The legendary L.A. Laker's secret behind a successful sports-to-business transition.
Don Yaeger July 2, 2010
Magic Johnson was in the seventh year of his Hall of Fame career when thoughts of his basketball afterlife led him to the office of uber-executive Michael Ovitz, co-founder of Creative Artists Agency, Hollywood's most powerful agency. Johnson had watched many former athletes attempt entry into the world of business only to fail, and he was hoping for advice that would allow him to chart a different course.
“Michael dropped the newspaper in front of me,” Johnson tells SUCCESS. “He asked, ‘When the paper arrives, what do you read first?’ I told him I opened the sports section.
He looked at me and said, ‘Wrong answer. From here on, if you want to be involved in business, you have to read business.’ I walked in his office 6-foot-9 and proud. I left feeling 5-foot-tall and stunned.”
And thus began the business career of a man who, just 22 years later, in 2009, was hailed by Ebony magazine as one of the most influential black business leaders in America. Built over the past 23 years, Beverly Hills, Calif.-based Magic Johnson Enterprises now owns or operates gyms, movie theaters and other businesses in 89 cities across 21 states.
“I learned a couple of great lessons there with Michael Ovitz,” Johnson says. “The first is that if you want to be successful, you have to be willing to use every connection you’ve got. It is a funny story how that meeting came about. During a Lakers game the season before, I was standing on the sidelines getting ready to pass the ball inbounds. There were two businessmen I respect—[studio executive] Peter Guber and [recording industry executive] Joe Smith—who were sitting there courtside and were huge fans. I looked over and asked, ‘How do I get into business?’ It probably wasn’t the best place to ask, but they could tell I was honestly looking for help, so later they arranged for me to meet Michael Ovitz.
‘Be Ready to Listen’
“The second thing I learned is that if you want someone to be your mentor, you better be ready to listen and be humbled,” Johnson says. “Michael wasn’t sure about working with me because so many athletes think they can move right into business and never take anyone’s advice. I had to prove to him I was serious and that I would listen.”
That meant changing his reading habits, Johnson says, and he immediately started grabbing business magazines, newspapers and books to take with him on the road.
But reading was just the beginning of Magic’s business education. His next big lesson was “listening.” Johnson says his first foray into the world of business taught him what happens to entrepreneurs who aren’t listening to their customers. In 1990, he decided to begin a chain of retail sporting goods stores called Magic 32 that he intended to take nationwide.
To get the business off the ground, he decided to attend a major sporting goods convention and negotiate for products he’d sell at the stores.
“I didn’t ask a single customer what they’d be interested in,” Johnson says. “I went there looking for products I’d be interested in buying. I had to learn that I was not my customer. Actually, I was taught that lesson by what happened after we opened.”
Among the line of products Johnson chose to carry was a series of $1,500 leather jackets. They fit Johnson’s taste, but not the taste of his customers, as evidenced by the fact they were still hanging on the racks when the initial store closed just a year later.
“I’m sure I’ve made bigger business mistakes,” Johnson says, breaking into his trademark grin, “but I can’t think of one.”
Early Lessons
Johnson’s earliest entrepreneurial influences came from his parents in his hometown of Lansing, Mich. “I grew up in the kind of black family that people today worry is disappearing. Even though there were nine of us, we had what we needed— two great parents, food on the table and time for the whole family to be together,” he writes in his 1993 memoir, My Life.
Both parents worked hard; his dad on the night shift at a GM factory as well as second jobs that included pumping gas and running his own trash-hauling business, and his mother in janitorial and cafeteria work. “My parents believed in work—not only for themselves, but for their children, too,” Johnson writes. The kids had assigned chores around the house and had to earn their spending money. “By the time I was 10, I had my own little neighborhood business. I raked leaves, cleaned yards and shoveled snow. With the money I earned, I could go to the movies and buy an occasional record.”
