This week was unusual for those of us here in the Willamette Valley of Oregon. We had snow on the valley floor. Two to three inches of it in some places! Of course the children all loved it and even some of us adults, but what came next wasn't enjoyed by any. A warm rain storm that dumped over nine inches of rain melted all the snow and flooded streams, creeks, rivers, streets, homes and businesses! Amazing how something so beautiful, the snow, can become so destructive combined with other circumstances.
I couldn't help but think of the financial markets and the months and years prior to 2008. Everything seems to be going along so beautifully. The housing market was booming, the stock market was soaring, and everything that somebody invested in seemed to go up in value and not down. Then came the rain storm. It changed the financial world forever because in a matter of a few short months many people lost their life's savings. Homes, businesses, jobs and even more devastatingly important, hope for their future was lost by too many people.
But not everybody was personally devastated by the financial storm just like not everybody here in the Willamette Valley is currently underwater...flooded...by the recent winter storm that occurred. Still, most everybody has been affected by what has happened. You can't go to the grocery store, buy a pair of pants, sell or buy a home, or find a new job and not realize how you and those around you have been affected by the financial storm which poured down on us all in 2008.
So how did it all happen? In the case of the weather that is easily explained. There is only so much water that the ground can absorb over a given period of time. When that amount of water is realized in the form of melting snow or rain then the excess water must run somewhere. And the point of least resistance is where it all ends up. Lower lying land is the area that is filled up with the extra water.
With the financial storm the cause is less obvious. An economy is much like the ground. It can only absorb so much money before there is a run off. When central bankers like Mr. Greenspan and Mr. Bernanke create more money, everything begins to look real pretty just like a fresh snow looks. When people begin to use this extra money to buy things which they normally would not life begins to appear easy so almost everybody encourages this money creation. Who wouldn't want to own their own house, vacation home, several rental properties and boats and planes and cars etc., but in reality an economy can only absorb so much money at a time just like the ground can only absorb so much water at a time. Creating more money (snow) only makes the snow BANKS get bigger and bigger. And when the rain comes it melts all the snow and in one swift moment all those assets which you thought were yours are swept away in the flood and you are left underwater financially.
So what causes the rain to come to the financial world? You know the answer. Those who "reign" make both the snow and rain. By circulating more money these snowmakers encouraged folks who owned real assets (homes, real estate, etc.) to sell those assets to folks who thought they could now afford to purchase them with all the snowdrifts piled high all around. But once those assets were deeded over to the snowmakers via the buyers contract to provide the snow to make the payments, the snowmakers turned their attention to reigning again and produced rain (higher interest rates and tougher restrictions on lending.) The rain melted the snow causing the new buyers to be left underwater. Once underwater the reign men just took control of the assets which was their plan all along anyway...the transfer of real wealth (not paper money) to themselves away from the middle class. Of course this process leaves more people underwater (poor people) but that was the reign men's whole strategy to begin with.
That is why a fixed money supply, like gold, silver or real cash values in whole life insurance which cannot be altered is so necessary for an economy. Those who are most perceptive realize that cash values in whole life insurance are the most desirable of any of these fixed supplies of money as this capital is the least regulated by the reign men today and historically as well.
Cash value in whole life insurance is the best offense you have to deflect financial storms in your life and economy. Without them you are at the mercy of the reign men.
by Tomas McFie