One hundred years ago, most folks accepted adversity as an unavoidable facet of life. Childbirth was a high-risk endeavor. Old folks died at 50. Dysentery claimed more lives than heart attacks. Businesses failed. Governments defaulted. Currencies crumbled.
American civilization has achieved a stunning number of medical breakthroughs during the last century – adding about 28 years to the average lifespan in the process. Unfortunately, American civilization has also devised a stunning number of mechanisms to extend the lifespan of ailing financial institutions and brain-dead corporate entities.
As our civilization has aged, it has become obsessed with erecting economic guardrails, stringing safety nets, straightening curves, legislating Bubble Wrap around almost every conceivable mishap. As a result, the financial system is so thoroughly insulated with regulations and protections that it is suffocating.
As a nation, we have become intolerant of any economic adversity … even when that adversity serves an essential economic purpose. We want our summers without any winters. We want our victors without any vanquished. We want our success without any failures.
That is not good news for free enterprise. Defaults and bankruptcies are staples of economies that flourished over the long term. “Capitalism is not just about success – that is the easy part,” observes James Grant, editor of Grant’s Interest Rate Observer. “It is also about failure – recognizing it, dealing with it, liquidating it, and pricing it.”
In America, we have forgotten what it means. Thanks to the Federal Reserve and other destructive creations of government, the process of creative destruction rarely takes root in American soil anymore.
As Wikipedia explains, “creative destruction is the way in which capitalist economic development arises out of destruction of some prior economic order. From the 1950s onward, the term ‘creative destruction’ sometimes is known as ‘Schumpeter’s gale because it has been identified with the Austrian-American economist Joseph Schumpeter. He adapted and popularized it as a theory of economic innovation in a book titled Capitalism, Socialism, and Democracy that was first published in 1942.
The destructive portion of “creative destruction” plays a vital, therapeutic role. But the financial leaders of the U.S. and the eurozone have zero appetite for creative destruction. Instead, creative denial is the order of the day. They pump trillions of dollars and fresh credit into insolvent banks like embalming fluid into a corpse. But the fresh credit rarely revives these financial corpses. It simply enables them to keep hanging around and stinking up the place.
The Federal Reserve should ditch its embalming fluid and buy cement instead. If the Federal Reserve were genuinely serious about reviving long-term economic growth, it would be fitting America’s big insolvent banks with “cement galoshes” and tossing them into the Hudson.
That’s because creative destruction is not just about destruction; it is primarily about creating the investment opportunities that result. When ventures fail, a new generation of capitalists can enter the fray to make the next generation of fortunes.
That is how the world works ... or at least how it should work. The recent history of sovereign defaults and currency devaluations illustrates this phenomenon very clearly.
The Russian government defaulted in 1998. If an investor has allowed the dust to settle and purchased stocks one year after the default, they would have doubled their money in one year, gained more than 200% after three years, and more than 400% after five years.
The benefits of creative destruction are not hypothetical, they are the rule. For example, if an investor purchased stocks one year after the 1997 Thai baht devaluation, the 1997 Indonesian rupiah devaluation, or the 2002 Argentine peso devaluation, they would have more than doubled their money in the ensuing 12 months in each instance.
The default of Brazil in 1990 was an exception in that an investor would have lost money initially but within a couple of years that investment would have paid off handsomely as well doubling in investor’s money after two years and tripling it after five years.
Within a few years of default or devaluation, most countries embark on a robust new growth phase. The process is not easy or painless but it is extremely effective in clearing away the rot so that new ventures can flourish.
The message is clear. Destruction can be very creative and profitable.
What should you do until the U.S. Govt defaults or the U.S. Dollar crumbles? Obtain more financial education and learn how to protect yourself during these trying times of massive money printing, fiat currency, and soon-to-be runaway inflation. Purchase precious metals, including gold, to hedge or protect your net worth against the decreasing value of the US Dollar, which is just paper money.
I favor a quote from Steve Forbes … Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to being savvy with our money and using alternative wealth creating strategies; this will be they key to resolving our financial crisis.
To gain the necessary financial education, it is best to pursue association with, access to, and membership in, a wealth creation community. As a result, you will learn about alternative wealth creating strategies and consider investments in non-dollar denominated assets … perhaps emerging markets … perhaps energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … perhaps precious metals, rare earths, water rights, oil, natural gas, potash mines, or gold mines … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.
For those wanting protection of their purchasing power in gold, there are several ways that may be appropriate to obtain this protection. These include direct ownership in minted coins, use of gold exchange traded funds, gold mutual funds, and junior gold stocks. Many are investigating having part of their IRAs in gold, silver, precious metals, and non-dollar denominated currencies.
In addition, for those that truly believe default of sovereign debt is the greatest risk we all face, it is wise to learn how to implement a multiple flag strategy to diversify this risk or provide protection against higher taxes, capital controls, hyperinflation, civil unrest, erosion of personal liberty, and the rise of a police state. With a multiple flag system, you consider taking preparations like, but not limited to, establishing a foreign bank account, purchasing some real estate overseas, seeking alternate sources of income, dual citizenship, and carrying multiple passports.
I will continue to provide examples of things we need to learn, the secrets of the insiders, as part of being savvy with our money, and introduce alternative wealth creating strategies, in future articles and updates at my blog over the next few weeks.
Finally, I want to thank Addison Wiggin of Agora Financial, as he was the source of some of the material mentioned in this post.
In closing, be sure to Meet Me at my website, WhoIsMikeFarrell; Read Posts about my Internet Marketing Business at myaspenIbiz blog; and Obtain Some Tips About Being No 1 on Google at aspenIbiz My Go-To-Market Partners website; and Learn How to Live Longer at aspenIbiz My Life’s Advantage Today site.
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