Wed 16 May 2007
I don’t know where this phrase came from nor do I really care but “spending less than you earn” is complete nonsense in today’s globalized economic monetary system and I’m going to give you solid reason why.
There are PLENTY of countries that readily practice “spend less than you earn” and I’ll write about one I visited this past month. I’ve visited Mexico on business and vacation numerous times over the past few years. My most recent trip was a business trip to a region that I had never visited before near the center of the crescent in the Gulf of Mexico. As I flew in, I saw something very familiar in Mexico, the EXACT same model/style/structure of building I’ve seen EVERYWHERE else in the dozen or so other areas I’ve visited in Mexico. My curiosity got the best of me so I asked the locals why the houses always looked the same in northern Mexico, central Mexico, east & west Mexico. A few people explained that houses in Mexico are built on a “spend less than you earn” mentality. People there can’t afford to build a full house so they do it in steps:
Step 1. – Save money to buy land
Step 2. – Save a little more money to buy a wall
Step 3. – Save a little more money to buy second wall
Step 4. – Save a little more money to buy third wall
Step 5. – Save a little more money to buy fourth wall
Step 6. – Save money to buy a roof
Step 7. – Save money to buy door.
Step 8. – Save money to buy indoor plumbing/fixtures/etc
Step 9. – Move in.
Now if you’ve ever been to Cancun, you’ll readily see some of the best condos and skyscrapers dotting the beach front. Guess what, these were built with the “SPEND MORE THAN YOU HAVE” mentality with a plan to attract people and generate cash flow & income for the owners (i.e. capitalists) with the ultimate goal of profit.
During the long flight down and back up from Mexico, I was racking my brain trying to figure out why the people there simply can’t get out of poverty. Why do so many people flee Mexico & Central America for the US? What is different in the US than in Mexico? Both countries have Central Bankers & Treasuries which print money that is in essence worthless. Both have contract laws that enforce property ownership and the systems are relatively stable and just.
The more I rack my brain (the more it hurts) but the more I realize that the US has had the success it has had because it frequently spends more than it earns. The US has been doing this essentially from inception which borrowed the system from the British and other European successful industrial countries.
It seems that China finally is moving in this direction too and is now prospering. They are allowing their citizens, business owners, and population to borrow to buy things. They are spending more than they earn and their economies are THRIVING! Contrast this new system with the old central planning, command & control economy of the past.
We’ve reached a point on this planet where we are all now swapping worthless pieces of paper, calling it “money”, and accumulating whatever we want; it’s some sort of big monopoly game where the only score is determined by who has accumulated the most pieces of worthless paper or the most tangible assets. Which would you rather have?
I’ve stated this before and I’ll stated once again, if everyone in the US stops spending more than they earn, the US economy will suffer (if not collapse), the stock market would suffer (if not collapse) and your cash savings would likely be seized by a tax revenue starved government. Don’t think it’ll happen? Don’t forget that the US Government seized gold during the great depression to pay the bills. Of course, today, that might not be necessary since unfettered “money” creation (inflation) will ravage your savings.