Financial Fairytale

by Rocket Finance

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David at My Two Dollars posted a fascinating article the other day. He asked the question: Is your life fiction or non-fiction when it comes to your finances? How many of us live beyond our financial means? How many of us do not simply accept the reality of our financial situation and be content? David cites two causes for this behavior: the keep-up-with-the-Jones mentality and television. I would like to elaborate on this idea further and give the Rocket Finance spin on the idea of living a false life.

Many people in our culture live far beyond their ability to pay and I agree with the causes that David lists, but I want to expand the list to include popular culture, easy credit and weak consequences for poor fiscal decisions. Of course, as usual on this blog, I want to point out the government contribution to this financial fantasy land.

The reality is that the United States was founded on the idea of individual responsibility. We have all benefited greatly from the free market, but in order for the system to work, individuals must also be allowed to suffer the consequences of failure.

The fact is that the capitalist system is characterized by “busts” and “booms”. Corrections in the market and even recessions are a natural part of life. If downturns in the market are allowed to run their course, the market always recovers. However, our government has sought to shield American citizens from consequences of bad decisions. The government has sought to eliminate the bust part of the cycle. As a result, downturns in the cycle are delayed and worsened. The best that government can do is to spread out the misery over the entire population. When government gets involved, those who made bad decisions tend to be propped up and those who made good decisions are hurt.

Stimulus packages, rate increases and decreases, bailouts, farm subsidies, and the rest are all efforts by the federal government to shield the populace from failure and lean times. In essence, the government is enabling individuals and corporations to live a life of fiction. This tinkering on the part of the government has only served to delay the inevitable collapse. Former Fed chairman, Alan Greenspan, famously used a term “irrational exuberance” during the stock market boom of the 1990’s. He was right about the irrational exuberance, but Greenspan’s problem was that he was always trying to use monetary policy to “soften the landing”. He tried to protect investors from that exuberance by using government controls. The truth is that government cannot keep bad things from happening. It is a fiction.

Everyone knows that our federal government just took on huge amounts of debt in order to protect the American people from an economic downturn: $700 billion for failing banks and auto-makers, $785 billion for pet project stimulus, and $410 billion to prop up our national budget. Almost $2 trillion dollars of pure debt simply to shield businesses and individuals from the consequences of bad decisions – and it is all a fairytale.

At some point, this bit of fantasy must rocketing back to earth.

Picture Credit.

  1. 4 Responses to “Financial Fairytale”

  2. By Grant on Mar 17, 2009 | Reply

    AMEN!

    Get ready for massive inflation!

    -Grant
    TheCornerOfficeBlog.com

  3. By rocketc on Mar 18, 2009 | Reply

    Lovely.

    Well at least it will help us with our debt. We won’t be able to afford food or gas, but who really needs to eat, anyway?

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