I am interested in learning about the mechanisms behind the crisis in the global financial markets. I find the topic fascinating, because through bad example we can learn what to avoid.
So I picked up a copy of Time Magazine last week featuring an article titled "The Price of Greed".
The article goes into some detail about the author's perspective on the reason for the collapse of such financial institutions as Lehman Brothers.
I wont go into details.
What I found most interesting was this paragraph, toward the end:
"Coping in this new world will require adjustments by millions of Americans. We all will have to start living within our means - or preferrably below them. If you don't overborrow or overspend, you're far less vulnerable to whatever problems the financial system may have."
Reading this left me thinking how funny that this should be news to Americans.
There can really be no other way toward prosperity than living below one's means.
Adam Smith proposed that a truly prosperous nation is made up of those who SAVE their initial wealth and INVEST their savings into the creation of productive, entrepreneurial enterprises.
While borrowed capital is important for entrepreneurial projects, a system based on "no money down" and "debt-as-wealth" cannot last. It will collapse upon itself because people begin to lose their energies into speculation instead of creativity.
And creativity is the source of real wealth.
As I have written before, the true role of the entrepreneur is wealth creation, in its many forms, money being one (other forms of wealth are health, peace of mind, knowledge, pleasure, education, beauty, good architecture, shelter, etc.).
It seems that Americans and humanity in general has forgotten the principles of wealth creation, the first being: live below your means, use most of the difference to pay off your debts, and save the rest for entrepreneurship and/or wise investing.
