Total lack of individual financial resilience

The primary reason why the unraveling of our global Ponzi scheme economy will be so painful for many people is because of the incredible wealth disparities within our society. Globally, the top 0.5% of people control close to three times the combined wealth of the bottom 90%. The average total net worth of a person in the bottom 70% is less than the median American monthly income. Just spend a moment to think about these numbers. They truly are astounding.

Within developed nations themselves, the situation is not much better. As shown on the left, the wealth distribution within the United States is also incredibly skewed with the top 1% controlling 43% of the wealth and the bottom 80% controlling only 7%. A large part of the reason for this is related to the characteristics of our modern economic system discussed in the two previous pages on profiting from system inefficiency and speculation instead of production.

Another very important part of the problem is discussed more thoroughly in another series of pages starting here. The reason given there is simply that current monetary policy and our entire modern culture of consumerism encourages people to borrow and spend at ever-increasing rates. In doing this, unthinking consumers totally destroy their financial resilience and become incredibly susceptible to any kind of economic misfortune. In addition, such a crazy consumption binge greatly increases the velocity with which money flies around in the system, thereby allowing those selling certain consumer goods to become crazily rich. Completely spend-crazed consumers also give rise to regular price bubbles which market speculators can enhance and make tremendous unearned profits from.

But regardless of the way in which we got here, we have to start with where we are. And yes, at the moment we are at a point where the vast majority of consumers in the developed world (and even greater numbers of people in the world as a whole) have close to zero financial resilience. Zero financial resilience implies zero capacity to absorb economic misfortunes. And unfortunately, economic misfortunes will become increasingly common in the years ahead.

In the developed world today, our welfare states are supposed to take care of those who are unable to take care of themselves. But unfortunately, due to the lack of financial resilience within the general population, these welfare systems are in danger of being overloaded in the near future. And yes, the old argument that the very existence of a welfare state puts more and more people on welfare is getting more valid by the day. The US food stamp program is given below as an example of how the lack of financial resilience within the US population has been painfully exposed as the housing bubble burst in 2008.

In poorer countries, however, massive economic problems lead to starvation and bloodshed. The food price spike in 2008 gave a clear example of what can happen when people lose their ability to buy the most basic of commodities. Indeed, the massive populations and almost total lack of financial resilience characterizing the developing world today is a ticking timebomb now that our global Ponzi scheme economy is unraveling.

The more you think about it, the more tragic this becomes. In the developed world, the lack of financial resilience is just painfully embarrassing. A person who started investing just 15% of the median American income in the stock market 40 years ago would have been a millionaire today, completely secure and insulated against almost any economic misfortune. The average American could therefore have been totally financially resilient by this time, but unfortunately western consumerism has decimated saving rates over the past couple of decades, leading to the very unfortunate situation we face today. Just one glance at the graph below should give you a clear idea of the total lack of financial resilience among American consumers.

In the developing world, the great demand caused by western consumerism has also given rise to significant increases in the standard of living and large decreases in infant mortality. This is a very good thing, but unfortunately no meaningful efforts were made to encourage responsible family planning. To illustrate the importance of this observation, the world population growth forecast is given below. It is clear that it is not the world population that will be increasing, but actually the African and Asian population. Africa is an especially large worry simply because this continent really has zero financial resilience and is therefore extremely sensitive to large economic or ecological shocks. And yes, the greater the population, the more these shocks will be magnified and the greater the potential societal disaster becomes.

But OK, that is enough disaster talk for now. Let’s get a bit more positive with a look at the solutions.

7 thoughts on “Total lack of individual financial resilience”

  1. There are solutions? Boy, am I glad to hear it; that is definitely enough “disaster talk” for now!

  2. I think most people on welfare can take care of themselves they just
    have problems fitting in as a captalist wage slave… but if
    one has to choose between stealing or welfare obviously most will
    take welfare. Take away welfare in the US and you get a very different
    US.
    Disaster talk or not cheap fossil fuels brought us to 7 billion people.
    What do you think will happen if you replace cheap with expensive?

    There is no way we are going to get “smoothly” through the ecological
    bottleneck.

    1. Well, surely being a “capitalist wage slave” is still better for the individual (in terms of self-esteem and experience) and society (in terms of increased productive capacity) than being a welfare recipient. And there are alternatives to welfare and crime, most notably the consistent and diligent building of individual financial resilience.

