Monday, March 12, 2018

Change the Reckless-Spending Mindset

Money can make the world go round. This mindset may make many people become depressed, when they think and believe they don't have the abundance. We desire the abundance, but we want to spend, while expecting the abundance.

We, Americans, have forgotten how to be thrifty, and about what the real core value of money is. Many of us, especially the younger generation, have grown accustomed to only the good times: for decades, we have enjoyed unprecedented economic prosperity that we have forgotten the financial woes of the Great Depression.

Whenever we experiencing some economic hiccups with higher-than-normal unemployment rate, we start whining and pointing fingers at politicians or the government. In spite of the past busts and downturns, we are still spending like there is no tomorrow (especially our government), and we have forgotten how to be frugal. It is time we changed our mindset of reckless spendingbuying the things we don't need with the money we don't have, or bailing out corporations and banks that are "too big to fail."

The problem is that the little busts and downturns will not change our spending behavior. We may or may not have a big meltdown, but the little busts and downturns may go on indefinitely for decades until we change our reckless-spending pattern. President Trump would not make a significant difference in the economy unless we, as a nation, change our reckless-spending mindset.

Japan is a case in point. In the 1980s, Japan's economy boomed, and bought up many American companies. The boom, very much like ours in the past decades, turned into a bubble, and, like all bubbles, it busted with a meltdown that was on a much smaller scale than ours. The Japanese government, like what the US government has been doing since our meltdown, tried to prevent banks and companies from failing with bailouts and economic stimulus plans. History is repeating itself: we are doing exactly what the Japanese were doing two decades agopreventing the bubble from busting. Unfortunately, nothing seemed to have worked for the Japanese; for the past two decades, Japan has not had any major economic catastrophe, but its economy stagnated, and everything deflated gradually and slowly, instead of the one-time catastrophic blow-up.

If a catastrophic meltdown in the US is not imminent, then it will be a protracted recession or deflation lasting for years, if not decades, just like Japan's decade-long recession. In 2009, the US national debt rose to more than $12.trillion. In the next ten years, the US debt is forecast to reach $25 trillion. And this debt does not include any funds needed to continue propping up a practically bankrupt financial system. The forecast also assumes optimistic growth in GDP, which is extremely unlikely, given the current spending habits of the Congress, and the wars the country is involved in. 

Currently, US Federal debt is many times what it collects in tax revenue every year. No matter what, the debt can ever be repaid with normal money. In addition, with debt out of control, interest rates will rise steeply as a result of inflation—no right now, but ultimately. It is a wishful thinking that the US economy will improve anytime soon with President Trump's focus on helping the economy. If you think you will see the light at the end of the tunnel, think again! The worst is yet to come. The US will continue to print trillions of dollars worth of new government securities or quantitative easing. But the buyers of these government securities might start to become scarce. The rest of the world may dump their holdings of US debt, which would result in the dollar dropping precipitously and interest rates rising substantially. The future does not bode well. 

What you can do is to change your mindset of spending: Save, save, and save for the future! 

Next, you need to change your reckless-spending mindset, such as buying things you don't need with the money you don't have.

Finally, always pay yourself first: no matter how insufficient your income may be, always set aside a sum of money for saving for the rainy days; with less money, you will spend less, or figure out how to adjust your spending according to your means.

If everybody could change reckless-spending mindset, maybe the government would follow suit. The bottom line: reckless spending will not help you avoid depression; making you happier; rather, it often leads to depression when you feel the lack.

Stephen Lau

Copyright© 2018 by Stephen Lau

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