In the previous post I talked about how to intercept the flow of money. This post addresses investing, borrowing, the master plan and concludes the series.

But What About Investing?

When you invest money you no longer have it in your possession. What you have is either a promise to give you your money plus interest back or you have ownership of shares in a company or other investment vehicles.

Cash investments are loaned to others so the money can be spent on something of value.

When you invest in a company you are either buying the shares (at their perceived value) from someone else or you are giving it to the company itself to invest, or spend to grow the business. Eventually you hope that the company will generate value for customers and thus your value. But they don’t hold onto it either, they invest (spend) on things for future growth or you are buying someone else’s shares.

So again, money is flowing.

You don’t actually have it in your pocket or under your bed. You have the promise of getting your money back or you have shares (or similar) you can sell later to get your money back plus some (if you invested wisely). Essentially you have the ability to tap into the future flow of money.

The money is in motion, now and in the future.

Why Borrowing Is Bad

Borrowing money means that you are trading your future ability to create value for something today.

Not only are you trading the future for today, you are paying a price on top of that called interest.

This works ok for very short-term loans (i.e. paying down your credit card balance each month). It is a very bad approach to acquire long-term debt for today’s pleasures and material goods. Essentially you are trading your future potential to create value for something today.

Borrowing can make sense for two situations:

  • The acquisition of a home where rent would be comparable to the cost of the mortgage and the real property is likely to go up or at least not go down in value over the long-term.
  • Investments where the costs of borrowing are less than the expected return on the investment… you are creating more value than you are spending.

The problem is that to encourage the flow of money and thus the creation of income for people (interruption of flow) and companies, the government and financial institutions have been making consumer lending very easy to get. This encourages excessive personal spending today but at the price of putting a limit on the future flow of money since you are already pledging the future today; once you are maxed out, you can’t do it again until you pay it all back plus interest.

The problem is even worse in that governments at all levels are borrowing against the future tax base on your behalf. Since the future tax base is essentially your ability to produce value in the future, they are borrowing against the people.

You can only borrow so far into the future before it can all unravel.

What Happens in an Economic Slow Down

Some event triggers people and organizations to stop or slow down the flow of money. When this happens, people and companies are not able to interrupt the flow of money at the rates they could before the slowdown.

The flow of money slows down.

This is why the government’s reaction to this is to spend money and lower interest rates. They are trying to kick-start the flow of money which has a cascading effect. Consumer confidence is actually a measure of the stickiness of the flow of money.

However, the government needs to borrow money to do this. And they need to encourage you to borrow money so you will spend it.

It is an insidious cycle.

And it is all artificial.

Money was created by people. The flow is created by people. Borrowing from the future is created by people. People have figured out a way to consume value today and pay for it later; often much later and longer than expected.

The Master Plan for Debt

Don’t worry though. There is a master plan (insert evil laugh) for how it works. It is not pretty but it is the way it is.

Inflation and growth.

The value of money (specifically long-term debt) is devalued over time so it gets easier to pay back. As well, the ability to pay back the debt is mitigated by expectation of the constant growth of total value created (population growth and productivity) product and services.

Oh, and your children will pay for the excesses of today as well since people have been borrowing against the future excessively. Or maybe they won’t.

Sadly, we are already seeing how well this plays out in some of the European nations and even the US.

Conclusion for Smart Business (and People)

You can interrupt as much of the flow as you want without hurting anyone else’s ability to interrupt the flow. This is not dirty or shameful, it is the natural way things work in commerce since the beginning of civilization. Value traded for value. Money just makes the flow easier and faster.

You interrupt the flow by creating value and reaching (influencing) as many customers as you can.

The more value you generate compared to the money you bring in (interrupt) the more resilient you will be to a slowdown in the flow (poor economy) or threats from competition.

Focus on the future and long-term sustainability and growth. Don’t go for the short-term quick gains at the price of the future. Invest in the future. Live within your means today but realize that doing so means your future is wide open, unlike those who have borrowed heavily against it. You’ll sleep better too.

The amount of value that can be created is nearly unlimited. So is the potential for each person to create value. As wealth is created the flow increases and more wealth can be created (more interruptions are possible).

Slowdowns are created by the perception of shortage and excessive borrowing against the future.

So there is no shortage of money, only a shortage of understanding and people creating the value needed to intercept it.

Final Note: This is my take on what they all mean when they say there is no shortage of money. In reality “abundance” is a good way to look at things because it means we can work together and not entirely against each other. Of course the real world is more complex.

What is your take on money?