From Credit Culture to Savings Society: Can You Afford Not to Make the Transition?
Posted: Thursday, February 19, 2009
by Mogama
http://www.mogama.info
One tragic day, a large family awakes to find themselves in the center of a massive earthquake that strikes their beloved home. The earthquake shatters the walls of the house, and the roof is littered with damages that call for replacement, not repair. The house's foundation is laden with cracks. Yet somehow the house remains standing.
Anxious to have his house repaired at
the quickest pace, the head of the household contractor for quick
action. The contractor suggests that it is critical to keep the
family from becoming homeless, so the roof and walls of the house
should be fixed first. The contractor recommends and the desperate
homeowner agrees that the foundation can wait.
"Let's worry about the foundation
later," the contractor tells the homeowner. "Right now, we
need to get a roof over your head as fast as we can."
That earthquake-ridden house is like
the American economy. Most of our citizens (like the homeowner) and
our leaders (like the contractor) are focused on fixing the walls and
roof of the economy. But could they be largely ignoring the
foundation of the economy, which must be rebuilt with material that
can withstand the next economic earthquake?
Currently, the cracked foundation of
America's economy is made of deficit spending by both government and
consumers. The primary financial role of our government is clear: tax
the people on ever-increasing scale; spend more money than taxes can
bring in; borrow money to keep spinning the wheels of the monstrous
spending machine. The main role of American consumers is to borrow
from lenders and spend at vendors. We are told this is the only way
to keep our economy healthy.
To drive this economic model, rampant
greed must remain a virtue. There must be an insatiable desire for
more and more and more. Lenders respond to the borrowing pressure by
manufacturing more loans, even questionable loans. Vendors advertise,
even if they have to do so deceptively, in order to sell more goods
and services that people hardly need. Consumers spend all, borrow
more in order to keep spending. They tell us that consumer saving
(keeping some of what they earn) is actually a terrible thing for
this economic model.
Thus runaway greed lures borrowers into
materialism, and it entices lenders to find ways to get the highest
interest payments from money loaned. This drive for the highest
possible usury (interest rate) also sets the stage for not a few
lenders and investment managers to create purely paper financial
instruments that are meaningless at best and fraudulent at worst.
Need we mention Bernard Madoff and Alan
Standford, perhaps the tip of the iceberg of the fraud embedded into
the Wall Street machine, which looks more and more like one gigantic
pyramid scheme? The whole Wall Street establishment may be one huge
ponzi scheme after all, with retirement account managers taking money
from later investors to pay earlier investors! This is exactly the
same way that the government's Social Security system now operates --
it uses taxes from current earners to pay earlier contributors. Yet
earners are advised to keep putting their retirement funds into an
investment scheme they can no longer trust. "We know you've lost
confidence in us, but send us your money anyway!" How can this
method keep working for the long term? It won't.
All this means one thing: America is in
dire need of a radically different approach to capitalism, if this
nation is to remain an economic superpower in the next five years.
The foundation of our economy needs to shift, change, transition from
a credit culture to a savings society. In this model, the economic
responsibility of the government is to balance the federal budget
every fiscal year and to pay off the national debt aggressively until
it reaches the zero mark. At that point, Government's financial role
is to keep a balanced budget and zero national debt as the new
financial norm for the country. More than the Commander-In-Chief
(CIC), the American president must become the Economist-In-Chief
(EIC), with fiduciary duty of keeping this sovereign nation
debt-free, because an indebted nation cannot be truly sovereign, not
for long.
Upon this new foundation, the key
financial goal of every American consumer is to pay off all personal
debts, and live debt-free in order to save and invest money on a
consistent basis throughout life. The citizen investor should be
taught to invest lightly, if ever, in paper assets like derivatives,
certificates of deposits (CDs), and other such unscrupulous schemes
but invest heavily in tangible assets like land, houses, metals, and
real businesses that make tangible goods.
This new model should be driven by
personal contentment, which appreciates and enjoys what a person has,
which is patient enough to wait to accumulate wealth over an extended
period of time, rather than resort to get-rich-quick tactics. Such a
sense of contentment will create the virtue of discipline that will
guide the consumer in spending, giving, saving and investing.
