Thursday, January 19, 2012

Greece and Wealth Accumulation:Yes! There is a connection!

The Crisis in Greece is on the front page headlines. The situation there has long reaching implications, as it stretches throughout the European Union. In fact, other countries are feeling the impact of this situation, such as Italy and Spain as they hold large amounts of bonds. Two questions to consider:

1. What is the real cause of the Greek crisis?
2.  The U.S and its large debt and deficit balances, is it following right behind the Greeks and their European counterparts?

What is the real cause of the Greek crisis?

The answer to question one is multi- faceted, and there is not one simple answer, but ultimately here is a principle to consider: Wealth is not created through printing money, debt notes, or expansion of the Central Government via Welfare programs, Bailouts, special favors or the like. Wealth is created from productivity.  Greece has expanded the welfare state to the point of no return. For example, the Government employs many Greek people. This creates an unbalanced division of labor. The Government must have a source to fuel its operations, and it comes from the production of the private sector. With more people working for the Government and the combination of a Welfare state, it leads to the bankruptcy of a nation.

Currently, Greece is seeking the help of individuals to purchase their Government secured debt. These productive individuals who have accumulated capital are bailing out Greece, proving the aforementioned point. In this article titled, " Greek Debt-Swap talks set for a Second day", the article shows the current process as the Greeks are seeking a bailout due to the total mismanagement and failure of its Government/Welfare State.

Here is a quote to consider:

"The policies advocated by the welfare school remove the incentive to saving on the part of private citizens"~Ludwig von Mises.

The U.S and its large debt and deficit balances, is it following right behind the Greeks and their European counterparts?

The answer to question two is yes. This can be prevented, if the people decide to reject the causes that created the Greek crisis. This rejection will enable the United States to reverse the course.

In 2006, the US had one of the lowest savings rates in comparison to most other industrialized Nations. That rate was at approximately -4%. That may have changed slightly since then, but the principle still holds true. Deferring your capital to the Government is not an efficient means to grow an economy or your growing your personal economy.  There are costs to run the Central Government, typically all underwritten by the citizens who are participants and recipients in the Welfare State. The revenues are generated via taxation, all going to subsidize the Leviathan called the United States Government. If there are any doubts about how inefficient the US Government is in its operation, please review the situations with the following programs: Medicare, Social Security, Medicaid, Amtrak, The Postal Service, etc. Every one of these programs are running large deficits.

Moving forward, individuals must regain control of their capital and investments. The citizens must push to control and have access to the factors of production. This will enable the citizens to have the ability to increase their savings and investments.

The next question is the following: Where should one invest?

There are a plethora of financial tools where one can make money work efficiently and turn a "profit". But, one must understand and become educated with the world of investing. I recommend that one should only expose money to "riskier" financial deals or investments with money they can afford to lose. In video at the end of this entry, it explains how the investing pyramid should be structured for optimal growth while maintaining and preserving accumulated capital.

In closing, the individual productivity will allow many citizens to gain more capital and have the ability to save and invest money. The expansion of the Government and or the Welfare state reduces this activity, making individuals dependent on the political class and bureaucrats, and concomitantly this dependency reduces the incentive to save and accumulate wealth on an individual basis. Structuring the investment pyramid is smart, simply because it builds an financial ark when the flood waters of financial vicissitudes rise.

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