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Generational Economic Change

With economies under stress from the actions and consequences of central planners, society is transforming and its values are changing. Change is being wrought by economic policies and direction by central banks, directly and indirectly. Interest rates on housing loans and qualifications for mortgages led to a housing bubble which popped in the USA in 2008. Many Americans have lost their homes and are unemployed or under employed. Deeper than this is a change in perceptions to not only investing, but to our core values. To put this into context, we will look at how society has changed over the last fifty years and the factors influencing it.

Generational Change

This is change that happens over time, usually over several generations. Generational change is very gradual and you can not see it happen as it progresses incrementally. It is only when you look back over forty or fifty years that you can see how much society has shifted. This is not to say that change is bad or wrong, but merely to observe the mechanism of change in progress. Generational change has been speeding up, and now many people can see the changes within the last ten or even five years. Going back a few generations will allow us an outside look into our society.

The Savers Generation

The generations that grew from 1945 to around the 1980’s were savers. That is they had a basic belief that saving their hard earned money in a bank would yield them more interest than the cost of living would eat up. They trusted their banks and used credit wisely. Their values and morals were also different, and this is very important. If you are old enough to remember, or have watched old TV series and shows, you would recognize America in the period from the late 1940’s to the 1980’s, as people would be sitting on their front porch, kids playing in the streets, neighbors having barbeques, and in general, a healthy functioning cultural ecosystem where there was a basic common respect for others rights and property.

The Investors Generation

In the 1980’s the mindset of the investor changed and this generation went from being savers to becoming investors as the stock market became easily available for the average person. During this period of time the term “day trader” became known, and during this period the credit expansion of banks and the government enabled most people to dream of or to acquire a new car, or their own home. Owning a credit card became an everyday reality for most households.

TV shows and series developed, and they showed people buying expensive items with credit, and the character of the shows changed also. Where as before there had been Westerns and James Bond films on TV and in cimemas, now people were being exposed to more blood and reality with movies which brought the emotions and gore into the living room. Computer games were now being seen next to pool tables and pinball machines. The days of people sitting on front porches and neighbors having barbeques were ending as they tuned into their TV sets and spent more time in the pursuit of the new values they had discovered.

The 1990’s brought the computer into most households. TV shows were advancing in special effects and violence, car chases, and revenge were some of the more popular themes in movies. The economy was still expanding and few were giving thought to the expanding national debt which was fueling the economic growth.

The Dot Com Crash

In 1999 - 2000 the economy was booming and the internet was exploding in popularity and technical innovation. Many new companies had IPO’s which turned them into millionaires overnight. This pattern was being repeated with such speed and velocity that it became commonplace and fueled it’s own economic engine that employed many people from recruiters to construction trades to car dealers and real estate agents. When the crash in the emergence of these internet based IPO’s came, it was called the dot com crash. California was hit particularly hard as many tech companies were in the Silicon Valley (near San Jose) and though out the San Francisco Bay Area.

This was a short spell and there was some change in the attitude of society towards the economic engine, at least in the Bay Area where the dot com boom had ended. But society continued on their path watching bigger better movies and TV shows and the video games became more graphic as each one had to outdo the previous one, which was also supported by tech innovations. This had the effect of hardening people as to what had awed or terrified them only ten years prior. Looking back most would say that video games had progressed well and the quality had gotten better, and they would be right. Who would want to play a ten year old video game?

The bigger generational change here is that the street that in the 1950’s had people sitting on the front porches, and neighbors barbequing, were now empty and the windows curtained with a blue flickering light behind them. This can not be pinpointed but was a gradual change which occurred slowly over generations. There are many positives to society advancing and TV, computers, and video games are not being vilified, but an observation on society is being observed.

The Real Estate Generation

After the dot com crash the economy was still growing as easy credit, coupled with the promise of easy riches with the ever increasing cost of homes, led many into investing all their wealth into real estate. Almost anyone could get a home loan, even if it was an interest only loan with just a one thousand dollar deposit. Flipping houses became the new way to get rich and as people became accustomed to this system and climbed the ladder, they went on to more or larger homes. Real estate agents and car dealers were having record earnings and no end appeared insight. There were many people who were so invested in their home they had no money left after paying the mortgage to watch TV. The author at that time offered his services as a specialty construction tradesman, and observed that there were property owners in million dollar homes who lived check to check and made significant sacrifices to maintain their standard of living.

At this point in time one could look back at the 1950’s and say how much better they were living now than they were at any time in their recollection. In reality this economy was a house of cards with a foundation in easy credit and an ever growing economic engine. Should any one of these go, so would everyone’s wealth.

The Mid 2000’s

Those who were accustomed to hopping jobs to advance their career with pay raises noticed that the numbers of job positions were dwindling. This was one of the pre crash indicators that the economy was slowing down.

2008

What would be termed the start of the Global Financial Crisis (GFC) occurred in 2008 with the collapse of Lehman Brothers. The banks threatened a global economic collapse unless they were bailed out and the Troubled Asset Relief Program (TARP) was formed and gave the “too big to fail” banks six hundred billion dollars of debt created currency. This would not be the last bailout and if the economic crisis could be pinpointed, this would be the event that precipitated it.

Societal Damage

This can not be under estimated and continues to grow with no end in sight. In the beginning of the Global Financial Crisis (GFC) many stores had their goods on sale at 50 percent off, but within a year were closing up, and “going out of business” sales were common place. This was followed shortly afterwards by the closing of many car dealerships.

