So, what would happen if we suddenly had to actually live on what we produce ourselves? What would happen if our fake standard of living suddenly got caught off and we had to a) cut back on the standard of living that we’re so accustomed to or 2) instead of just clicking a button to buy something, we had to get up and actually make it ourselves?
I was born in 1984, so this technically makes me a millennial. And we as a generation have a reputation for being addicted to social media, dreaming of having million dollar online businesses that make money while we sleep, job hopping and our sense of entitlement, and living with our parents way longer than we probably should. And our reputation isn’t entirely unwarranted.
On the flip side, the millennial generation is also the first generation slated to have a lower standard of living than our parents had.
Our culture, our timing and economics has everything to do with that.
What do I mean here?
We have a real misconception of what wealth actually is
Wealth has a ton of definitions. Our time, our health, our access and ability to do things, our options all make us wealthy to some degree, and I’m not discrediting any of that. I value my time and my health like anyone else (you can’t buy those, at least on some degree).
But I’m here to Clear your Moneyvision – so for now I’m leaving those definitions behind.
Because the only reason really why we’re so interested in building wealth and making more money is so that we can trade goods and services. Period.
In and of themselves, pretty pieces of paper and coins with numbers printed on them and numbers on a screen mean nothing if you can’t buy the things and services that make your life easier and more enjoyable. Isn’t that what this is really about?
So what the money and wealth game is really about is being able to trade for goods and services we value.
There’s an important caveat here – it’s that we need people to create the goods and services that we want to trade our money for.
If there isn’t anyone producing the goods and services we want to buy, if the stuff we need in the real world isn’t available, then what good does it do to have pretty pieces paper with numbers printed on them?
So where do millennials fit into this? And why are we slated to be getting poorer than our parents?
Well, some of this has to do with the trade deficit we talked about in the last post (link last post here) which I know seems really obscure to talk about but this really is personal.
Because we’re not used to making the stuff we buy anymore. In fact, we never were, because we grew up during a time of globalization where we got access to things being made more cheaply overseas.
Theoretically, this meant that instead of creating the goods and services that we need, we could instead buy most of the goods more cheaply from overseas so that we could go to college and get a better job that would pay us more money so that we could buy more things more cheaply and save and invest the rest.
This was supposed to give us a better standard of living.
Except that it hasn’t really worked out for us that way.
Instead we started our adult lives in this midst of a Great Recession and real unemployment much higher than the government says that it is.
If you factor in people who are chronically underemployed or people who have basically stopped looking for jobs, instead of unemployment rates of 6%, they’re more like 20%.
The truth is that it’s gotten harder and harder for millennials to get a job now, especially when leaving college, the exception being people graduating with specialized degrees like accounting or engineering.
And the whole idea behind globalization is that instead of producing the goods we could buy more cheaply overseas, we could produce the services that theoretically are much more fulfilling for us that other countries would buy from us instead.
Except that they don’t necessarily value the services we provide as much as we think they do.
So we wind up importing more than we export. In other words we consume more stuff than we produce.
So what would be the real impact on us if other countries stopped providing us with 10% of the standard of living that we’ve gotten used to that we don’t produce enough to pay for and are being supplied to us on credit from the rest of the world?
What would happen if other countries stopped manipulating their own currencies to keep the dollar up and diverting American jobs overseas?
What would really happen if we had to pay full price for everything we consume while the dollar crashed 50% at the same time?
The impact would be quick and painful.
What would happen to prices of the stuff we like to buy? Let’s go to Amazon.com, our favorite place to shop.
The real reason why Amazon.com, as well as places like Target and Best Buy in the USA sell things so much cheaper than what they cost in other countries is because the countries selling the stuff to the USA issue credit to the US in the form of buying our treasury bonds.
If they stopped buying US treasury bonds, the dollar would crash, our prices would double, and their own countries would get major hits to their economies (nobody wants that, so that’s why the façade continues on).
What would actually happen if we had to pay full price for everything is that instead of getting discounts of 30 to 50 percent off everything on Amazon, the price of everything would double.