      The degree to which big corporations, big government and big banks have taken over the American free market capitalist system is a massive problem, but Americans are still 10 times better off than the vast majority of people on the planet. Individual financial problems in America are not caused by a lack of income, but rather by the myriad of expenses deemed “necessary” within the American consumerist culture.

      I completely agree with you regarding the ecological bottleneck though. The first two pages in this page series discuss the grave implications of expensive energy and our finite planet.

      1. Well being 10x better off than people living under the unmasked might makes right systems of the developing countries is saying a lot about human living arrangements in general.
        The cheap plentiful oil of the last 7 decades should have been a radically democratizing and equallizing force. In reality we see people in the developed world
        working hard their whole life for a meager slice from the fossil fuel banquet.
        People in the developing world receiving mere crumbs.
        You are focussing on the crumbs while ignoring the banquet.

        “The 200 richest people in the world own assets which combined
        are greater than the income of more than 2 billion people at the other end
        of the economic scale.”

        With the states monopoly on the use of force backing capitalism comes concentrated power and one sided wealth distribution just like in the days of old.
        The playing field is tilted and not a little in that.

      2. I understand your frustration with the current system, but expecting something as powerful as fossil fuels to be a radically democratizing and equalizing force is ignoring human nature. It is simply in the nature of human beings to leverage any advantage in order to get more of that advantage. In our society, this advantage is money and the more money you have, the easier it is to get more of it.

        The communists tried to artificially spread wealth and we all know how that turned out. The Chinese lived in absolute abject poverty until their “communist” government embraced capitalism. Even the bloated socialist welfare states of Southern Europe are now in deep trouble. Note that I’m definitely not saying that capitalism is perfect – in fact it has picked up many flaws along the way such as rampant consumerism, excessive globalization, reckless monetary policy, out-of-control speculation etc. – but it is still the best system we have.

        But once again, in keeping with the central theme of this blog; complaining about our systems and blaming big business and big banks for all our ills solves nothing. It is only through well-directed and positive individual action that people can achieve a happy, healthy, wealthy and sustainable life.

  3. You make some valid points.
    Inequality indeed seems to be a prominent facet of human existence.
    We can clearly see this in the African and developing countries
    where the armed gangs at the top of society siphon off most of the wealth
    leaving nothing for the masses. Look at Syria that madman is bombing his
    own capital. This is clear and plain what human societies fundamentally are.

    It’s the same in the developed countries only more veiled with the rampant
    consumption off rapidly depleting fossil fuels making it seem to be a ‘fair’ system.
    The depletion of these fuels will once again unveil the true backbone on
    which all human society’s are build…might and subsequent right in the hands of a few.

    Happy? I guess if one turns a complete blind eye to the mess we are making on this
    planet one can be happy.

    Healthy? pollution, environmental degradation, rapid extinction of species…
    Come on there is nothing healthy about our way of live.

    Wealthy? wealth should be in the mind not in the commodification of nature.

    Sustainable? there will be no other way when this fossil fuel bubble fully ends.

    1. Yep, despite all the good they have done, fossil fuels have also exposed the dark side of human nature. And yes, we will need nothing short of a complete culture shift to rectify this matter. I often refer to this process as the shift from a culture of consumerism and entitlement to a culture of contribution and personal responsibility.

      Regarding happy, healthy, wealthy and sustainable living…

      Happiness is most highly correlated to health, constructive personal relationships and free creative expression. Never before has these three channels been so accessible to so many people.

      Heath has never been easier to attain than within our modern society where you can buy every nutrient your body needs at the local grocery store at very affordable prices, have enough free time to really look after your body/mind and, if necessary, have access to advanced medical services. Almost all serious illnesses in the developed world are lifestyle-induced.

      Wealth brings security for you and your family, freedom to do what you love to do for a living and power to make the world a better place. Wasteful material extravagance and consumerism are evil no doubt, but material wealth can have a very positive influence when ethically applied.

      Total sustainable living is now technically within the reach of the average middle class developed world citizen. All that is needed is for us to actually take action…

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A DIY guide to saving our world while building a happy, healthy and wealthy life

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