Johnson’s dad, Earvin Johnson Sr., provided other life lessons, too. Through one-on-one basketball games, his father played tough and not always fair. “But that was the point. Dad was teaching me that I wouldn’t always get the calls, that I had to play above the contact,” Johnson writes. “He taught me to win against the odds, and never to quit.”
Johnson’s basketball career included a national championship at Michigan State, five NBA championships with the Los Angeles Lakers and a gold medal with the “Dream Team” at the 1992 Olympics. He played alongside and against some of the NBA’s best players, including Michael Jordan, Larry Bird, Kareem Abdul-Jabbar and John Stockton.
His new teammates are business partners who include Sodexo, T.G.I. Friday’s, Aetna, AMC Theatres, 24 Hour Fitness and Starbucks. He has carved out a niche, becoming the go-to player for companies hoping to expand into the urban marketplace, using the power of his brand in that space to increase the credibility of businesses desiring a part of the pie in what Johnson calls “underserved and ethnically diverse urban communities.”
Thursday, July 22, 2010
Tuesday, November 18, 2008
Gold and Economic Freedom
by Alan Greenspan
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense-perhaps more clearly and subtly than many consistent defenders of laissez-faire -- that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.
Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.
The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.
What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.
In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.
Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.
A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.
When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth.
When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one -- so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.
A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.
But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists -- why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely -- it was claimed -- there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates.
The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market -- triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.
With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form -- from a growing number of welfare-state advocates -- was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.
Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which -- through a complex series of steps -- the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
by Alan Greenspan
1967
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense-perhaps more clearly and subtly than many consistent defenders of laissez-faire -- that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.
Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.
The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.
What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.
In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.
Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.
A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.
When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth.
When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one -- so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.
A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.
But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists -- why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely -- it was claimed -- there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates.
The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market -- triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.
With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form -- from a growing number of welfare-state advocates -- was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.
Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which -- through a complex series of steps -- the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
by Alan Greenspan
1967
Tuesday, September 16, 2008
Why Be Wealthy?
Dave Ramsey February 23, 2008
Why build wealth? If you think wealth will answer all life’s questions and make you troublefree, you are delusional. I have had wealth twice in my life, and I don’t fi nd it to be trouble-free; as a matter of fact, most of the troubles have zeros attached to them. Wealth is not an escape mechanism. It is, instead, a tremendous responsibility. After years of studying, teaching and even preaching on this subject across America, I can find only three good uses for money. Money is good for fun. Money is good to invest. And money is good to give. Most anything else you find to do with it doesn’t represent good mental and spiritual health on your part.
Having Fun
The kid in us likes the fun part of this equation. If you’ve reached the point of wealth building, you have made the kid inside you behave for a long time with promises of ice cream. So if you’ve made it to this point, the kid should get some ice cream. Should anyone wear a $30,000 watch? Should anyone drive a brand-new $50,000 car? Should anyone live in a $700,000 home? Absolutely, they should. The problem with people is they buy those things when they can’t afford them. Taking your family, even the extended ones, on a seven-day cruise, buying large diamonds or even buying a new car are things you can afford to do when you have millions of dollars. You can afford to do these things because, when you do them, your money position is hardly even affected. If you like travel, travel. If you like clothes, buy some. I am releasing you to have some fun with your money,because money is to be enjoyed.
Investing
The grown-up inside us likes investing money because that is part of what makes you wealthy. In the movie Two Weeks Notice, Hugh Grant plays George Ward. The character of George is a very wealthy and spoiled corporate figure. His character isn’t one we want to imitate, but he has a great line in the movie about his wealth. He is telling Sandra Bullock’s character that he lives in this luxury hotel, when he says nonchalantly, “Actually, I own the hotel; my life is a little bit like Monopoly.”
