One tragic day, a large family awakes
to find themselves in the center of a massive earthquake that
strikes their beloved home. The earthquake shatters the walls of the
house, and the roof is littered with damages that call for
replacement, not repair. The house's foundation is laden with cracks.
Yet somehow the house remains standing.
Anxious to have his house repaired at
the quickest pace, the head of the household contractor for quick
action. The contractor suggests that it is critical to keep the
family from becoming homeless, so the roof and walls of the house
should be fixed first. The contractor recommends and the desperate
homeowner agrees that the foundation can wait.
"Let's worry about the foundation
later," the contractor tells the homeowner. "Right now, we
need to get a roof over your head as fast as we can."
That earthquake-ridden house is like
the American economy. Most of our citizens (like the homeowner) and
our leaders (like the contractor) are focused on fixing the walls and
roof of the economy. But could they be largely ignoring the
foundation of the economy, which must be rebuilt with material that
can withstand the next economic earthquake?
Currently, the cracked foundation of
America's economy is made of deficit spending by both government and
consumers. The primary financial role of our government is clear: tax
the people on ever-increasing scale; spend more money than taxes can
bring in; borrow money to keep spinning the wheels of the monstrous
spending machine. The main role of American consumers is to borrow
from lenders and spend at vendors. We are told this is the only way
to keep our economy healthy.
To drive this economic model, rampant
greed must remain a virtue. There must be an insatiable desire for
more and more and more. Lenders respond to the borrowing pressure by
manufacturing more loans, even questionable loans. Vendors advertise,
even if they have to do so deceptively, in order to sell more goods
and services that people hardly need. Consumers spend all, borrow
more in order to keep spending. They tell us that consumer saving
(keeping some of what they earn) is actually a terrible thing for
this economic model.
Thus runaway greed lures borrowers into
materialism, and it entices lenders to find ways to get the highest
interest payments from money loaned. This drive for the highest
possible usury (interest rate) also sets the stage for not a few
lenders and investment managers to create purely paper financial
instruments that are meaningless at best and fraudulent at worst.
Need we mention Bernard Madoff and Alan
Standford, perhaps the tip of the iceberg of the fraud embedded into
the Wall Street machine, which looks more and more like one gigantic
pyramid scheme? The whole Wall Street establishment may be one huge
ponzi scheme after all, with retirement account managers taking money
from later investors to pay earlier investors! This is exactly the
same way that the government's Social Security system now operates --
it uses taxes from current earners to pay earlier contributors. Yet
earners are advised to keep putting their retirement funds into an
investment scheme they can no longer trust. "We know you've lost
confidence in us, but send us your money anyway!" How can this
method keep working for the long term? It won't.
All this means one thing: America is in
dire need of a radically different approach to capitalism, if this
nation is to remain an economic superpower in the next five years.
The foundation of our economy needs to shift, change, transition from
a credit culture to a savings society. In this model, the economic
responsibility of the government is to balance the federal budget
every fiscal year and to pay off the national debt aggressively until
it reaches the zero mark. At that point, Government's financial role
is to keep a balanced budget and zero national debt as the new
financial norm for the country. More than the Commander-In-Chief
(CIC), the American president must become the Economist-In-Chief
(EIC), with fiduciary duty of keeping this sovereign nation
debt-free, because an indebted nation cannot be truly sovereign, not
for long.
Upon this new foundation, the key
financial goal of every American consumer is to pay off all personal
debts, and live debt-free in order to save and invest money on a
consistent basis throughout life. The citizen investor should be
taught to invest lightly, if ever, in paper assets like derivatives,
certificates of deposits (CDs), and other such unscrupulous schemes
but invest heavily in tangible assets like land, houses, metals, and
real businesses that make tangible goods.
This new model should be driven by
personal contentment, which appreciates and enjoys what a person has,
which is patient enough to wait to accumulate wealth over an extended
period of time, rather than resort to get-rich-quick tactics. Such a
sense of contentment will create the virtue of discipline that will
guide the consumer in spending, giving, saving and investing.
Once savings and real investment become
the prevailing economic culture, there will be an increasing number
of mildly wealthy people. By learning to save what little they have,
even those presently stuck at the dark bottom of the economic pit
will begin to rise in their net asset preservation aka wealth. This
savings society will broaden the spread of wealth that can be
depicted as a cube, instead of the pyramid structure of wealth
gathering that is currently the case. Rather than have just a few
filthy wealthy people at the top of the pyramid, society will see a
more equal increase in the number of people growing cubic wealth.
But will America make the transition
from credit culture to savings society? It is highly doubtful the
government will, since it is run by those brainwashed in the
credit-culture mindset that insists, "Consumer spending is the
only thing good for the economy; consumer savings is bad for the
economy".
With our government and most of our
institutions of learning completely sold on the overspending model of
capitalism, a greater hope for a transition from overspending to
regular savings may lie in the hands and hearts of ordinary
Americans, who regard the current severe recession as their wake-up
call to end their love affair with lives-on-loan in favor of
debt-free living and lifelong savings. That may not be "good for
the economy" now, but once millions of ordinary Americans put
this new foundation for capitalism in place, the nation will have a
different kind of economic culture on Main Street as well as a
government that will promote savings rather than debt. That is almost
certain to be the case, because the politicians running a "savers'
government" will come from families that have made the
transition from Credit Culture to Savings Society.
FYI, my family is already on the path
to making the transition, and I'm certain we are not alone, because
millions of ordinary people are now convinced that an economic model
that says "debt is right, and saving your money is wrong" cannot itself be right.
