I think there are really only two good reasons for
having a significant amount of money: To maintain a high standard of living
and to ensure your personal freedom. There are other, lesser reasons, of
course, including: to prove you can do it, to compensate for failings in
other things, to impress others, to leave a legacy, to help perpetuate your
genes, or maybe because you just can't think of something better to do with
But I'll put aside those lesser motives, which I tend
to view as psychological foibles. Basically, money gives you the freedom to
do what you'd like – and when, how and with whom you prefer to do it.
Money allows you to have things and do things and can even assist you to be
something you want to be. Unfortunately, money is a chimera in today's world
and will wind up savaging billions in the years to come.
As you know, I believe we're into at least the fourth
year of what I call The Greater Depression. A lot of people believe we're in
a recovery now; I think, from a long-term point of view, that is total
nonsense. We're just in the eye of the hurricane and will soon be moving into
the other side of the storm. But it will be far more severe than what we saw
in 2008 and 2009 and will last quite a while – perhaps for many years,
depending on how stupidly the government acts.
Real Reasons for Optimism
There are reasons for optimism, of course, and at least
two of them make sense.
The first is that every individual wants to improve his
economic status. Many (but by no means all) of them will intuit that the
surest way to do so is to produce more than they consume and save the
difference. That creates capital, which can be invested in or loaned to
productive enterprise. But what if outside forces make that impossible, or at least much harder than it should be?
The second reason for optimism is the development of
technology – which is the ability to manipulate the material world to
suit our desires. Scientists and engineers develop technology, and that also
adds to the supply of capital. The more complex technology becomes, the more
outside capital is required. But what if sufficient capital isn't generated by
individuals and businesses to fund further technological advances?
There are no guarantees in life. Throughout the first
several hundred thousand years of human existence, very little capital was
accumulated – perhaps a few skins or arrowheads passed on to the next
generation. And there was very little improvement in technology – it
was many millennia between the taming of fire and, say, the invention of the
bow. Things very gradually accelerated and improved, in a start-stop-start
kind of way – the classical world, followed by the Dark Ages, followed
by the medieval world. Finally, as we entered the industrial world 200 years
ago, it looked like we were on an accelerating path to the stars. All of a
sudden, life was no longer necessarily so solitary, poor, nasty, brutish or
short. I'm reasonably confident things will continue improving, possibly at
an accelerating rate. But only if individuals create more capital than they
consume and if enough of that capital is directed towards productive
Real Reasons for Pessimism
Those are the two mainsprings of human progress:
capital accumulation and technology. Unfortunately, however, that reality has
become obscured by a morass of false and destructive theories, abetted by a
world that's become so complex that it's too difficult for most people to
sort out cause and effect. Furthermore, most people in the OECD world have
become so accustomed to good times, since the end of WW2, that they think
prosperity is automatic and a permanent feature of the cosmic firmament. So
although I'm very optimistic, progress – certainly over the near term
– isn't guaranteed.
These are the main reasons why the standard of living
has been artificially high in the advanced world, but don't confuse them with
the two reasons for long-term prosperity.
The first is debt. There's nothing wrong with debt in itself; lending is
one way for the owner of capital to deploy it. But if a society is going to
advance, debt should be largely for productive purposes, so that it's
self-liquidating; and most of it would necessarily be short term.
But most of the scores of trillions of debt in the
world today are for consumption, not production. And the debt is not only not
self-liquidating, it's compounding. And most of it is long term, with no
relation to any specific asset. A lender can reasonably predict the value of
a short-term loan, but debt payable in 30 years is impossible to value
realistically. All government debt, mortgage debt and consumer debt and
almost all student loan debt does nothing but allow borrowers to live off the
capital others have accumulated. It turns the debtors into indentured
servants for the indefinite future. The entire world has basically overlooked
this, along with most other tenets of sound economics.
The second is inflation. Like debt, inflation induces people to live above
their means, but its consequences are even worse, because they're indirect
and delayed. If the central bank deposited $10,000 in everyone's bank account
next Monday, everyone would think he were wealthier and start consuming more.
This would start a business cycle. The business cycle is always the result of
currency inflation, no matter how subtle or mild. And it always results in a
depression. The longer an inflation goes on, the
more ingrained the distortions and misallocations of capital become, and the
worse the resulting depression. We've had a number of inflationary cycles
since the end of the last depression in 1948. I believe we're now at the end
of what might be called a super-cycle, resulting in a super-depression.
