5 Economic Assumptions We (still) Make That Won’t Always Be True

iStock_000016968348XSmallMoney And Currency Will Always Be Able To Flow Freely Worldwide.

Hmmmm, in 2008 one of the biggest fears was that credit markets would dry up causing massive restrictions in banks lending to one another and therefore massive refusals to lend money to us. If this particular part of the crisis had not been averted, bank and business failures would have been even more prolific.

Real Estate Will Always Have Value.

Ahem…., we all saw real estate fall in 2008, 2009 and 2010 – but do you believe that it is now on the rebound? Are you snapping up property at low interest rates? Some believe that we are in for an even bigger real estate bust in the 2014 – 2016 years.

The Feds Will Be Able To Control Inflation.

For several years, the US has been printing up currency to bolster the economy. All that extra money is eventually going to cause inflation, in my opinion. I have little confidence that our government agencies or representatives have learned how to keep inflation in check. I lived through the 1970’s stagflation – no fun. It can happen again and I believe it will.

We Will Always Have The Right To Own Things.

The US Constitution 5th amendment states in part that citizens cannot:

“be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation”

Yet this certainly isn’t true worldwide and I’m not convinced that it will always be true in the US, unless citizens continue to ensure it.

In the book ‘Inside Coca-Cola’ which tells the story of Neville Isdell, one of Coke’s CEOs, the author discusses trying to establish a company owned bottling company near Moscow in 1991. At that time, it was illegal for a foreign company to buy land in Russia. So, they tried to lease it but even that was difficult. According to the author:

“Government officials also had no idea who owned the land: Was it the Soviet state, the Russian Republic, the Moscow City Council, or the state-owned farm that was then on the property?”

There was no market for land, as no one had owned or sold it so it was even hard to figure out what the cost would be.

What would be the impact to western civilization if property rights were removed? Would capitalism go away, would freedom follow?

“Eternal vigilance by the people is the price of liberty ” Andrew Jackson.

Utilities, Goods And Services Will Always Be Available If You Have The Money.

While this may be true on the most basic level, a time could come when your house could be without electricity for extended periods – causing you to make drastic adjustments to your life style. A time may come when our ‘just in time’ food transport system breaks down, stopping the flow of fresh fruits and vegetables to northern climates in the winter and causing runs on remaining stock in grocery stores. Heck, we’ve all seen this when even a minor weather event threatens – runs to the store to ‘stock up’ in case you get snowed in – imagine that on a more massive scale.

What Does All Of This Mean To You?

You are probably thinking I am a survivalist or at a minimum an alarmist by this point and are wondering why you are still reading this post!

The point I am trying to make here is that the world wide civilizations are intensely intertwined today and will continue to grow in that direction. We depend on others for so many things that we take for granted: simple things such as a hot shower, or hot cup of coffee in the morning or indeed, even the heat in our home and the roof over our heads. Most of us have experienced very few failures in any of these areas and have come to think that systems won’t fail, or if they do, it will only be for a few hours.

We are raised with and grounded in the concept of self-reliance. We pride ourselves on being able to take care of ourselves, yet very few of us take steps to assure that we can do so in scenarios such as those above. Weather, war, and economic failures can have significant impact on our personal lives.

Am I proposing that we go back to candles and wood stoves? No. I propose that as concerned citizens we should be educated about and actively involved in helping to make sure that these systems don’t fail and we should attempt to understand how our own actions could potentially aide that failure.

What if we hadn’t overextended ourselves to buy bigger and bigger homes in the 2000’s? Would we still have had the economic failure? What if our dated and aged electric grids have massive failures in years to come? What can we do to help make sure that doesn’t happen?

What economic assumptions do you think we are (still) making that we shouldn’t?


5 Economic Assumptions We (still) Make That Won’t Always Be True — 20 Comments

  1. #1 is so hard to consider! And if money isn’t worth anything, what can you trade? Many people don’t have a garden or animals, it would be such a mess for them to get food and other basic needs.

  2. Good post! While I don’t necessarily agree with all of these issues, I do agree that we must be increasingly educated and involved so we don’t lose the things we might take for granted. History does tend to repeat itself and if we don’t learn from mistakes of the recent past then we’re more than likely doomed to repeat it.

  3. Good post. This is an interesting world you have created for us. Not sure I want to live there 🙂 The basic point of your theme is that we cannot predict the future. We can’t be trapped into thinking things will always stay the same. Thanks for making us think.

  4. I think another common false assumption thats still made is security of employment. Many of us plan so many things around this. Its always necessary to have a back up plan in place and not to take on too much debt on the assumption or perception of job security.

    Very good point that you make on #1. Not many people apart from those in the finance industry at the time realized how critical the lack of trust amongst banks was at that time, and what the effect was on LIBOR (interbank rate). It could have really been total disaster had that not been resolved in a timely manner.

  5. These ideas are certainly a little apocolyptic, but not that far off of reality in many countries. I am always amazed that people are still starving to death on the other side of the world, and our grocery stores can make literally any vegetable grown on earth available for a few bucks. It’s something I certainly take for granted.

  6. I don’t think our society is heading into an apocalyptic state anytime soon, but it’s good to sometimes think about how to be more independent when it comes to certain things like food and utilities. I’m a long way from being independent since I don’t grow any of my own food or have tried any alternative form of energy, but the idea is in the back of my mind. Maybe one day.

  7. The Royal Bank of Scotland, which had expanded enormously in the preceeding years and was in 2008 one of the worlds biggest banks, came within hours – almost minutes – of running out of money. This is why it had to be taken (largely) into public ownership at a cost to the British taxpayer of some £45bn. Had this action not been taken, RBS would have fallen and the subsequent Lehmans collapse would have seemed like a party because many other retail banks would have failed almost immediately.

    Careless purchasing of a number of ‘assets’ led to this point and I am still waiting to see the then management behind bars because their actions were in my view criminal.

    I am not holding my breath and this risk is still there. For example the shenanagins in the Eurozone show just what can happen when there is no co-ordination between system, reckless lending and property collapses.

    We are by no means out of the woods yet – it may take a further 5-10 years.

    So bad things can happen.

  8. We definitely plan to buy real estate with the assumption that it will always have value (for rental purposes if nothing else). This post sort of reminded me of that show doomsday preppers. Most people think that the preppers are a little “off”, but who knows maybe they’ve got it right?

  9. Nobody really owns land, not if you pay property taxes. I believe in Canada the Crown technically owns all the land and only some rights are assigned to property owners, so some of these assumptions are already true today, in a sense.

    Venezuela just recently devalued, and Argentina is tightening capital controls. The US still enjoys a good standard of living, but at the cost of extensive deficits that cannot be sustained ad infinitum. I think younger people today especially lack the sense of history and perspective that older people have, and if you look at the first half of the 20th century, it’s incredible just how much happened in a short span of time.

    I wouldn’t bet against severe economic fallout in the future, especially should the US dollar take a big tumble down in value. I’m not a fan of doom-ism, and on the bright side, the rate of technological advance is increasing, which has many positive benefits for everyone. In fact, these types of advancements may accelerate the decline of the old order, and I am willing to bet that things will be quite different in 25 years or so.

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