Once savings and real investment become
the prevailing economic culture, there will be an increasing number
of mildly wealthy people. By learning to save what little they have,
even those presently stuck at the dark bottom of the economic pit
will begin to rise in their net asset preservation aka wealth. This
savings society will broaden the spread of wealth that can be
depicted as a cube, instead of the pyramid structure of wealth
gathering that is currently the case. Rather than have just a few
filthy wealthy people at the top of the pyramid, society will see a
more equal increase in the number of people growing cubic wealth.
But will America make the transition
from credit culture to savings society? It is highly doubtful the
government will, since it is run by those brainwashed in the
credit-culture mindset that insists, "Consumer spending is the
only thing good for the economy; consumer savings is bad for the
economy".
With our government and most of our
institutions of learning completely sold on the overspending model of
capitalism, a greater hope for a transition from overspending to
regular savings may lie in the hands and hearts of ordinary
Americans, who regard the current severe recession as their wake-up
call to end their love affair with lives-on-loan in favor of
debt-free living and lifelong savings. That may not be "good for
the economy" now, but once millions of ordinary Americans put
this new foundation for capitalism in place, the nation will have a
different kind of economic culture on Main Street as well as a
government that will promote savings rather than debt. That is almost
certain to be the case, because the politicians running a "savers'
government" will come from families that have made the
transition from Credit Culture to Savings Society.
FYI, my family is already on the path
to making the transition, and I'm certain we are not alone, because
millions of ordinary people are now convinced that an economic model
that says "debt is right, and saving your money is wrong" cannot itself be right.
I am so glad that I am the 1st to respond with this article. This is so right on, finally someone who actually "See's" the problems of this country. Between you, and Robert, you guys are right on the money. I totally agree with your analogy, and I think you should run for the Presidents Economic Advisor....that is the kind of brain power we need in Washington today....I understand how the spending part would stimulate our economy, but you are right in your statement, and I quote;"That earthquake-ridden house is like the American economy. Most of our citizens (like the homeowner) and our leaders (like the contractor) are focused on fixing the walls and roof of the economy. But could they be largely ignoring the foundation of the economy, which must be rebuilt with material that can withstand the next economic earthquake"?What a profound statement, and example....I am so much on the same page as you are Mogama...this is one of the most intelligent statements that I have see with our economic struggles with this country. Have you written the White House giving this analogy? If not, you should!! Very interesting article and a very GREAT write. For this writer, I am ready to vote for Mogama!!! Well done my friend, well done. Your fan and friend in pen......Gary. Have you read some of Roberts M. stuff, he has tons of great articles that hit on a few of these nerves....and I'm starting to really take interest in both of you.....keep up the good work!!!Please log in to respond to this comment.I'm humbled by your input, Gary. The economic recession is a very serious matter for our country and our world. Yet our leaders are doing the equivalent of rebuilding walls and roof on top of an earthquake-damaged foundation. It may take years before the politicians around the states and in Washington get it. But it is encouraging that many ordinary Americans have begun to see the light, and as this recession deepens and drags on, more people will continue to cut borrowing and spending in order to increase their savings and tangible investments. It is that shift from the bottom that could remake the American economy in the years ahead. If the transition from credit culture to savings society does not take place, then it's a no brainer that China is your next super power economically and militarily, only at a much faster pace than anticipated. What a prospect! Thanks for your kind comment, my friend. ~mogama~Please log in to respond to this comment.
Amen and Amen!! You have echoed my thoughts, not to mention words, in your piece! This is the kind of advice our president SHOULD be listening to, not the "tax and spend" mindset that prevails in our leadership.Why is it so few can see this? Why is it so few can see the macro-instability inherent to this "consumer spending" mentality?Great job, sir, great job!Please log in to respond to this comment.Thanks, Ken, for your observation, and for taking the time to read. Enjoy your day! ~mogama~Please log in to respond to this comment.