Investing can feel like that after a while—“a little bit like Monopoly.” When you play Monopoly, you can be up, or you can get behind. Sometimes the market fluctuates, but as mature investors we ride out the waves and stay in for the long term. Sometimes I meet people who arrive at this step and are scared because just as they reach retirement age, their investments are heading down. Never fear; if you have quality investments with long-term track records, they will come back. Besides, you don’t need all the nest egg at once to retire on; you just need some of the income from it. So since you don’t need it all right then, it would be silly to cash everything out while the market is at the bottom. “Buy high; sell low” is not the formula to wealth. Be patient with the market while living off the income the nest egg produces. You can choose to be a little more sophisticated, but until you have more than $10 million, I would keep investing very simple. You can clutter your life with a bunch of unnecessary stress by getting into extremely complex investments. I use simple mutual funds and debt-free real estate as my investment mix—very clean, simple investments with some basic tax advantages. As you arrive at this step, if you want to own some paid-for real estate, it can be fun.
Always manage your own money. You should surround yourself with a team of people smarter than you, but you make the decisions. You can tell if they are smarter than you if they can explain complex issues in ways you can understand. If a member of your team wants you to do something “because I say so,” get a new team member. You are not hiring a daddy; you are gathering counsel. God did not give them the responsibility over this money. He gave that to you. Celebrities and pro athletes often lose their entire fortunes because they give up the responsibility of managing their own money. The money manager who loses your hard-earned investments won’t live with the regret and pain that you will. A good estate-planning attorney, a CPA or tax expert, an insurance pro, an investment pro and a good Realtor are a few of the essential team members you should gather around you. I endorse the use of financial planners if they are team members and not the sole captains of their teams. When selecting and working with your wealth team, it is vital to bring on members who have the heart of a teacher—not the heart of a salesman or the heart of an “expert.” The salesman is always chasing a commission and thinking short-term, and the “expert” can’t help being condescending, which is humorous because they likely have less money than you. Also, when taking advice, evaluate whether the person giving the advice will profit from it. If your insurance pro is coming up with more great insurance ideas every week, you may have a problem. That is not to say everyone who makes a commission off you is out to get you. There are plenty of commission-only financial people who have extreme levels of integrity. Just be aware of possible conflicts of interest.
When your money makes more than you do, you are officially wealthy. When you can comfortably live on your investment income, you are financially secure. Money is a hard worker—harder than you. Money never gets sick, never gets pregnant and is never disabled. Money works 24 hours a day, seven days a week. Money gets its job done, and it asks only for directions and a firm master.
Giving
The most mature part of who you are will meet the kid inside as you learn to involve yourself in the last use of money, which is to give it away. Giving is possibly the most fun you will ever have with money. Fun is good, but you will tire of golf and travel. Investing is good, but going around and around that Monopoly board eventually loses its appeal. Every mentally and spiritually healthy person I’ve met has been turned on by giving as long as it didn’t mean his own lights got cut off. I can promise you from meeting with literally thousands of millionaires that the thing the healthy ones share in common is a love of giving.
Someone who never has fun with money misses the point. Someone who never invests money will never have any. Someone who never gives is a monkey with his hand in a bottle. Do some of each.
Why build wealth? If you think wealth will answer all life’s questions and make you troublefree, you are delusional. I have had wealth twice in my life, and I don’t fi nd it to be trouble-free; as a matter of fact, most of the troubles have zeros attached to them. Wealth is not an escape mechanism. It is, instead, a tremendous responsibility. After years of studying, teaching and even preaching on this subject across America, I can find only three good uses for money. Money is good for fun. Money is good to invest. And money is good to give. Most anything else you find to do with it doesn’t represent good mental and spiritual health on your part.
Having Fun
The kid in us likes the fun part of this equation. If you’ve reached the point of wealth building, you have made the kid inside you behave for a long time with promises of ice cream. So if you’ve made it to this point, the kid should get some ice cream. Should anyone wear a $30,000 watch? Should anyone drive a brand-new $50,000 car? Should anyone live in a $700,000 home? Absolutely, they should. The problem with people is they buy those things when they can’t afford them. Taking your family, even the extended ones, on a seven-day cruise, buying large diamonds or even buying a new car are things you can afford to do when you have millions of dollars. You can afford to do these things because, when you do them, your money position is hardly even affected. If you like travel, travel. If you like clothes, buy some. I am releasing you to have some fun with your money,because money is to be enjoyed.
