Ok, I will let you catch your breath…

 Enriquez makes two major points here.  The First is that we are in for some real economic trouble, and the Second is that this will be dwarfed by yet-to-come effects  from  the next surge of the Information Age.  This combination of issues will be the major focus of my work here at waynekey.com.

 Enriquez also makes a hidden point.  This point is that we as a species will take advantage of Info Tech, Bio Tech and Nano Tech to lengthen our lives and to improve ourselves.   All the debate and power-jockying in the world will not change this built-in and utterly human drive.  That we will is a “fait accompli.”  The what and the when and the how are still very much up in the air.  A future history of this century will show that this is one of the very most important issues of our era.

 Well, unpleasant and radical truths are still the truth,even if they are cast in an old fashioned and an oh-so-last-century manner. 

 The bottom line is that I think Dave Ramsey is on to something very real.   I started this book as a skeptic.  I have read economic theorists like Keynes and von Mises, Hayek and even Sowell’s  commentaries.  I have even read Howard Ruff and Robert Allen, not to mention more than a few economic textbooks.  Why read any book that seems so antiquarian, when my focus in on the thought and the theories that might illuminate the next hundred years?

I am not sure, but it seemed different somehow and I know that oftentimes answers are found in differences and not in sameness.  So I read it.  Closely.  I took nearly 10 pages of handwritten notes, and I ended up thinking that this book could be used as a model for re-vamping our financial system and the values of many of our people. 

The essence of Ramsey’s point is that easy borrowing can and statistically does destroy many people financially.  Many of us are seduced by credit cards and the very easy way that we can seem to have it all, and have it all now.  We can get a gold card.  We can borrow $50,000 across various credit lines, no matter what our real income.  A year ago we could get that low or no-doc mortgage.  All, we had to do is show a strong credit score and we could buy that quarter or half million dollar house without a penny down.

Thanks to the ability of the Federal Government to manipulate our currency the government could have it all too.  Add the budget debt to the off budget entitlements and how many Trillions (I never use that word without capitalizing it.) of dollars was our deficit before the current crisis?   If someone wants to figure that out for me, I would love to know but  I haven’t the time to research it at the moment.  Still, this number is a HUGE number and we are set to double it in the next few years.

 Ramsey says forget the complicated economics, money is simple. 

Money in minus money out  gives you a color.  If it is red you are racking up debt, and if it is black you are adding to your net worth.  Whether we are talking about a family or a company or a government, this is still true.  We can manipulate the game for a while and we can feel smart doing so, but it will snap back and it will cause a lot of pain. Maybe that is the simple but profound explanation for this recession.

Consider this on very personal basis.  If you had  no consumer debt, if your home was paid off, if you had 6 months worth of savings in the bank and if your job was very stable; just how worried would you about this financial crises?  In this context you could almost live on what a friend of mine calls paper route money. But, if you have $40,000 in credit card debt, two car payments and a $3,500 monthly house payment, you have some very serious trouble.  Any small set back can and will cause a financial crisis.  When that happens, the guy who lived frugally will likely be buying your home out of foreclosure for pennys on the dollar.

Anyway… go buy the book, do it now.  Read it.  I challenge you.  Read it aloud to your spouse.  Read it to the nearest Government representative you can nail down.   And get Ramsey’s core principle down cold. Challenge  yourself to earn it and then buy it.  Whatever that “it” happens to be in your case.

And, oh yes… how do we pay for it.  Let’s print a few Trillion dollars of new currency. 

Now, I trust if you made it to my little site that you know the government will not actually fire up the printing presses and run off Trillions in new paper currency.  Instead, they bring it into the economy through the Federal Reserve Board in several different ways including trying to borrow from places like China, but the effect is the same.   

Let me ask you this.  If you have 100 units of some kind of production and there are 100 units of currency chasing it what will be the (equibrillium) price? Yes, 1 unit of currency will buy 1 unit of production. Now, if you pump in another 100 units of currency what will be the equilibrium price of a unit of production?  If you are new to this analysis take a moment to think about this carefully.  Yes.  The new equilibrium price will be .50 or ½ unit of currency.  That is the root principle of inflation.   

Some economists call this the inflation tax.  It is utterly hidden, and yet it leaches the value of your money away from you daily.  Think about it.  You have a few units of that currency in your bank account.  You pull them out and go to buy 2 units of production.  You are used to paying about 2 units of currency for 2 units of production.  Now thanks to the new currency in circulation you now have to pay 4.   

The conclusion is very simple.  While your money was sitting safely in the bank, half of its value was stolen from you, or taken by the government (if you prefer to be nice about it).  The inflation tax has hit you harshly.  

If you are one of the lucky ones with money in the bank, Obamanomics is aimed straight at your bank account. 

But, remember that it is not just Obama and the Democrats.  Both parties believe that the solution is to turn on the printing presses and maybe it is for now in this context, but we cannot avoid the consequences: much larger government and significant inflation for a long time.

One of the most serious questions of our day is this: What turns Recession into Depression.  In the book Sovereign Individual by Davidson and Rees-Mogg they address this quite nicely.  “In general risk averse behavior has been common among all groups that operate along the margins of survival.” What does this mean to us?  Simply that the scarier things get ,the more likely we are to choose what we consider to be a careful and conservative route.  

In other words the greater the individual or cultural prosperity the greater the tendency for productive risk-taking behavior, or to put it the other way when people are scared they get very conservative about what they spend and where they invest. 

How many companies and individuals are taking on new risks today?  How many are bringing out a new product?  How many are contracting to build a new building?  How many are lending to entrepreneurs?  Some are, but the current climate is still very chilling. 

Now, I am not worried about a little chilling, that is what a recession is for, to bring the overly optimistic into alignment before things get out of control.  It is this very thing that Greenspan et al denied us for the balance of the 18 1/2 years he held the position of Head of  Fed. 

During that time we never had a single true economic recession.  Yes, we had the tech bubble burst in the early 2000s and a few other minor things, but that was froth blowing off the beer.  Greenspan was just all too good at what we all wanted him to do, keeping unremitting prosperity running white hot without blowing up in our faces.  What happened?  Greenspan left AND we had/have a whole generation in their 30s and 40s who have never seen a recession and real consequences. 

For God’s sake, I heard on NPR that Freddie Mac and Fannie Mae couldn’t even enter a negative number on their risk/reward spread sheets.  They had NO way to factor a period of falling real estate valuations into their risk calculations.  They had been removed from reality, because they had never really seen a recession.  Many of them had never seen or had forgotten the consequences of a real economic problem.

Today, most of the cash money that is in the economy is scared and sitting on the sidelines, waiting.  Waiting for what you might ask?  Waiting for some assurance that it can survive and prosper.  And ,waiting for some assurance that Obama and the Congress will not use the federal powers of taking to take on a massive scale.  Thus, the banks don’t loan, the venture capitalists don’t invest and the consumer doesn’t consume.  They wait.   

This becomes a brutal cycle.  The greater the fear, the fewer actually move money in the economy.

When very few are buying, those selling are looking for bankruptcy attorneys.