• Printing Money? Why is that bad? What does money represent?
• Sound Investment vs Speculation. Greed is Bad?
• A 'get rich quick' scheme that actually works!
• Bailouts are always a bad idea! If it is bankrupt, let it fail!
The "Wealth Production Cycle"..
Any country can quickly amass incredible wealth if the whole population works productively and the majority of the dollars so earned are re-invested back into that production. This ideal cycle is rarely achieved because the 'majority of the dollars' are not re-invested. They are taken OUT of the cycle and invested in Greed Bubbles, Personal bonuses and Castles in the sands of Dubai. Only a small percentage is retained to fuel the production cycle!
Since the war, Germany has astounded the industrial world with its rapid financial growth - exactly based on the above model.
It is an accepted fact that every dollar invested back into a Production Plant can double itself in about 9 months. At that rate, one dollar will become a hundred dollars in five years! This is not magic, this is just what well equipped, well directed, enthusiastic workers can achieve in a growth industry!
The Math is very simple..
For most societies where the need for goods and services is not less than supply. (In other words, people can produce lots of things that other people need.) (Point 'A')
B. Any able bodied person with a small amount of training can feed and clothe their family with just 6 hours work per week.
C. They can house their family with just 1 days work per week.
D. Collectively, they can build & maintain their village and nation with another 3 hrs/week. (like taxes)
Thus, it should only take two days per week to be comfortable and avoid recession.
E. With the re-investment of a third day a week into your plant, you can double your production capacity every year!
And, there are still three days remaining!
Remembering point 'C', you could acquire another three houses with those three days!
The key rule above is 'E.' (the 20% rule) "At least 20% of the dollars produced are re-invested back into that production."
After World War 2, this simple maths enabled the USA, Oz and many other countries to achieve decades of spectacular growth in production and wealth.
What has gone wrong now?
Almost all these nations (except Germany) have deviated from this simple formula.
The above 20% rule (E.) obviously requires that every enterprise has some excess to re-invest. That 'excess' has been seriously eroded by several factors..
• The 2008 financial crash was the inevitable result of a Gambling addiction and our insane levels of debt.
Instead of investing in our own enterprises, we (banks, corporations, cities, private investors) put all our eggs in big shiny bubbles that promised huge returns. Taking big risks for big returns is Gambling. Much of the money that should be re-invested in our businesses has been lost at the speculation and derivatives casino.
• Our nations have gone on an insane borrowing spree that has left us (and the next two generations) with a massive debt burden. The interest payments alone are a serious threat to the above 20% rule.. Maybe only 2% is now being re-invested.
• Bank Bailouts have added to this debt. Bailouts of anything are always a bad idea! If it is bankrupt, let it fail.. The cost of World War 2 was horrendous, all the 'Allies' were bankrupt. But, because theses nations were 'glad to be alive' and eager to re-build, within a decade or so, the 'wealth production cycle' overtook that massive debt.
The key point is, "No matter how big the bankruptcy is, enthusiastic enterprise will soon beat it."
Big Banks are all chronic gamblers! They have had 13 major 'crashes' since the crash of 1796 when a Land speculation bubble burst. (sound familiar?) They always recover! They don't need to be bailed out and they don't deserve to be! With 13 speculation crashes, they obviously refuse to learn anything!
Ireland for example, should simply let their corrupt banks fail.
• Point 'A.' above has been badly compromised - Our "need for goods and services now is less than the supply" because we tried to do the humane thing by employing the impoverished of China. Sadly, we weren't thinking 'humane', we were thinking 20 cents per hour is better than $20 per hour that our own children were asking for!
Effectively, we have retrenched millions of our own children!
Millions of us are unemployed because there is very little these folk can produce that the general population has much need for! Asia has most of our needs covered - or soon will have.
Is our love of 'WalMart' supporting 'slave labor'? Of course not - if those workers had the 1000 mile bus fare home (and bolt-cutters) they would be free to leave those compounds.
Lets face it, millions of our children are not genetically 'cut out' for I.T. or highly skilled work, they are limited to basic manufacture - and that is now all done overseas.
• We have been blinded to the strong connection between production and wealth. (see "What is money?" below)
Most people today think 'getting something for nothing' is a good thing. (Our forefathers despised that concept.)
A thousand financial experts have told us that 'Trading pieces of paper' is the modern way to "get rich quick".
Rather than re-investing in enterprise, we now believe trading paper Derivatives is the new path to wealth! It doesn't seem to trouble investors that the combined value of all these bits of paper often exceeds the value of what they are a "Derivative" of by a hundred fold! - very similar to a ponzi scheme.
What is Money?
Understanding exactly what "Money" is helps answer many financial questions..
A Dollar is just a Token representing a certain amount of Labor or Produce.. (That's why national wealth is expressed as 'GDP' with the P standing for Products)
As an example, a Dollar might be equivalent to 2 minutes of a Carpenters time. And, because the Carpenter can make a spoon in 2 minutes, It is therefore also equivalent to one wooden spoon. This simple connection between a dollar, two minutes of labor and one spoon will ensure a dollar will always get you one spoon.
However, if the government decides to use a Photo-copier to double the number of dollars (tokens) in the village, this connection is damaged. The villagers now think they can buy twice as many products (spoons) However, there aren't twice as many products in the village so the people will compete for the available spoons and within a few days, the price of spoons will settle at twice the price. It simply caused massive inflation and the villagers are no better off. In fact they are worse off because the value of their savings has been halved and the cost of buying produce from other villages has doubled.
So why print money? In a depression, the people still need spoons but are afraid to spend, the carpenter is left with a stockpile of spoons that he can't sell. To rescue the situation, the government prints lots of money for the people, they all rush out and buy spoons. The Carpenter is saved from bankruptcy. Hopefully, the people are re-invigorated, forget their fears and resume "enthusiastic labor and the wise trading of dollars and spoons".
A depression can go on for decades if the fear cycle is not broken. That printing of money will certainly cause a savage depreciation in the value of those dollars - but, if the fear cycle is broken, the "wealth cycle" will soon recover that lost value. (and your lost international credit rating)