Investing
The grown-up inside us likes investing money because that is part of what makes you wealthy. In the movie Two Weeks Notice, Hugh Grant plays George Ward. The character of George is a very wealthy and spoiled corporate figure. His character isn’t one we want to imitate, but he has a great line in the movie about his wealth. He is telling Sandra Bullock’s character that he lives in this luxury hotel, when he says nonchalantly, “Actually, I own the hotel; my life is a little bit like Monopoly.”
Investing can feel like that after a while—“a little bit like Monopoly.” When you play Monopoly, you can be up, or you can get behind. Sometimes the market fluctuates, but as mature investors we ride out the waves and stay in for the long term. Sometimes I meet people who arrive at this step and are scared because just as they reach retirement age, their investments are heading down. Never fear; if you have quality investments with long-term track records, they will come back. Besides, you don’t need all the nest egg at once to retire on; you just need some of the income from it. So since you don’t need it all right then, it would be silly to cash everything out while the market is at the bottom. “Buy high; sell low” is not the formula to wealth. Be patient with the market while living off the income the nest egg produces. You can choose to be a little more sophisticated, but until you have more than $10 million, I would keep investing very simple. You can clutter your life with a bunch of unnecessary stress by getting into extremely complex investments. I use simple mutual funds and debt-free real estate as my investment mix—very clean, simple investments with some basic tax advantages. As you arrive at this step, if you want to own some paid-for real estate, it can be fun.
Always manage your own money. You should surround yourself with a team of people smarter than you, but you make the decisions. You can tell if they are smarter than you if they can explain complex issues in ways you can understand. If a member of your team wants you to do something “because I say so,” get a new team member. You are not hiring a daddy; you are gathering counsel. God did not give them the responsibility over this money. He gave that to you. Celebrities and pro athletes often lose their entire fortunes because they give up the responsibility of managing their own money. The money manager who loses your hard-earned investments won’t live with the regret and pain that you will. A good estate-planning attorney, a CPA or tax expert, an insurance pro, an investment pro and a good Realtor are a few of the essential team members you should gather around you. I endorse the use of financial planners if they are team members and not the sole captains of their teams. When selecting and working with your wealth team, it is vital to bring on members who have the heart of a teacher—not the heart of a salesman or the heart of an “expert.” The salesman is always chasing a commission and thinking short-term, and the “expert” can’t help being condescending, which is humorous because they likely have less money than you. Also, when taking advice, evaluate whether the person giving the advice will profit from it. If your insurance pro is coming up with more great insurance ideas every week, you may have a problem. That is not to say everyone who makes a commission off you is out to get you. There are plenty of commission-only financial people who have extreme levels of integrity. Just be aware of possible conflicts of interest.
When your money makes more than you do, you are officially wealthy. When you can comfortably live on your investment income, you are financially secure. Money is a hard worker—harder than you. Money never gets sick, never gets pregnant and is never disabled. Money works 24 hours a day, seven days a week. Money gets its job done, and it asks only for directions and a firm master.
Giving
The most mature part of who you are will meet the kid inside as you learn to involve yourself in the last use of money, which is to give it away. Giving is possibly the most fun you will ever have with money. Fun is good, but you will tire of golf and travel. Investing is good, but going around and around that Monopoly board eventually loses its appeal. Every mentally and spiritually healthy person I’ve met has been turned on by giving as long as it didn’t mean his own lights got cut off. I can promise you from meeting with literally thousands of millionaires that the thing the healthy ones share in common is a love of giving.
Someone who never has fun with money misses the point. Someone who never invests money will never have any. Someone who never gives is a monkey with his hand in a bottle. Do some of each.
Subscribe to:
Posts (Atom)