For those who had their savings invested in homes, they were hit hard with the falling house prices meaning that were paying a mortgage on a house that was worth less than they could sell it for. As the economic engine slowed down as currency was being taken out of circulation, businesses were hit hard. Those who were self employed laid off workers and many closed down. For some one who had lost their job, and had a home mortgage which was a lot less than the current selling price, there came a point at which they used up their cash reserves and began living on credit. Anyone in this situation knew the stress of trying to manage a household and feed and shelter your family while the prospect of bankruptcy appears.

In many areas of the country, foreclosures rose. But behind every foreclosure was a person or family that was displaced, that was in debt, and probably had no way out. Tent cities sprang up in on the outskirts of many cities. Bankruptcies were at a record high level by the end of 2010. There was a gradual change going on within the people who were experiencing this recession. They had gone from being ambitious, and having self esteem and pride, to collecting unemployment and looking at an ever dwindling low paying job pool. Food stamps also were at record highs in 2010 and have continued rising since.

2010 Compared to 1950

At this point in time, if one who was in dire straights looked back at the 1950’s through to the dot com bubble, it would have appeared as a great time to accumulate wealth, which it was. But it would have been hard to get ahead by saving as inflation, which is the currency losing it's purchasing power to inflation, would have left you with less purchasing power than you had in the 1950’s. The silver dollar, quarters, and dimes of the 1950’s and 1960’s were abandoned due to rising metal prices (accompanied by the currency losing value) and replaced with cheaper metals.

Building Wealth

This brings us to the question – what would have been the best way to accumulate money. If one would have left 10,000 paper dollars in a savings bank account, and also left 10,000 silver dollars under the mattress, which would be worth more now?

The interest would compound with the bank account, but the silver dollars would have become worth many times more money. Silver and gold have been the foundation of money throughout history. The History of Money - from Cattle to Bitcoins is long and there have been many cycles of paper money being inflated away and sound monetary principles being reformed with precious metals as money. But governments continually graduate away from sound monetary policy and create their own propriety currency so they can create more of it. This is the root cause of inflation. Accepting that silver and gold would allow an individual to beat the inflation of paper money, and with the rise in metal prices since the GFC in 2008, even allowing for dips, it would seem to be prudent to maintain an allocation of silver and gold in ones portfolio.

But what about investing? During the eighties investing made millionaires out of many day traders, but this was during a rapidly expanding credit boom which was aided by a rising stock market.

If one could jump from one rising asset to another, without any dips, their wealth would rise. This is obviously easier said than done, unless you have insider information, but if this has started you thinking about your attitudes towards money, saving, the stock market, and housing, then please continue and do your own research. We live in an artificial world dominated by the media and those who wean them selves off of the corporate teat of television have a greater chance of thinking for them selves.

The Economy Looking Ahead

Now that we have entered a global cooling down period and our currencies are being printed in massive quantities by many nations, there could potentially be a greater financial crisis coming our way. Maintaining a diversified portfolio and having adequate skills should your job be jeopardized, would be ideal going forwards. But what if financial evolution takes another form? What if there isn’t enough gold and silver to go around? One possible scenario is that one (or more) of the worlds currencies could be backed by gold or silver. Even if a currency was partially backed by gold or silver, it would require a gold or silver price magnitudes higher in value. This possibility alone should prompt you to have some precious metals stashed away.

But what other choices are there? You might consider farm land as an asset going forwards. People always have to eat. It was published in alternative news that when interest rates go up even a few percent, that millions of people starve. If hard times were to come, having farm land would be a good option.

Bitcoin

Another interesting option is bitcoin. It allows instant transmission around the world with next to no fee, and is finite in number. It is more portable than silver or gold and also limited. In fact you can buy silver or gold with bitcoin. An astute investor should consider allocating a portion of his wealth in bitcoin.

Conclusion

This weaving article has briefly focused on various aspects of money, changes in thinking and mentality towards wealth and money over time, and where we might go from here. This article is meant to be short so that you can easily digest it, and if some of the concepts interest you, the rest is in your hands. Each person is responsible for their own destiny, and action, or inaction, will determine where you land. Keep your eyes and mind open to what is going on in the world, and the agendas behind current events. Keep this in context with normal healthy human values, ignore the propaganda, think for yourself, question everything, and maintain a solid grasp of where you are, where you hope to be going, and the means that will allow you to do that.

References

1. How the Millennial Generation Will Change the Workplace http://www.psychologytoday.com/blog/wired-success/201403/how-the-millennial-generation-will-change-the-workplace

2. A New Global Economy for a New Generation - by Christine LaGarde https://www.imf.org/external/np/speeches/2013/012313.htm

3. The Baby Boom and the Future of the Economy http://economics.about.com/od/healthcareeconomics/a/baby_boom.htm

4. The Changing of the Guard: What Generational Differences Tell Us About Social-Change Organizations http://www.leadershiplearning.org/system/files/Chaning+of+the+Guard+etc.pdf

5. Social Change: Clash of Generations http://www.economist.com/node/15495760

6. Changing Societies - Values, Religions, and Education http://www.lh.umu.se/digitalAssets/49/49226_working-papers-in-no7rev.pdf

7. Values in a Changing Society http://www.crvp.org/book/Series02/II-1/chapter_xi.htm

8. Political Order in Changing Societies - Council on Foreign Relations http://www.foreignaffairs.com/articles/53252/francis-fukuyama/political-order-in-changing-societies

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