Instead of paying $800 for a Japanese laptop, you’re paying $1,600.
Instead of sheets costing $50, you’re paying $100.
The effects would be immediate with prices doubling overnight.
What about food? We produce most of our own food ourselves (thank God) but the price of oil that we use to transport our food would double as well (since we still import most of our oil).
Food prices would double as well.
Basically, everything suddenly costs twice as much.
Your dollars will only buy half as much.
Because the supply shock has caught up with the new value of money via the process of inflation. And it happened literally overnight.
Ok, so what does this have to do with millennials?
Well, for one thing, it would no longer make sense to buy things made overseas, so this would really encourage and force jobs and manufacturing of the stuff we use day to day to be moved back to the USA.
It would actually be cheaper and make sense to produce things like computers, cables, clothes, and shoes in the USA again.
It sounds like an amazing plan, and we know that the trade deficit is fundamentally unstable, so this really does need to happen, but there are some very real costs to all of us.
As long as US workers are earning a living wage, costs will be higher. The raw materials and energy that we really do have to import because we simply don’t have the real resources would of course still cost more.
And if we want to maintain relatively high US environmental standards (if you’ve been to China or Southeast Asia, you know what the air quality there is like), that’ll cost more as well.
So jobs would be back, but everything is going to cost more as a result.
But the more practical question for us is are we willing to actually produce the things we use?
Are we really willing to give up the hours we spend at our computers and on social media to produce the thing that we all use?
Are we willing to take a step down from the truly artificial lifestyles that we’ve gotten used to?
Take a second to ponder that question, because here’s the deal:
We’re already on the path of a declining standard of living from what our parents experienced anyway.
And here’s why:
As I already spoke about in my article on how Quantitative Easing transfers wealth (link article here), one of the nuances of how Quantitative Easing works is that by creating trillions of dollars of new money, the value of the dollar goes down relative to other currencies, which means that imports become more expensive while exports become less expensive.
Which means that because of Quantitative Easing, it makes much more sense to make more of the stuff we use domestically instead of buying them from overseas.
Which is supposed to boost domestic employment. Imports become more expensive, so it makes sense to make the stuff we normally import domestically instead, which means more people have jobs.
And theoretically, this is a worthwhile goal.
Except that when prices for everything go up in the way I just described (and literally overnight at that), the paycheck still won’t purchase what it used to.
Which means that the average person can buy less.
Which means that US workers are likely to see a gradual but apparent reduction of their standards of living over the coming years.
Which translates to why we as a generation are getting poorer than our parents.
This is not what it was supposed to look like for us. It was supposed to look like the standard of living goes up with every generation.
We went to college and are more educated than generations past – so we’re entitled to a better quality of life right?
The problem with that is going back to the definition of real wealth that I’m talking about here – which is the ability to exchange goods and services.
Again, it’s not about numbers on a screen. We still need the computers, the cell phones, the shoes, the clothes, and the food that we eat.
We still need hairdressers, the doctors, the nurses, the lawyers, the baristas, and the cashiers if we want to enjoy the fruits of our labor.
And those things require people to create and serve them.
It’s people that are the suppliers of goods and services; they are creators, collaborators, producers, co-producers, distributors and re-distributors. Without people supplying the goods and services we need, we’ve got nothing.
If you want to understand the root cause of how debt, joblessness, globalization, demographics, and rising house prices is keeping the income and prospects of millions of millennials depressed across the world, and why millennials are expected to be poorer than their parents, it starts right here.
Understanding that the issues with our generation, with the baby boomer promises, with governments dominating the investment markets via invasive monetary policies, with currency wars amongst different countries is all interrelated is essential if you want to create and protect your own wealth.
That’s why it’s so important that you clear your moneyvision, understand exactly what’s going on, understand that there are always groups of people that intentionally or unintentionally benefit from the same situations that cause detriment to others, and deliberately position yourself to benefit with your newfound education is essential.
Because we’re only at the beginning of this great wealth transfer that’s happening right now, and the sooner you take action to position yourself, the better off you’ll be.