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Why Your Grandfather's Economy Was Better Than Yours

By: Steve Johnson

6/17/2011 - 167 Comments

My grandfather was thirteen when he was living on the streets, riding the rails from town to town looking for work.

The financial lessons he learned at a young age, never left him as he remained aware of the value of money (work) his entire life.

The great depression was a difficult time, but the government eventually did save the nation after many years of failed economic policies by restoring the value of the dollar.

This time, the Federal government is a lot deeper in debt and so far has refused to face the recession, but instead has borrowed and printed more money than any time in the history of the world.  Instead of facing the recession, both state and federal governments have managed to push the nation farther and farther into debt while making the economic conditions for growth much more challenging.

During the Great Depression the housing market dropped 31%, while today it has dropped 33% from the 2006 highs.  The housing market is a major economic indicator because as much as 25% of the economy is driven by the housing market.  Many of the banks remain insolvent, and propped up by the Fed's zero percent interest rates that allow them to remain in business. 

During the Great Depression my grandfather didn’t have zero percent interest rates.  The government raised interest rates in order to grow the economy out of the depression. Zero percent interest rates results in zero percent growth, because without the motivation to save money, no new real savings can be invested in new businesses that have the ability to produce wealth.

Real savings is saving money that represents a measure of work, which can only happen when (1) the value of money is fixed or stable and (2) there is a reason to save it. 

First, the value of money need to remain the same otherwise the work you do to get money will not be worth the money that you worked for. Without the value of money remaining constant, people that have money and are capable of creating wealth have little incentive to work. Without motivating the people that are capable of creating wealth to work, there is no new wealth that is created and no economic growth.  

Second, there must be a good reason for saving money.  The reason needs to be greater than the desire to enjoy it by spending it.  Zero percent interest rates remove the reason to save money.  Without the possibility of an increase in your money when you save it, there is no reason to save money. And without savings, there is no money to invest in business opportunities that produce new wealth. The results are no economic growth.

So here we are, in the summer of 2010, with zero percent interest rates because of the housing market crash that began in 2008 – with no economic growth.

There is no easy way out, and now what we are five trillion further in debt then when the recession stated, it is going to very difficult to increase interested rates – but it is the only way the grow the economy. 

The sin of our generation, which was to covet our neighbor house that put politicians into office to create policies to redistribute wealth, is to blame.  We are reaping what we have sown. We have rejected God and his ideas, thinking we had a better idea and now we face the consequences. 

The laws of God are like gravity, they are unforgiving, they cannot be ignored and the consequences are directly reflected in the economy.

The reason your grandfather's economy was better than yours is because your grandfather’s generation took the wisdom of God's laws to heart, while this generation has nearly completely forgotten them.  

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