Blog 26 Some Random Thots on the Law of Money

Some Random Thots on the Law of Money


The law of money (Money goes where money is,) works at global, national, state, even municipal, levels.

The two most obvious mechanisms are interest-bearing loans (the basic step) and capital gains on assets (a little more chancy, but sometimes very effective). 

1. Interest-bearing loans.

It must be understood that there are two classes of people: (net) lenders and (net) borrowers. Net lenders lend more than they borrow. Net borrowers borrow more than they lend. Simple distinction?

Charles Dickens, whose father spent some time in debtors' prison, put it this way: "The different between a happy man and an unhappy man is two shillings. The happy man lives one shilling below his income. The unhappy man lives one shilling above his income."

So how to work the law of money? Take the next dollar you earn. Put ten cents of it in a box and leave it there. You can spend the rest. Do that for every dollar eyou ever acquire for the rest of your life. Whenever your box gets full, take the money out and lend it to a bank by depositing it in an interest-bearing account. Never borrow.

You have now become a happy net lender on the way to becoming an owner of slaves - because over time the borrowers become slaves of the lenders (The bank will be your "courteous enforcer").



Be wary, though, that you, or your bank, are not too harsh on your borrowers, because at certain times in the history of nations and economies, it becomes dangerous or even fatal to be a too-successful lender.

I trust that you see, nevertheless, that the law of money makes it better to be a lender than a borrower.

2. Capital Gains on Assets

This means buying assets at low prices and selling them at higher prices. The assets can be property, or stocks, or commodities, or currencies, or works of art, or...  Now, Hold it right there. Don't get over-excited at all those opportunities. Just a caution. Whenever you are a buyer, there is a seller, who may be smarter than you. Whenever you are a seller, there is a buyer, who may be smarter than you. Maybe you might just stick to lending money at interest for a while.

Buying corporate stock for dividends is a hybrid sort of process. Approach with caution also.

So lend money at interest. The more income you can make by lending your money at interest, the more money you will have to lend at interest. and the more money you have to lend at interest, the more money you have to lend at interest, the more to lend at interest, to lend at interest, at interest. It''s what lenders call "the miracle of compound interest." Borrowers have other names for it.

Let me finish with another caution. You will also be happier if you keep the value of money in perspective - as a means, not an end.

Pursuing money can become like feeding a food addict until he/she looks like an explosion about to happen...
Let me say it again: money, like food, is a means to an end, a means to something else, not an end in itself. Keep your eye on the something else, whatever it may be.

Now, that's a lean thot to meditate on.

Son, what do you want to be when you grow up?

I want to be the 1%.

Well, that would give you only 99 slaves.

.

Debt, Deficit, What's the Difference?

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Blog 25
The  "Balanced Budget." Does Nobody Know the Difference Between Debt and Deficit?






First, let me introduce what has exuberantly been called "the miracle of compound interest." Here is a true story to illustrate it.

In 1974 a nation-state, which we will not name but call Nation X, had accumulated a national debt of about $20 billion. Debt means money you owe. On money you owe, you have to pay interest. So one item in their budget that year was "Interest on Debt".

Over the next 20 years, they had a small number of annual deficits that rang up another $30 billion in debt. That is, in those years the government spent $30 billion more than it took in. That is the definition of deficit; spending more than you take in. To pay the bills in the deficit years, the government borrowed enough to balance the books for the year.

So in the year 1994 the total national debt of Nation X was roughly $600 billion.

Let's look at that.

Debt at start, 1974............................20 billion
Deficits added 1974-1994................30 billion
        Total Debt 1994.....................600 billion

How's that? Did I get it right? You say 20 plus 30 does not equal 600? But it did. And by what is called "the miracle of compound interest."
I should note that only lenders call it the miracle of compound interest. Borrowers, like the government of Nation X, are entitled to call it the curse of compound interest.

The circumstances in the 1980's were, admittedly, unusual. Interest rates rose to over 18%. So the compounding of interest - that is, interest on the non-payment of interest on accumulated interest, on accumulated interest, on accumulated interest, year after year, made a small addition to the national debt for Nation X of $550 billion.

In short, for 50 billion borrowed, Nation X is on the hook for about 12 times that amount. How was that made to happen?

Well, in they mid-1970's, unbeknown to most people, the lending class had become unhappy with "negative interest rates". (Negative interest rate means that the rate of inflation is higher than the rate of interest of, say, government bonds.) Thus inflation eats up a lender's profits. So a concerted effort was made, starting in the US, but engaging major lenders everywhere, to teach the national states a lesson. Interest rates were ramped up. Lenders loved it. (That includes lenders in Nation X.)

The point of looking at these figures now in late 2015 is that conditions today are eerily similar. Inflation and interest rates are close to equal and have been for some time.

To calculate what a new twenty years of deficits, high interest rates and debt-building would do for Nation X's little $600 billion debt -- well, let's just say that it's beyond your poor blogger's computing skills. But $600 billion times 12, I think, is a mere $7,200,000,000,000. Boggles the intellect, doesn't it?

Poor Greece. Poor Nation X. Who's next?

We can't move in there, Dad.It's going to collapse.

Afraid so, son.

So why do "democratic" politicians only talk about deficit-vs-balanced budget, and never mention the accumulated gross debt? Because it is too complicated for the people to understand, they say.

Bah, humbug! We are smarter than they think.

Maybe it's just too difficult for some politicians to understand. Some certainly do. But I think they may be quietly muzzled- "because it is too complicated for the people to understand." 

 Feel free to copy this blog and send it to your local representative.