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When the financial crisis of 2008 hit, we saw how state-managed capitalism works. Favored companies are allowed to make as much money as they can and they are protected from going broke. Certain firms are deemed “too big to fail” by virtue of the key role they play in the economy or at least by the role they play in a politician’s plans for re-election or future employment. But state-managed capitalism is very different from the real thing. It is capitalism in a degenerate form. Real capitalism progresses in fits and starts, described by Josef Schumpeter as “creative destruction.” It is like a jungle… not like a zoo. It cannot be managed. You cannot take out the predators or feed selected species without upsetting the balance of nature. Take out the destruction and you block the creative process too. Since the beginning of the Industrial Revolution, most real wealth has come from real capitalism. Not from “playing the market.” Not from getting a good job. Not by trying to obtain favors from the government. So, what is real capitalism? It is what we have seen in the Computer and Internet industry over the past 20 years. This was a new industry. It had not yet been tamed by the government. Regulations were few. There were no large, entrenched companies to block start-ups. There were no lobbyists to curry favor from the politicians. There were no subsidies and no barriers. It was young, dynamic, chaotic, and very prone to blow-ups. The whole industry blew up in January 2000. Mistakes were not bailed out. They were corrected. Money moved from weak hands to strong ones. Many companies failed. The companies that survived and prospered went on to glory. These companies included Amazon, Google, Microsoft, and Apple. And who was behind these new companies? They were college drop-outs, computer nerds, products of teenage mothers and broken marriages. They did not enter the ranks of existing technology companies, work their way up to senior management and then create new product lines. It is almost as if they succeeded not because of advanced American capitalism but in spite of it. They created an entirely new industry with new companies nobody had ever heard of. And then, they destroyed some of the biggest businesses in America. Typically, in a correction, asset prices fall and unemployment goes up. Misallocated resources, including labor, needs to be re-priced and put back to work. But when markets are not allowed to work, the bid and ask spread in the labor market can stay out of whack for years. Joblessness becomes a structural problem, not a cyclical problem. People do not find new jobs. Old businesses are not swept away and new businesses do not start up. A zoo economy keeps the old animals alive as long as possible or until there is a revolution. What should you do until the creative destruction takes place? Obtain more financial education and learn how to protect yourself during these trying times of massive money printing, fiat currency, and soon-to-be runaway inflation. Purchase precious metals, including gold, to hedge or protect your net worth against the decreasing value of the US Dollar, which is just paper money. I favor a quote from Steve Forbes … Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to being savvy with our money and using alternative wealth creating strategies; this will be they key to resolving our financial crisis. To gain the necessary financial education, it is best to pursue association with, access to, and membership in, a wealth creation community. As a result, you will learn about alternative wealth creating strategies and consider investments in non-dollar denominated assets … perhaps emerging markets … perhaps energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … perhaps precious metals, rare earths, water rights, oil, natural gas, potash mines, or gold mines … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property. For those wanting protection of their purchasing power in gold, there are several ways that may be appropriate to obtain this protection. These include direct ownership in minted coins, use of gold exchange traded funds, gold mutual funds, and junior gold stocks. Many are investigating having part of their IRAs in gold, silver, precious metals, and non-dollar denominated currencies. In addition, for those that truly believe default of sovereign debt is the greatest risk we all face, it is wise to learn how to implement a multiple flag strategy to diversify this risk or provide protection against higher taxes, capital controls, hyperinflation, civil unrest, erosion of personal liberty, and the rise of a police state. With a multiple flag system, you consider taking preparations like, but not limited to, establishing a foreign bank account, purchasing some real estate overseas, seeking alternate sources of income, dual citizenship, and carrying multiple passports. I will continue to provide examples of things we need to learn, the secrets of the insiders, as part of being savvy with our money, and introduce alternative wealth creating strategies, in future articles and updates at my blog over the next few weeks. I trust you enjoyed the post; please let me know what you think.
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American Capitalism, Creative Destruction, Financial Education, Mike Farrell aspenIbiz, Global Economy, Financial Education, Wealth Creation,
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