Financial Crisis

Is our current economic crisis just an accident, a one-off event? Some say yes. I say no.

Can those in power solve our current economic crisis? Many hope so, but again I say no. How can the crisis be solved when the very people and organizations that created the crises - and profit from it - are still in charge? The problem is that the crisis is getting bigger, not diminishing as some would hope. In the 1980s, government bailouts were in the millions. By the 1990s they were in the billions. And today, they are in the trillions.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

One of causes of this financial crisis is that most people do not know good financial advice from bad financial advice. Most people cannot tell a good financial advisor from a con man. Most people cannot tell a good investment from a bad one. Most people go to school so they can get a good job, work hard, pay taxes, buy a house, save money, and turn over any extra money to a financial planner—or an expert like Bernie Madoff.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

The crisis threatens not only major corporations and multinational banking conglomerates, but also the security of hardworking families. Today, millions of people who thought they were doing the right thing by following the conventional wisdom of going to school, getting a job, buying a home, saving money, staying free of debt, and investing in a diversified portfolio of stocks, bonds, and mutual funds arc in financial trouble.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

It may well be that there is no depression. It may be that President Obama has the power to unify the world, and that the world can go on forever printing money out of thin air. Maybe the countries of the world will continue to accept the United States' number-one export— debt—in payment for their goods and services. As long as the world is willing to accept our debt, T-bills, and bonds as money, the merry-go-round will keep turning. But if the world stops accepting the U.S. dollar, the music will stop, and the depression that follows will be greater than the last great depression.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

The government is putting money into banks, even when the banks don't want it, in hopes that the banks will put it into circulation. But the latest statistics show that banks are lending even less money now than they were before the government dumped all that cash on them.

— Thomas Sowell; Dismantling America

If all this sound and fury in Washington was about getting an economic crisis behind us, tax cuts could do that a lot faster.

— Thomas Sowell; Dismantling America

A recent news story told of three young men who chipped in a total of $33,000 to buy a home in San Francisco that cost nearly a million dollars. Why would a bank lend that kind of money to them on such a small down payment? Because the loan was insured by the Federal Housing Administration.

The bank wasn't taking any risk. If the three guys defaulted, the bank could always collect the money from the Federal Housing Administration. The only risk was to the taxpayers.

— Thomas Sowell; Dismantling America

Today, people are asking, "Is the crisis over? Is the economy coming back?"

My reply is, "No, the economy is not coming back. The economy has moved on, and the people asking if it's coming back are being left behind."

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

<strong>The New Economy in 1954</strong>

As we discussed earlier in the book, the U.S. economy didn't recover from the Great Depression until 1954, when the DOW finally reached its previous high of 381. A few reasons why the economy improved in 1954 are:

<ol>
<li>The World War II generation was settling down. When the war ended, soldiers came home, went to college, got married, and had kids. By the 1950s a housing and baby boom was on.</li>
<li>The first credit card was introduced in 1951, and shopping became a national sport. With the advent of the suburbs, shopping centers sprung up like weeds.</li>
<li>Interstate highways were built, and the auto industry boomed. Drive-ins became the place where kids hung out, and the fast-food industry was born. In 1953, McDonald's began franchising and became the shining star of the new fast-food industry.</li>
<li>Television became a national phenomenon, and the baby boomers were the first generation raised by TV. The Beatles came to life on The Ed Sullivan Show, and sports stars became the new mega-rich. Advertising took on a whole new dimension in people's daily lives.</li>
<li>Boeing introduced the 707, and the jet age arrived. Being a pilot or a flight attendant suddenly became a glamour job. Larger airports were built to accommodate increased demand for air travel, and mega airports became an industry unto themselves. Hotels and destination resorts sprung up to meet the demand of road-weary travelers, and tourism thrived. My rich dad became very rich as lower fares and faster travel brought tourists to Hawaii.</li>
<li>Workers could expect company pensions and healthcare for life. Without the expense of retirement savings and healthcare premiums, workers could spend money more freely.</li>
<li>China was a poor communist country.</li>
<li>America was the new financial and military power.</li>
</ol>

<strong>Fifty Years Later</strong>

In 2009, many of the factors that spurred on the new economy fifty years ago are now fading:

<ol>
<li>Baby boomers are retiring and beginning to collect Social Security and Medicare alongside their World War II-generation parents.</li>
<li>The suburbs are ground zero for the subprime mess. As suburbs struggle, major shopping centers face trouble and retailers close their doors while online shopping is taking off.</li>
<li>Our highways and bridges arc in need of major repair. The auto industry is dying and outdated. An old saying goes, "As GM goes, so goes the nation." That saying is truer today than ever.</li>
<li>Television networks are losing advertisers - many of which are leaving for the web.</li>
<li>Major airlines such as Pan American are history, and giants such as United Airlines are on life support. Today, people can sit at their desk and visit with people all over the world via the Internet.</li>
<li>People are living longer, but many are overweight and in poor health. Diabetes is the new cancer, and our medical system is going broke. The high cost of healthcare is causing many businesses to close, which costs more jobs.</li>
<li>Pension plans are going broke. Few workers have company pensions or health care coverage after they retire. This will be a disaster for government programs as 78 million baby boomers become dependent upon America's Medicare and Social Security system.</li>
<li>China will soon be the richest country on Earth. China is now asking that the U.S. dollar no longer be the reserve currency of the world. If that happens, America is toast.</li>
<li>America is now the biggest debtor nation on Earth, and its military is overextended.</li>
</ol>

So, again, is the economy coming back? I don't think so. The boom economy that pulled us out of the last depression is dying. Millions of people arc being left behind as they wait for the old economy to come back. Unemployment is rising as people's jobs are becoming obsolete, often replaced by technology or outsourced to a nation with a cheaper labor pool. This means there will be an even greater divide between the haves and have-nots, the rich and the poor. The middle class will shrink like the polar ice caps.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

In my opinion, it matters little what the politicians do to save the economy. In the end, they are going to save the rich in the name of bailing out the economy.

What really matters is what you are going to do to save yourself. You do not need to outrun the bear; you just have to out run those who are waiting to be saved.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

One reason our current financial crisis is so large is because in 2004 the Securities and Exchange Commission (SEC) allowed the five biggest investment banks to step up their fractional reserve from about 10 to as high as 40. In other words, if you put $100 in the bank, the biggest banks could lend out $4,000, and then the hundreds of banks that borrowed that money could lend out ten times that $4,000. All that money had to be placed somewhere, and soon mortgage brokers were looking for anyone who could sign their name. The subprime mess expanded and then exploded—bringing down the entire world economy.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich