Friday, October 09, 2009

"Preparing for the Worst" article

(Photo Credit: Yahoo)
When I read this article by Robert Kiyosaki, of "Rich Dad, Poor Dad" fame, I ask myself whether there is anything new to learn from. Is it an article that fuels more fear? Is it something that is helpful? On one side, he appears like a doomsday prophet that warns us that the worst is still to come. On the other side, I question how much of this is mere needless fear-mongering. Fear is so profitable that this factor alone feeds a multi-billion dollar insurance market. Fear is a potent driver of investments into any product or services. In a zero-sum market, whenever someone gains a dollar, another would have lost it. Let's examine the five major arguments Kiyosaki poses.

1) Manipulation of Stock Market
This is nothing new. We all know that greed and selfishness exist. Whenever they exist, there will bound to be manipulation of sorts. Having said that, it will certainly be wise to stay on top of the performance history of any stock.  Wise investors will do their homework. They may not be right all the time, but they can minimize the chances of foolish investments.

2) Government Stimulus
Generally, any society that depends on handouts for survival is doomed. It is the attitude that is important. Without a proper attitude of hard work, thrift and wise stewardship of our resources, we will be doomed sooner or later. In other words, the one who depend on stimulus only, is likened to a person waiting for a fish on a dish, rather than learning how to fish for food. The former is short-term, while the latter is long-term. Recognize that external stimulus is not the one-size-fits-all solution.

3) Aging Society
We all know that this is no longer news. Governments around the world like Japan, Germany, US are trying to tackle an aging population. Some try to encourage the young to have more children. Others use immigration to prop up their population numbers. If we are not careful and play only at the quantitative level, we miss out on a more important qualitative aspect. In other words, recruiting people based on a numerical equation can never outlast a quality hire. Be careful that the solutions we adopt do not become part of the problem.


4) Social Security and Medicare
From what I know and read about, these two have been highly politicized in America. Otherwise, how can we explain the lack of unity and common direction? As long as people continue to lobby for the interest of self over others, any program is doomed. We need sacrificial and other-centered people. [Remember the Pennsylvanian Amish?] We need to take confidence in hope for a better future. We may not sustain our current lifestyle level. However, if we can all band together to live as communities, it might be beneficial. Our current system of individualism not only generates more waste for the environment, it is non-sustainable.

5) Age War Between Young and Old
This is an interesting observation. While it appears a logical conclusion that both young and old want to enjoy the benefits, there is a cultural clash as well. While the old feels that they have earned the right to enjoy their savings, the young feels they are entitled to spend what they have, even at the expense of the future. Who is right and who is wrong? I don't know. It depends on who you ask. Perhaps it is the weakness of the whole capitalist system in the first place. Perhaps, it is a clash of different perspectives from people born at different eras. Perhaps people are not working or talking together as much as they should. Perhaps, it is something that cannot ever be resolved satisfactorily but to keep all parties humble.

My Conclusion
Four main thoughts. First, Kiyosaki's observation has nothing really new. However, they are important REMINDERS to us that we need to prepare for the worst. Unfortunately, Kiyosaki did not write the article with a more positive balance. Not everything is cast in a concrete of depression. As long as our society remains individualistic, where self is enthroned over everything else, Kiyosaki's warnings may help delay, not guarantee or prevent an ultimate collapse. Ronald Reagan once made a witty comment about our society:
"A recession is when your neighbor loses his job; a depression is when you lose yours." (Ronald Reagan).
Second, it is also possible, that this article is written with a salesman-slant. When one fear computer viruses, they seek out anti-virus makers. Anti-virus makers too send out regular messages about crazy threats to computer security. Some are widespread. Others are not. When there are fears of a certain disease at any one place, the paranoid will seek out medical help. For investors who are worried about their investment, they seek out investment gurus. Kiyosaki is one such popular guru. Interestingly, his latest book is entitled: "Conspiracy of the Rich." Remember his first warning about manipulation? In that book, he subtly contrasts the root of all evil using "love of money" vs "ignorance of money."

Third, there is a simple possible solution. When anyone loses his job, rather than going through a recession, society reacts by leaving no stones unturned to make sure he/she finds another job. If every person takes seriously the needs of his/her neighbor, even if the whole world turns upside-down, there will be hope. A better tomorrow is not decorated in terms of possessions or the accumulation of more stuff. A better tomorrow can only be painted by hearts that is filled with care and the willingness to share. Maybe, if we can raise up responsible leaders all over our respective places of influence, we can then raise up a community of people who think of others more than selves. Only then, will despair be turned to hope.

Four. Mr Kiyosaki, thanks for the reminders and the warnings. If your article creates more fear in people, that is no good. If it causes people to start living more responsibly, there is hope. While we can all prepare for the worst, we should not surrender our souls to doom but to hope that when God comes in all his glory one day, the world will be changed into a perfect world that God intended it to be. Better get ready for the coming Kingdom of God, and not be worried about any sudden economic collapse.  The things of the world may fall and stumble, but the Kingdom of God will never fail. Temporal kingdoms of this world, vs Eternal Kingdom of God. Which of this deserves our investment? You tell me.

p/s: Read the original article by Kiyosaki here by clicking "Read More" below

[article below extracted from Yahoo! Finance]
Preparing for the Worst

by Robert Kiyosaki
Monday, August 24, 2009

"Is the crisis over?" is a question I am often asked. "Is the economy coming back?"
My reply is, "I don't think so. I would prepare for the worst."

Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money.

The stock market has been going up since March 9, 2009. Talk of "green shoots" fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons:
1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.

Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking... and I don't blame them. A global panic would be ugly and dangerous.

2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.

Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog.

In the 1980s, our government's hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines.

While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, "Sometimes the cure is worse than the disease." I say the government stimulus cure is killing us frogs.

3. Old frogs don't hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years -- their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy.

The stimulus plans seemed to work. But when a person turns 60, their spending habits change dramatically. They stop consuming and start conserving like a bear preparing for winter. The economy of the Western world is heading into winter. Hot wires and hot money will not get old frogs to hop. Old frogs will simply join the bears and stick that money in the bank as they prepare for the long, hard winter known as old age. The businesses that will do well in a winter economy are drug companies, hospitals, wheelchair manufacturers, and mortuaries.

4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it's my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare... Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.

5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they're concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.

The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.

The reason the 401(k) has this law related to mandatory withdrawals is because the Federal government wants to collect the taxes that they deferred when the worker's money went into the plan. In other words, the taxman wants their pound of flesh. Since they allowed the worker to invest without paying taxes, the government wants their tax dollars when the employee retires. That is why the laws require older workers to sell their shares -- and pay their pound of flesh.

Demographics show that we are entering a battle between young and old. I call it the "Age War." The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age.

This war is not is upon us now. This is one of many reasons why I remain cautious and say, "The worst is yet to come."

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