We live in a time when throughout the world increasing numbers of middle-class families live on the edge and need credit just to make ends meet. They work tirelessly, not only to pay for their children’s college tuition but also to fill their cars with gas and buy groceries. Times have changed and almost no one knows what hit them.
A May 28th 2008 CNN article, Making a Good Living But Still Feeling Strapped, quotes an American parent, Stacy Burris, 47, as saying, “We are struggling to stay in the same place. You don’t mind pinching pennies to send your kids to college. You do mind pinching pennies when it’s simply to buy some eggs.”
As a single parent I know how tough it can be. In fact, I wrote a personal finance strategy book with an alternative approach based on my independent study of money. “Alternative” because I discovered there was more to the money topic than I ever imagined.
Traditional Personal Finance Strategies Fall Short
Personal curiosity sparked my interest to find out why money, while abundant for some, seemed a headache for most everyone else. I spent 25 years trailing down clues and searching for answers, trying to figure out which data was relevant and what sequence to put it in. Unlike volumes of investigative research done on topics such as history, politics and the environment, I found only a handful of serious monetary researchers.
One day the lights went on as I began to connect the dots between personal finance and new information about money. I realized how traditional recommendations for ways to earn, spend, save and invest had become obsolete. Now the challenge was to uncover the bigger picture of economic reality. Since the three common coping mechanisms–the two-income family, working longer hours and using one’s home as an ATM machine–appeared to be failing as long-term solutions, I knew I was missing something.
What was that big picture? It was that all things monetary exist as the exclusive domain of a private, corporate banking and financial industry (hereafter called the money industry). Ninety-nine percent of everything we’ve ever learned about money originates from the money industry, from how we perceive wealth, security, the stock market, etc. to high school classes about how to balance a checkbook.
The Outermost Nesting Doll
As a child I enjoyed the past time of putting one of my baby teeth or a trinket inside a tiny box. Then I would enclose this tiny box inside another one a bit larger and continue adding boxes, just like a Russian nesting doll, a hollow wooden doll containing ever-smaller hollow dolls inside it. From time to time I would go to my room and shake the series of boxes and try to guess what I had put inside tiniest one.
My little game with boxes helped me to wrap my mind around the role money plays. Not unlike the nesting doll, the man-made world functions by means of nesting several major systems: government, food, energy, politics, law, science, religion, education, medicine, transportation, medicine and money. The monetary system is like the outermost doll, if you will, that contains and affects all the others.
In addition, due to the magnitude of the monetary system, it recedes into the background, almost invisible like the air we breathe. Being everywhere has obscured the fact that money is the product of a for-profit money industry spawned by the monetary system.
The Story We are Told
The money industry tells the story how the economy has spiraled out of control due to the subprime mortgage mess which is also to be blamed for the credit crunch faced by banks as well as ordinary people. We are told the market is in a correction phase, regaining lost equilibrium, comparing it to the cycles of nature, and not to panic. On June 9, 2008, Federal Reserve Chairman Ben Bernanke said, “Despite a recent spike in the nation’s unemployment rate, the danger that the economy has fallen into a ’substantial downturn’ appears to have waned.” Traditional financial advisors warn against hasty liquidations and remind people of the historical merits of the “buy and hold” investment philosophy.
Nonetheless, current statistics are worrisome. Household debt has grown by 152% in the past 10 years. As of June 2008, over a million Americans have their homes in foreclosure. People are paying interest rates as high as 800 percent for “Pay day” loans and increasingly fall back on them. A skyrocketing cost of living outpaces earnings, diminishing the purchasing power of two-income families. Gas prices have doubled in one year. Food prices climbed 5.1% in the past 12 months. Health insurance premiums rose 78% in the last 6 years. And the list goes on.
Mixed Message
Despite what we read in the media about the economy and the assurances of a short-term downturn, reality tells us something different. We see what is happening all around us as many families and businesses go from the frying pan into the fire.
All the while, the invisible hand of the money industry shapes our perception of money and the economy with the depth and genius of its billion-dollar marketing machine. It strives to protect and increase its own bottom line like any other enterprise and as such, withholds or underreports potentially damaging information.
Think Again: Beginner’s Mind
Clearly, money ranks as a defining factor in our lives and underlies issues of survival. Due to this fundamental position, most people instinctively accept what financial experts tell them. Those who purchase financial products are often the same people challenging the latest environmental, health or political news but who will remain “True Believers” when presented the latest analysis of the economy.
