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Even the Chinese Can See It – Why Can’t We

December 19, 2008

For the past three years, I have been telling people to put away their copies of “Rich Dad, Poor Dad” and come to realize that the advice is not biblical and also doesn’t work for most people. People have scoffed at me and said I was backward in my thinking.

My reasoning for why “Rich Dad, Poor Dad” is nonbiblical is this:

1. It is based upon greed.

2. It is based upon a false ideal that the future is in any way predictible. We are told repeatedly in the Bible that you should not count on the future being there.

3. It proposes that we should make money off the misfortunes of others. I won’t attempt in this post to explain how leveraging does that, but it certainly does.

My reasoning for why it doesn’t work is this:

1. There is only so much wealth. You cannot have everyone leveraging their investments. If they do that, then the whole system will come crashing down as real value will become submerged in paper value. This is exactly what we have today.

2. In a falling economy, cash is king. And all economies fall from time to time. And there is little way to predict when your leveraged investments will be called in.

3. Leveraged investing, which is at the heart of “Rich Dad, Poor Dad” is what caused the Great Depression and the Great Tulip Futures Crash of the 1700s (history’s greatest Depression).

Now the Chinese are trying to tell us to stop doing this. In a fascinating article from “Atlantic Online” one of China’s most successful bankers tells the United States what we don’t want to hear: That they will soon own our country. And believe it or not, he doesn’t want to own our country. He wants us to get on our feet again so China can trade with us.

In his analysis of our economy, he has some fascinating points. But the one that intrigued me was this quote:

Think about the way we’ve (i.e. Americans ) been living the past 30 years. Thirty years ago, the leverage of the investment banks was like 4-to-1, 5-to-1. Today, it’s 30-to-1. This is not just a change of numbers. This is a change of fundamental thinking.

People, especially Americans, started believing that they can live on other people’s money. And more and more so. First other people’s money in your own country. And then the savings rate comes down, and you start living on other people’s money from outside. At first it was the Japanese. Now the Chinese and the Middle Easterners.

We—the Chinese, the Middle Easterners, the Japanese—we can see this too. Okay, we’d love to support you guys—if it’s sustainable. But if it’s not, why should we be doing this? After we are gone, you cannot just go to the moon to get more money. So, forget it. Let’s change the way of living. [By which he meant: less debt, lower rewards for financial wizardry, more attention to the “real economy,” etc.]

As an amateur economist, I love to read comments from smart people. This article should cause all of us to sit up and take notice.

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6 comments

  1. I would comment … but I’m not a smart person. At least about the economy ;O) Unless you count NOT leveraging and getting caught up in the housing whirlwind of the last 5 years and trying to live within my means.


  2. Then you are a smart person Aaron and qualify as an eminent amateur economist. The Best Kind.


  3. I wish there were a couple million more of you out there, Aaron.
    I just wanted to comment on your observations about Kiyosaki. I do agree with your analysis, but Kiyosaki is really just one of the high profile public targets of the much larger group of these self-proclaimed investing “gurus” in the U.S. who are charging exorbitant prices for their classes and offer only half-baked ideas which either never worked, are now illegal or were just imprudent to begin with.
    Avoid these guys: http://www.foreclosures.com/pages/gurus_to_avoid.asp

    A lot of what is going on with China reminds me of some of the strategies that the U.S. government used when they were working to acquire large portions of land from indians in the upper Midwest. The effort was to keep them deeply in debt, then what the government would do is to absolve their debt in exchange for large segments of land. It isn’t that much of a stretch to think that this couldn’t happen to us. I know the parallels aren’t the same, but it scares me to owe any foreign nation as much as we do.


  4. Peel away the layers and the core spiritual issue seems to be greed at all social and economic levels. I noted one average Joe quoted in Jeremiah’s link as saying he just wanted a better quality of life. People will take all kinds of risks in pursuit of the holy “better quality of life.” And I wonder how many people are working full-time jobs and trying to run a business or some type of scheme on the side…all in the name of achieving “a better quality of life.” They do not lack food, clothing, shelter, transportation, medical care, or a modest retirement plan; and yet they continue to work the angles to get more.

    What is happening to us?


  5. I have never read the book “Rich Dad, Poor Dad” but have always been of the opinion that the less debt the better. Never took student loans, went to CSU Sacramento with help from my parents. I bought both my cars with cash, and the first one lasted me more than 7 years.


  6. Niel:

    You are definitely my new hero



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