Joe Withrow, Author at Zenconomics

Real Assets in a Virtual World: The Key to Breaking Free from Financial Illusions

Yesterday we talked about America’s declining “exorbitant privilege”. Now we stand at a crossroads.

The narrative of personal finance as we’ve known it for decades is beginning to unravel. The Age of Paper Wealth is over. That means the days of dwindling interest rates and rising stock prices across the board are behind us.

The world has changed. And our understanding of wealth and financial stability must evolve with it.

I often ask myself, why do so many of us place blind trust in virtual numbers on screens, often far removed from tangible realities?

We’ve been conditioned to see wealth as a constantly fluctuating balance in our bank and brokerage accounts. Something that depends solely on the health of the financial markets. But what if we could step away from this illusory chase and root our financial future in something more solid… something real?

Rethinking Wealth in the Age of Deception

Our financial world has dramatically shifted. America’s “exorbitant privilege” is fading…

Starting in 1944, the US was allowed to print money in exchange for real goods from other countries. And the only limit on this privilege was the dollar’s convertibility into gold.

Then, in 1971, President Nixon closed the gold exchange window. From that moment on, the US dollar became a floating abstraction based on one thing… People’s willingness to use it.

This is what French Premier Charles de Gaulle called America’s exorbitant privilege. Because the US dollar acts as the world’s reserve currency, only the United States could print money at scale to buy real goods from overseas.

That dynamic created what I call the Age of Paper Wealth.

What comes next…

Today I’d like to share one final excerpt from my new book with you. It’s titled Beyond the Nest Egg, How to Be Financially Independent Outside of a Broken System.

Yesterday we set the stage for the book’s macroeconomic discussion. Today we’ll set the stage for the book’s suggested approach to personal finance.

The thing is – to manage our own finances successfully, we have to understand how all this macroeconomic activity impacts us personally. Here’s excerpt #3:

The Fed has spent the last thirty years consistently pumping cheap money into the financial system. By “cheap,” I mean money that it created from nothing.

In total, the Fed has created at least $8 trillion. That’s what we can verify. And there’s a good chance the Fed engineered even more new dollars through back-channels.

This onslaught of money created from nothing drove interest rates down to near-zero.

Then the commercial banks pyramided credit on top of these trillions of dollars by roughly ten-to-one. In other words, for every new dollar created, the banks could lend out ten dollars against it. And remember, this necessarily creates new money from nothing as well.

This all served to create a massive financial bubble in the US and many developed countries around the world.

Was George Carlin right??

We’re going beyond the nest egg all week long.

That is to say, I’m sharing excerpts from my new book Beyond the Nest Egg, How to Be Financially Independent Outside of a Broken System.

Yesterday we covered the introduction. Today we’ll set the stage for the book’s macroeconomic analysis. Here’s excerpt #2:

I spent about eight years in the world of corporate banking. That was my first career. After that, I spent nearly a decade immersed in the world of high-end–investment research. That was my second career. That’s the lens through which I am writing to you today.

The focus of this book is how to get our personal finances right, in lieu of the shifting macroeconomic climate we find ourselves in. My passion is financial independence, but I don’t approach this from a consumerist mindset. To me, it’s all about living a purpose-driven life.

That said, there are forces at work out there that have an outsized impact on the economy and the financial system. And as I’m sure many of us have noticed, these forces have been pushing substantial changes over the last few years.

We are living through an incredible point in history. The sequence of events that take place over the next several years will shape the order of the new world.

I suspect most of us already know this to be true. We can “feel” it. We’ve probably felt it for several years now.

In the next few chapters, I’ll summarize what I think is happening on the world stage… who the major players are… and what it means for us. There are some important actions each of us should take right now to get ahead of what’s coming.

Let’s go beyond the nest egg…

As I mentioned yesterday, I’m putting out a new book in the coming days. It’s titled Beyond the Nest Egg, How to Be Financially Independent Outside of a Broken System.

As such, I thought I would share a few excerpts with you this week. And I suppose it makes the most sense to start with the introduction. Here it is:

The world has fundamentally changed.

It used to be that a lack of information was one of our biggest challenges. Prior to the internet, finding information was much more difficult and time-consuming. It could take days, weeks, sometimes even months. Today, however, we have the opposite problem. We are inundated with incredible amounts of information all day, every day.

The problem is, most of this information is just noise. Much of it is nothing more than junk. And if we fill our heads with junk, we’re far more likely to make bad decisions.

The advent of the internet and the over-availability of information is just the beginning of how our world has changed, significantly and permanently.

Like me, I suspect many can “feel” that things aren’t going back to the way they used to be. At first, that’s an unsettling thought. What does that mean for us? And by us, I mean the regular folks.

