The whole country of Greece is a welfare state where everyone gets a pension. Pensions are of course contingent on there being a larger and larger number of young people joining the ranks of the workforce to help fund them. No government 'saves' money for the future – they spend everything and more; saving for the future is advice meant for muppets like us. They keep borrowing from the others, notably, from the Germans (who I really pity; they work, the others enjoy) – looks like everyone is still extracting revenge for the second world war.
And there of course comes the day when they can't pay their debts. In order for them to pay their debts, the lenders need to lend them money, which of course just maintains the illusion that they are paying their debts. At some point the lender feels that he is being taken for a jolly ride, and he says 'No more'. Which is when the people enjoying the free ride rise up in indignation. How dare they do this to us; they are humiliating us; this is inhuman; there are old people, children, and sundry other categories of people who will suffer due to this inhuman decision of our creditors to pull the plug! They need to keep funding us! The people with money are caught on a cleft stick – they are screwed if they lend more; they are screwed if they don't.
Moral of the story? If you have money, buy assets. Don't lend them to others. By the way, putting money in bank deposits or debt mutual funds is also lending to others. There is always the hazard of you not getting your money back. There is also the constant fact that the government keeps on eroding the value of money, by creating money (printing is not necessarily the right word – they don't create money just by printing – they do it nowadays by waving magic wands called quantitative easing) and distributing it like there is no tomorrow. In fact, they who do this are right – who has seen tomorrow – let's just live for today.
Look at Puerto Rico today. They are in similar shit because their politicians spent more than they could afford all these years; Iceland got out of a big piece of similar shit a few years back; Zimbabwe's case is too well known to bear repetition. A lot of countries cut a few zeroes off their currencies once in a few decades, once it is no longer possible to count the money without a calculator. In many countries people transact only in US dollars; which of course is another chimera. It is like the mad characters in Alice in Wonderland deciding to accept currency that is printed by the countries in the Game of Thrones, since they don't trust their own any more.
Money is an illusion. It is just a promissory note given to someone assuring him that he will get some things in return if he passes that note around. It is just the faith of all of us in a common illusion that sustains the illusion of currency; like any other illusion, it needs all the people participating in it, to believe in it, for it to succeed. Meanwhile, the magician who created the illusion is busy siphoning off some of it every time he waves the wand, and redistributing it among those who are participating in the illusion, so that everyone feels that he has a stake in the illusion. Those who have too much of it, are systematically eroded of their wealth – termites called inflation and quantitative easing are constantly nibbling at it. But then they are too much part of the system, too entrenched, too enmeshed, to realize; and even if they do, to protest.
When everyone is pointing to the stage and clapping, it is but politic for us, to also point to the stage and clap. We need to be enthusiastic in our participation in the illusion; and seem to be as mesmerized as the rest. Meanwhile, we need to keep converting parts of our money into real assets – the things of actual value, the things that people need, and the means of production to make these things; and some medium of exchange that cannot be manufactured by waving a wand, like gold and silver. Some land, to stay and to produce something. Some stake in ventures that produce things of value for people, like equity in solid companies run by people who are not illusionists themselves. And yes, it won't harm to borrow some of the illusionary pieces of paper called currency, to invest in some of these assets.
Net sum and gist: Not a lender, but a borrower be. And invest your money, at least most of it, in things of real value, things that people will want, irrespective of whether they pay for it with pieces of paper, or a bit of their own labor. Own the means of production, not pieces of paper that assure you that you own the means of production.
Too dire a prescription? Too pessimistic an outlook? Sure. Those who are dancing at the party, always look at those who are standing outside and pity them. The other way round is also true.
Posted By Dinesh Gopalan to Personal Finance, Investments, and other things at 7/05/2015 10:03:00 AM