The third is the export of dollars. This is unique to the US and is the reason the
depression in the US will in some ways be worse than most other places. Since
the early '70s, the dollar has been used the way gold once was – it's
the world's currency. The problem is that the US has exported about $7
trillion in exchange for good things from around the world. It was a great
trade for a while. The foreigners get paper created at essentially zero cost, while Americans live high on the hog with the
goodies those dollars buy.
But at some point quite soon, dollars won't be readily
accepted, and smart foreigners will start dumping their dollars, passing the
Old Maid card. Ultimately, most of the dollars will come back to the US, to
be traded for the title to land and businesses. Americans will find that they
traded their birthright for a storage unit full of TVs and assorted
tchotchkes. But many foreigners will also be stuck with dollars and suffer a
huge loss. It's actually a game with no winner.
These last three factors have enabled essentially the
whole world to live above its means for decades. The process has been
actively facilitated by governments everywhere. People like living above
their means, and governments prefer to see the masses sated.
The debt and inflation have also financed the growth of
the welfare state, making a large percentage of the masses dependent, even
while they've also resulted in an immense expansion in the size and power of
the state over the last 60-odd years. The masses have come to think
government is a magical entity that can do almost anything, including kiss
the economy and make it better when the going gets tough. The type of people who are drawn to the government are eager
to make the state a panacea. So they'll redouble their efforts in the fiscal
and monetary areas I've described above, albeit with increasingly disastrous
They'll also become quite aggressive with regulations
(on what you can do and say, and where your money can go) and taxes (much
higher existing taxes and lots of new ones, like a national VAT and a wealth
tax). And since nobody wants to take the blame for problems, they'll blame
things on foreigners. Fortunately (the US will think) they have a huge
military and will employ it promiscuously. So the already bankrupt nations of
NATO will dig the hole deeper with some serious – but distracting
– new wars.
It's most unfortunate, but the US and its allies will
turn into authoritarian police states. Even more than they are today. Much
more, actually. They'll all be perfectly fascist – private ownership of
both consumer goods and the means of production topped by state control of
both. Fascism operates free of underlying principles or philosophy; it's
totally the whim of the people in control, and they'll prove ever more
So where does that leave us, as far as accumulating
more wealth than the average guy is concerned? I'd say it puts us in a rather
troubling position. The general standard of living is going to collapse, as
will your personal freedom. And if you're an upper-middle-class person (I
suspect that includes most who are now reading this), you will be considered
among the rich who are somehow (this is actually a complex subject worthy of
discussion) responsible for the bad times and therefore liable to be eaten.
The bottom line is that if you value your money and your freedom, you'll take
There's much, much more to be said on all this. I've
said a lot on the topic over the past few years, at some length. But I
thought it best to be brief here, for the purpose of emphasis. Essentially,
act now, because the world's combined economic, financial, political, social
and military situation is as good as it will be for many years... and a lot
better than it has any right to be.
What to Do?
No new advice here, at least as far as veteran readers
are concerned. But my suspicion is that very few of you have acted, even if
you understand why you should act. Peer pressure (I'm confident that you have
few, if any, friends, relatives or associates who think along these lines)
and inertia are powerful forces.
That said, you should do the following.
- Maintain significant bank and brokerage accounts
outside your home country. Consider setting up an offshore asset
protection trust. These things aren't as easy to do as they used to be.
But they'll likely be much less easy in the future.
- Make sure you have a significant portion of your
wealth in precious metals and a significant part of that offshore.
- Buy some nice foreign real estate, ideally in a
place where you wouldn't mind spending some time.
- Work on getting official residency in another
country, as well as a second citizenship/passport. There's every advantage
to doing so, and no disadvantages. That's true of all these things.
One more thing: Don't worry too much. All countries
seem to go through nasty phases. Within the lifetime of most people today,
we've seen it in big countries such as Russia, Germany and China. And in
scores of smaller ones – the list is too long to recount here. The good
news is that things almost always get better, eventually.
better news is that US citizens can actually take steps to not just preserve
their current wealth, but increase it during this ongoing Greater Depression.
Doing so could mean the difference to your entire family's well-being for
decades... and who wants to risk that while holding out for better times? Start learning how to dodge the American debt crisis now.