Mogama an excellent article as usual. Yet as an ex "Savings Banker" an officer with the most prestigious savings institution in the world I was told this will never be again back in the late 70's. I was told there will be only 3 or 4 major banks in the world. It has all happened. Read Alvin Toffler, Future Shock and Third Wave and get an eye opener. Lets assume we turn to a "savings" society, which I agree we should, we will go under sooner then the plan. Why, the foundation is built on the Keynesian theory of you can never spend too much. 12 trillion in debt a very real fact. No more Christmas Clubs for the kids, or savings accounts where they put their coins in and went to the bank to "watch it grow". No, now its off to the bling store. You have enough to spend. The concept correct, right, but too late because my friend, the fatted calf has died. There is nothing left of the budget save any longer. Good job, I agree whole heartedly it is what we should do. RobertPlease log in to respond to this comment.Hi there, Robert. You write like it's all over. I'm trying to keep some hope alive, at least for the little guy and little gal out there. If you're right, we are in worse shape than I thought. Thanks for your usual cut-to-the-chase input. Enjoy your day! ~mogama~Please log in to respond to this comment.Mogama hope is relative in my mind to reality and you know I respect your writings. You are correct if one can that is certainly where we should be going, no argument from me. Yes and direct I am becuase these times do not require politically correct or nicey nice comments but bold and truthful comments, nothing short of that works. In my opinion the little guy will not see the impacts of thisso called stimulus no matter how hard we hope. These actions within this plan are not for people already destroyed. You find them and write to them. None for foreclosure help. Only if you pass their credit check, the $15.00 a week what is that, really? One can go on and on and right down the list. The "little guy' well as usual not even the scraps no matter what they say. That $15.00 will be spent before it reaches them. I agree this package will help those that are making over $70,000 a year. The philosophy of saving great for them, but that will not help or save this economy now. Government wants those that have to spend because those that don't have can't spend or save any longer. It is really counter productive to save since the question of having money to lend is not the issue, The banks have the money and they can borrow at zero interest. No it is a m,atetr of credit and debt. I don't understand why peole have a hard time with this? So anyone saving now will actually only help to destroy this economy further. It is a catch 22. Saving correct but not buying, the noose for us all. Best wishes my friend.Please log in to respond to this comment.Hi there, again, Robert. Always insightful to hear from you, as you constantly scratch the brain, forcing it to think. My focus in this article is not the stimulus package. Rather I'm arguing the point that our economy needs a totally new model that is based on "earner saving" rather than "consumer spending". I'm pretty sure if the recession lingers, due in part to people saving more and spending less as is currently the case, the masses of small earners could reshape the entire economy in the saver's image. In fact, some people are beginning to pay cash for now cheap homes, as they pay $50,000 cash for homes that once cost $200,000 or more. Meanwhile our government may continue down the road of taxing, spending, borrowing more from China and others only to deficit-spend. At some point, the politicians may catch up with the masses of savers. I believe the same consumers that have used their overspending power to spark the economy can also remake the economy by their underspending. When they do, we'll have the new economy built on a different foundation. Thus far, more and more ordinary people, even the ones you think are completely penniless, are starting to do just that: spend less, save more. Again, thanks for your taking the time to read and comment; you add both heat and light to the discussion. ~mogama~Please log in to respond to this comment.Mogama, I really enjoy your work and yes I do throw heat but not at you my friend. I extracted this from your reply. " I'm pretty sure if the recession lingers, due in part to people saving more and spending less as is currently the case, the masses of small earners could reshape the entire economy in the saver's image." My point, small earners, can't save. They don't and won't be making enough to even survive. So reshape this economy, well only once again those that have and steal that home for cash. Now if that is who are saying are the "small earners', then I guess we have a different perspective of small. Best wishes.Please log in to respond to this comment.
Congratulations on your commitment to live debt free. It is more important than you think. I don't know that I'd say capitalism is the enemy here, I'd be more inclined to say that it is a problem of poor financial literacy and a poor understanding of economics, combined with an immature attitude toward money. People need to change their behavior, and to change their behavior they need to change their paradigm about how money works. It seems to be popular today to blame our problems on Wall Street, but without investment capital we wouldn't be the wealthy nation we are today. Even the poor in our country are as well off or better than most other country's middle class. The real key is that we all begin to shun debt personally and in our public policy. That will bring prosperity back to this nation. Thanks for your article!Please log in to respond to this comment.Thanks, Jim, for making the point so well. Overspending, which leads to lifelong indebtedness, is each person's responsibility, even if our government continues to bankrupt the nation via deficit spending.Please log in to respond to this comment.
