Even the Chinese Can See It – Why Can’t WeDecember 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.