Introducing BIG Change, Part 2: Announcing The Rules Of Tomorrow
October 17, 2008 by Vagabond Investors · 1 Comment
What did you spend money on today?
A big part of Gross Domestic Product is consumption. It means simply that you and I spend money. As people retire, they have less money to spend. This has a big impact on our GDP.
Americans may not like the sound of that, but the US may not be able to maintain the economic dynamism of the late 20th century in the 21st century. Sooner or later, wishful thinking is going to crash into financial reality. In a few years the biggest baby boom generation in history begins to retire all over the world. Do not think that you are entitled to a secure life.
Let’s think about the US. The fact is that 75 million baby boomers start to retire. Suppose each of them need $1,000 in terms of Social Security and Medicare. That becomes 75 billion dollars a month. That’s approximately the annual cost of one Iraq war – every month.
Most governments don’t have financial resources to keep their promises. Mr. Paulson will no doubt call the Fed chairman. Then in the dens of Federal Reserve Mr. Bernanke will fuel his helicopter, which he will then fly over the cities to drop money from. That is both insane and dangerous. Of course the Fed can always print money and give it to people, but it would only lead to hyperinflation and eventually the average person’s savings would be wiped out.
The fact that baby boomers around the world are reaching retirement age is a MEGA challenge for our countries and economies. It is one of the most overlooked gradual changes. The fact that it will come about in an acute way is highly predictable. It is likely to lead to higher taxes in many countries.
Politicians have reluctant to take the bull by the horns on their terms. The politicians that ultimately have to deal with this problem will take action but it will be all too late by then. They are likely to run in to desperate solutions, because nothing was done when there still was time.
Still, we as individuals are 100% responsible for our futures. As much as we would like to blame for the government, it doesn’t help. Some people have started building wealth. Some have made smart choices. Others have merely bought what their financial advisor has sold them. That is usually a 401(k), IRA or something of the kind.
It is estimated that 401(k) plans will not adequate for 80% of people who have it. In addition, inflation is eating the purchasing power of their 401(k) all the time. The plan is on the mercy of market forces. It is a very risky investment. A single market crash near their retirement could wipe it out. They may not have time to wait for the recovery.
What happens when people realize that their 401(k) has become a 201(k)?
As entrepreneurs and investors, it’s not our job to predict the future. But as always, your response to the future is on your hands. Becoming financially intelligent so that you can become financially independent is optional. You can choose to become a victor, rather than victim. Remember, to every move there is a counter.
The ONLY functional way to respond is to increase our financial IQ. There is no time to wait for the future. It’s time to learn before it’s too late.
There is a recipe to wealth. It’s easier than it sounds. We are here to help you. Help us by commenting and sharing these posts. We have held seminars, written books and taught hundreds of people the principles that we have learned. Help us share this message.
It’s not too late.
Jaakko