Tacit acceptance of the money industry’s financial “education,” in this author’s opinion, has led to the perpetuation of a flawed personal finance decision-making process responsible for the continued losses of home, health and well-being. If the money industry were more than self-serving, there would already exist at least a handful of people armed with strategies to reverse their difficult circumstances of debt and overwhelming stress.
Perception is not everything. We can be as discerning about what to believe as we want. Unlike fish to water, we can lift our head to see where we are swimming. Blind acceptance of the consensus story about money and the economy blunts the critical thinking necessary if individuals and families are to thrive, and not just survive, into the future.
The root cause for today’s challenging economic environment is not soon to be divulged by an industry that gains by our complicity. They would have too much to lose. However, the very moment an individual initiates their own research, they begin the process of self-empowerment to find otherwise obscured sources of valid data and solutions. Fortunately, the Internet makes it possible.
Charles Mackey, a 19th century Scottish journalist noted, “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”
Money: A Crash Course
Will it be that “a substantial downturn appears to have waned,” as stated by Fed Chairman Bernanke, or as economist John Williams predicts, will hyperinflation emerge in the near future?
“Hyperinflation: Extreme inflation, minimally in excess of four-digit annual percent change, where the involved currency becomes worthless. A fairly crude definition of hyperinflation is a circumstance, where, due to extremely rapid price increases, the largest pre-hyperinflation bank note ($100) becomes worth more as functional toilet paper than as currency.”
What should we believe? When the missing piece to the money puzzle falls in place, the bigger picture tells the whole story.
The simple fact is that money as we know it is actually debt; evidenced by the words at the top of a United States dollar bill, “Federal Reserve Note.” A note is a promise to pay, a debt instrument.
Systems-thinking as taught by my mentor, R. Buckminster Fuller asserts that both ideas and physical things are best understood when studied in context. Federal Reserve Notes are best understood as part of a [global] monetary system. How could we, for example, be fully informed about Earth without learning about Earth as a part of a solar system? Yet day-in and day-out we are expected to make important financial decisions without the benefit of complete information about money.
Traditional personal finance strategies fulfill the design of the monetary system, also known as the central banking system. Only central banks, common throughout the world, are authorized to originate the issue of money. In the United States, central banking was attempted three times before the Federal Reserve Bank was chartered in 1913. Created centuries ago by European bankers, the original system design is still used today. “Fractional reserve banking,” as it is called, functions to issue ninety-nine percent of all money at the time a loan is made. Money mechanics are initiated when a country’s government borrows money from its central bank, at interest, and then trickle down in the same manner to the end-consumer of a car loan at the local bank.
The design of fractional reserve banking relies on ever-increasing amounts of debt in order to succeed as a system. Interest and loan fees are the price paid for borrowing Federal Reserve Notes. Debt service paid by business borrowers gets added to the retail price of basic goods and services. Purchasing power diminishes for everyday people when the cost-of-living skyrockets to reflect compound-interest in the system. We see how more money is needed than ever before to meet the most basic needs of food, shelter and energy while debt service payments pay increasingly larger earnings to those in the money industry and its shareholders.
The mechanics of a debt-based currency operate in plain sight, yet because their significance has been underplayed, they have been made obscure to everyday people and most financial “experts” alike. Our debt-based monetary system is the root cause of the economic meltdown. Henry Ford Sr., founder of the Ford Motor Company in the early 20th century once said,
“It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before morning.”
Breaking the Trance
On June 19, 2008, U.S. Treasury Secretary Henry M. Paulson was quoted in the Washington Post as saying,
“Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk, [But the central bank] has neither the clear statutory authority nor the mandate to anticipate and deal with risks across our entire financial system.”
I cringed to consider how the Federal Reserve might gain increased powers to “step in to avert events that pose unacceptable system risk”. Given that the fractional reserve system serves as the root cause of unsustainable amounts of debt from global to personal along with the diminishing purchasing power at the pump and cash register, I believe that what Secretary Paulson said is Orwellian doublespeak. The source of systemic risk cannot also be that which averts it.
Certainly a voice in the wilderness, my alternative approach to personal finance factors-in this exact hidden cause with a formula to regain and sustain financial stability. Going forward, armed with the missing piece about how money really works, the ways we earn, spend, save and invest can take on an added dimension to secure the other missing piece; financial and personal well-being. As more and more people grasp the bigger picture about money and regain their equilibrium, the more intelligence can be freed up to focus on and develop additional outside-the-box practical solutions for the common good.
By: Susan Boskey