“The primary cause of financial struggle is simply not knowing the difference between an asset and a liability.”
SSo says Robert Kiyosaki in his book, Rich Dad, Poor Dad. Economic categories are no longer what they were. It is now common to hear government officials say that the revenue they did not receive was a “cost” to the government.
Imagine going to the company accounting system and entering an amount in the costs of the company for revenue that was not obtained. “Let me see, we should have had another $10 million this year. Let’s put that in as a cost to the business. Better still, make it $10 billion.”
And you think corporate fiscal accountability is bad.
Yet it is government allowing the new definitions.
Now, if Bernie Madoff or the executives of WorldCom only knew this, their outcome could have been more favorable for investors.
The same confusion, unfortunately, exists concerning assets and liabilities. Debt, many say, is an asset. Let’s have more debt. The fact that you might enter it into the liabilities section of your Balance Sheet is irrelevant. For debt is the way to wealth in the minds of many. And if you only had more debt then you could turn this economy around — and then some.
So thinks the average American citizen. So think many average citizens around the world. For this reliance on debt as the way to wealth is not restricted to America. It has its counterpart in many, many countries today.
This abuse of language comes from an abuse of logic. By what stretch of the imagination can you call revenue you did not get a cost just because you think you’re entitled to it? By the same imagination it is argued that debt is the way to wealth.
This is nuts . . .
It is also a problem of faulty definitions. At one time, not too long ago, creating spending power by either increases in the money supply or credit, was called inflation. Now it’s called saving the world — or something else. I’m an Australian and we have some unprintable words that describe this kind of silly reasoning.
But the definition — and the understanding that went with it — had to go so these new ideas could replace them.
Debt is a mechanism that brings future production into the present. If you buy now you don’t have to buy later. No waiting. And if you need a 25-year mortgage this year to finance your future purchases in the present, why not take a 45-year mortgage and bring even more purchases into the here and now. Maybe the Japanese had it right after all, when mortgages reached 100 years. But why stop there? Why not just create an obligation for the next 10 generations, about 700 years. Now we could really spend ourselves rich in this generation.
Right thinking is in short supply. So said John Knox to Queen Mary. And you know what happened to that crusty old Scotsman as a result of his audacity, telling the leading political figure of the day, who claimed conscience was her guide: “Conscience needs to governed by right reason. And right reason I see you have none.”
Perhaps you’ve been blinded by a host of bad predictions. The great depression that was to happen in the 1980s did not appear, nor did the promised meltdown of the 1990s. What is to happen in the twenty-first century?
The truth is, you don’t know. You, and everyone else, are in unchartered waters. Governments have attempted to cut themselves off from the reality of the market to put themselves in the position of expanding money and credit as they wish. And they wish a great deal at the moment, for this is the mechanism that will prevent all economic disasters. Or so they hope. Right reason is in short supply in the Congresses and Parliaments of this world. Things haven’t changed much in nearly 500 years.
The situation is clearly screwed up when you get advisers warning against debt on the one hand, then suggesting you need to get into debt to buy a house, a business or anything else. It’s OPD (other people’s debt) that’s the problem, never your own. Consumer debt might be out, but at the end of the debt discussions there is still debt. And who really cares whether the debt is for a house or a business vehicle. You need both now — not later.
Can this headlong rush to bring the future into the present continue, and if so, for how long? The pundits got it wrong in the ’80s, the ’90s, and now they tell you to trust them a third time. But by now no one is listening. And that’s a real pity.
It seems the only reliable guide you have is employment — or lack of it. Or more specifically, the number of $100 an hour jobs that are going to India or China where the pay is $20 or less an hour. And if you realize that this difference was caused, in part, by price increases at home, you might just begin to realize what debt has really done to everyone. It has made many people unemployable at $100 an hour. It has caused buyers to look for cheaper prices, and the buyers of labor have looked and found bargain prices most places in the world except at home.
It seems the lessons of economics remain to be learned. You cannot call missed revenue a cost any more than you can call debt an asset and therefore the way to genuine wealth. You cannot bring future expenditure into the present without causing an increase in present prices, a mis-allocation of resources, and destroy the entrepreneur’s ability to forecast the future. Nor can you call a lie the truth and get away with it forever.
Kiyosaki is right. If you’re serious about unemployment and the state of your country, you need to be serious about money and debts and make sure you understand the difference between assets and liabilities as well as revenue and costs. Your economic health — and those around you, family relative, friends neighbors and strangers — will depend on it.
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