Tuesday, June 12, 2012

18 years of gains in wealth for an avg US household wiped out

Are money and wealth the same thing? Those still confused may find solace in this write up on Bloomberg. It says how the financial crisis wiped out 18 years of gains in wealth for an average US household. In other words, the net worth of an average US household in 2010 was the lowest it had been since 1992. Now, that is some wealth destruction isn't it? Furthermore, if money and wealth are the same, was money also destroyed to the same extent? Certainly not. On the contrary, it was available by the truckloads, courtesy the Bernanke printing press.

Perhaps this more than anything else dispels the notion that wealth and money are not the same. Money, we believe is just a medium of exchange. And its unlimited creation, as is being attempted by the US Fed, should be discouraged right from the word go. This is because as the above example shows, it does not create wealth but only a false illusion of it. And people who come to believe in this illusion have to pay a very heavy price once it breaks.  Like the average household in the US is doing right now. Real wealth you see comes from increasing productivity and relying as little on debt as possible. Printing money and raking up debt is not wealth creation. It creates only bubbles, the breaking of which brings great hardships to the common man.

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