Should we keep doing things the way we always have and hope for the best? Or should we make changes? And if it’s the latter, what changes should we make?

To answer this question, we must understand what’s actually happening on the greater world stage. And to gain this understanding, we must cut through the smoke, the mirrors, and the biases that pervade the information we take in every day.

We are creators in this world…

“I write because I don’t know what I think until I read what I say.” –Flannery O’Connor

I love this quote. It comes from early 20^th century American novelist Flannery O’Connor. Perhaps ironically, I’m not familiar with any of O’Connor’s books. But someone shared this quote with me years ago and I find it to be 100% spot-on.

The act of writing is both therapeutic and insightful.

It’s therapeutic in the sense that we all carry around a bunch of information in our head all day, every day. Our brain expertly processes this information for us. It instantly goes to work trying to filter out the “noise” so we can focus only on what’s important.

This gives us a greater understanding of the information we’ve taken in. And the act of putting that information to paper feels something like a release. It’s like a weight’s been lifted from our shoulders. As a writer, we feel like we’ve done something important when we put out what we consider to be quality content.

Writing is also incredibly insightful. As we sit down and try to communicate our understanding of the information we deem important… our understanding grows. To me, this magical. I can’t explain it.

The New Age of Financial Freedom: It’s Not About Retirement

We’ve been talking all week about the origins of modern personal finance… and why it’s time to rethink our approach. Today let’s talk solutions.

To me, everything drives towards financial independence. Or financial freedom. Whichever you prefer.

Now, I realize these are often used as buzz words. And the people promoting them pitch the idea that they can enable a life of leisure and luxury. I’m not interested in any of that.

When I talk about financial freedom, what I’m interested in is the ability to live a purpose-driven life. For many of us, working a nine-to-five on the hamster wheel just isn’t satisfying.

So how do we achieve financial independence? It’s really rather simple.

It’s all about the power of assets. Remember Monopoly? Owning assets… that’s the game’s main lesson.

Today, we are in the midst of a sea change. As the economic climate shifts, clinging to old notions can be a losing battle.

On retirement, incentives, and perpetual growth

Sooner or later, we all sit down to a banquet of consequences. -Robert Louis Stevenson

We’re talking all things personal finance 101 this week, and this quote seems to fit.

For those just joining us, what we consider modern financial planning has its roots in the Employee Retirement Income Security Act (ERISA). That act passed in 1974.

This legislation created 401(k)s and Individual Retirement Accounts (IRA). And it laid out the framework for what we consider “retirement” planning today.

As we discussed yesterday, ERISA pushed millions of people into the financial markets for the first time. Then an entire industry grew up around the concept of “retirement”. This inadvertently set the stage for new challenges… the challenges we face today.

These challenges went unnoticed at first. But now that the Age of Paper Wealth has sunsetted, we’re entering an entirely new economic climate. Thus, we must ask – what are the unintended ripples of this seminal act?

ERISA was constructed as though the Age of Paper Wealth would last forever. That age saw plummeting interest rates and rising stock prices. This gave rise to the belief that perpetual growth was inevitable.

The financial markets today still operate under that assumption. If you’re not growing, you’re dying. That’s still a popular statement in the realm of investment research.

This leaves us with a modern quagmire.

Continue reading “On retirement, incentives, and perpetual growth”

The retirement industry and its ripple effect…

Yesterday we discussed the genesis of modern financial planning. It all stems from the Employee Retirement Income Security Act (ERISA) that passed in 1974.

ERISA was more than just legislation. It sparked a transformative wave in financial planning. In fact, it created the entire “retirement” industry.

That being the case, we need to ask ourselves an important question. How did this single act shift our perspectives and practices?

Before ERISA, employees didn’t have to spend much time planning for retirement. That’s because they could count on receiving payments from both Social Security and a corporate pension plan after they retired. These programs guaranteed a steady stream of income for life.

Many people supplemented these items with personal savings. That became known as the “three-legged stool” concept. As long as all three legs were in place, retirement planning was simple.

However, as we moved into the 1970s and 80s, it became very clear that corporate pensions just weren’t sustainable. That leg of the stool was starting to teeter.

The Genesis of Modern Financial Planning

Financial independence is the ability to live from the income of your own personal resources. –Jim Rohn

Many years ago I made the decision to pursue financial independence. That is to say, I wanted to create a situation where I was in full control of both my time and my money.

With that goal in mind, I began reading books on personal finance. Personal Finance for Dummies… The Truth About Money… Financial Peace – I read all the popular personal finance books at the time.

What jumped out at me was how uniform each book was in their suggestions. They were all reading from the same script.

I figured that was a good thing at the time. If all these popular books agree, they must be on to something—right?

Well… yes and no. It turns out there was a very specific reason why the top personal finance books each peddled the same advice.