do not know how to use debt to make you richer.
- Inflation is rising
On January 4, 2000, an ounce of gold cost $282. Today, 21 years later an ounce of gold is $1,829. Since 2000, when measured against gold, the U.S. dollar has lost 96% of its purchasing power.
On January 4, 2000, oil was $25 a barrel. Today, oil is $76 a barrel. The price of oil has gone up by 200%. Yet the government still claims there is no inflation.
A smart person would ask:
- “What will an ounce of gold cost at the end of the next decade?”
- “How much will a gallon of gasoline cost in 2030?”
- “What will food cost in the next 10 years?”
- I see more poor people
In the coming decade, the gap between the haves and have-nots will increase. Many in the middle-class today will slip into poverty in the next 10 years.
In other words, there will be more poor people, although they live in rich, first-world countries like the United States, England, France, and Japan.
In the coming decade, the rich will get richer and the poor and middle class will grow poorer due to taxes and inflation.
If a person has a solid financial education, they will not cling so tightly to job security, a steady paycheck, and a pension. If a person knows the tax laws, they will not pay unnecessary taxes. If they understand the banking system, they will not save money. Rather than call their home an asset, they will know that it is a liability. If they understand inflation, they will not try to live below their means. Rather than get out of debt, they will learn how to use debt to gain wealth. And they will not mindlessly turn their money over to financial planners who are merely fortune tellers.
Three Big Differences Between Fortune-Tellers and Investors
#1 They do not know the difference between financial predictions and financial controls
Most financial advisors recommend investments the advisor or the investor has no control over — and neither do you. Examples of investments without financial controls are stocks, bonds, and mutual funds.
Since most financial advisors do not have financial controls, they talk about financial predictions.
Without financial controls, a real investor knows they are playing fortune teller, gazing into a crystal ball, trying to predict the future. To a real investor, that is not investing… that is gambling… that is fortune-telling.
#2 No money-back guarantees
Most fortune tellers do not offer a money-back guarantee. They don’t have to, because what they are talking about is in the future. As long as they paint a picture of a bright future, you (the client) will tend to leave happy. Twenty years from now, if their predictions do not come true, will they still be there to give you your money back?
#3 Fortune tellers and gamblers invest for capital gains
Investors invest for financial controls and cash flow. People who invest for capital gains invest in tomorrow — the future. That is why they count on prices going up. Capital gains can be found in most investment vehicles including stocks, bonds, mutual funds, real estate, and precious metals.
People who invest for cash flow invest in today. A real investor invests for control over cash flow because they want a guarantee of getting their money back. A dreamer invests for capital gains because they believe in the predictions of fortune-tellers who may or may not be fortune tellers in the future.
It is generally people who invest for capital gains who say, “Investing is risky.” And for them, it is.
Play it smart,
Editor, Rich Dad Poor Dad Daily