The Double Dip and an Eye to the Future

What caused the global economic crisis? Some blame the predatory lending practices of investment banks and conglomerates. Others blame government inaction. But millions of uneducated consumers are just as responsible because they took what was offered to them without caution, or an eye to the future, and borrowed more than they could afford.

Many people assume that they learn money management skills as part of their school’s curriculum, or that their parents and mentors will give it to them, when in fact; fewer than half of U.S. states require even a basic economics class, never mind financial education. The result is the blind leading the blind.

The US government has been terribly irresponsible with their own finances by continually spending more than they make, and investment banks have wreaked havoc on the value of the US dollar by giving out and trading risky investments to not only citizens, but other large corporations. The result is not only the devaluation of our currency, but an alarming increase in our national deficit.

Apart from the crooked investment banks, and frivolous government spending, financial illiteracy has played a terrible role in crippling the United States and it’s the result of ordinary people like you and me making bad decisions with our money.

Too many people are maximizing their credit debt, taking out personal loans, taking out HELOC, and other forms of bad debt that drive themselves into bankruptcy because they become unable to even make the interest payments on these debts, never mind paying down the principle. Regardless of how we got here, the lack of financial literacy, especially for today’s youth, is a serious concern.

What the heck Is Happening?

The United States has gone from the richest nation in the world, to the largest debtor nation in the world, with most of our debt being held by foreign entities, and nations. If we continue to go down this path of fiscal irresponsibility, then the US dollar will cease to exist, and the United States will become completely bankrupt.

When did you first learn what compound interest was? Do you understand mortgage rates and the different types of loans that are available to you before you buy a house? Or are these concepts unfamiliar to you to? Unfortunately, most people don’t know how to even manage a budget deficit, never mind actually knowing what that is…do any of you know what that is?

This kind of financial ignorance is unacceptable. Every citizen should know how to manage a budget, manage debt, and use various investment vehicles to leverage their money. For too long people have been riding the road of easy credit, completely ignorant of the consequences which have not only ruined many people, but contributed to the financial problems of today.

I was just talking to a good friend of mine about the condition of the economy as it’s been degenerating over the past few weeks. About a month ago he had about $103,000 dollars in his 401(k) alone, never mind a few mutual funds and bonds.

It turns out that this past weekend, his value in his 401(k) has crashed to about $62,000. Why did this happen?

It happened because when you put money into paper assets, you surrender all control, leverage, and are at the mercy of the bankers and traders on Wall Street.

It’s sad to say, but such lessons are an important step in helping people effectively manage their money so they can avoid the financial traps that so many people have fallen prey to. It’s hard for most of us to sort through and make sense of the news on the damaged housing market, a plunging stock market, and government bail-out plans. But it’s still worse that many people accept this as if it’s the way it’s supposed to be.

While the complexity of recent events may be difficult for people to grasp, the fact remains that people must seize the opportunity to get properly educated, so that they can take charge of their financial future.

Now you may wonder what you should do now with such uncertainty in the market. To that I would say first and foremost that the stock market is a fool’s game in the long run. Bankers and traders only use it for short term derivative trading, with your money, so it’s best to only use paper assets for short term gambling. I say gambling because that’s exactly what investing in the stock market is.

I can only speak for myself, but if it were me, I would also pull all of my money out of my 401(k), IRA, annuities, bonds, what have you. I’d pull everything out of my paper assets immediately regardless of penalties and fees.

“But that would help instigate market volatility!”

Maybe, but the bankers and traders won’t suffer from a market collapse, the average Joe will. Now as I was saying, I’d then immediately reinvest it into commodities and real estate. Gold is too far inflated now, but silver, silver mining stocks, agricultural stocks, and mining/resource stocks would be viable assets in my opinion. Why? Because we all need a place to live, we all need food, and we all need raw resources. That’s just my opinion, and I believe it’s an educated one. I don’t suppose to have all the answers, and I welcome intelligent debate and consul.

Let me know what you think about the market, the future, and what kind of direction investors should take.

Devon Phelan is a personal finance blogger for a personal finance website in the saving and financial advice sector.

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