NEW GIVEAWAY @ SavvyScot! – The following is a guest post from author Paul Knott about his new book – Ouch! that has just been launched in the UK. I am well on my way through reading the book and can vouch that it is not only very educational, but extremely funny! I am also delighted to announce that savvyscot has FIVE COPIES to giveaway for free! This competition is open to readers internationally! See the RaffleCopter widget at the bottom of this post.
Money dominates the world we live in, and in many respects, how we live it but it’s a system that most of us don’t even question, never mind understand.
Dumb money is not from dumb people. It’s from those who are busy, inundated with bad data and are unaware of some basic repetitive patterns.
Our education system has totally abdicated responsibility with respect to money and finance so it’s no wonder the vast majority don’t understand the system, and worse never even question it. I compare it to living in the Matrix: it’s a system that drains you of resources whilst most people are blissfully unaware of the fact it’s even happening.
Ignorance is bliss, except when it hurts.
For example, according to a recent survey 74% of people in the UK do not know that when they put their money in a bank it no longer belongs to them. It’s the bank’s property. Our financial system is a game. You should at least try to understand the rules.
As Charles Hugh Smith has pointed out, “Handing one’s investment decisions to someone else is akin to having someone else pick your mate, your job and your home for you.”
You wouldn’t do that but when it comes to money it’s often a different story.
It’s now more vital than ever to understand the system as our financial system is facing collapse.
Large complex systems often become extremely fragile but exhibit no visible risks. There is currently massive systemic risk because the whole of our financial system is deeply flawed.
It’s an accident waiting to happen. It’s hard to say exactly what will trigger it and when but among the usual suspects are:
- Loss of confidence – e.g. bank runs across Europe
- Implosion of the derivatives market
- Destruction of our paper currency
- Sovereign debt defaults
- Rogue algorithms crashing the system
- Insurance policies vaporizing
If one or more does come to pass then a lot of people are going to end up with very little. None of these are Black Swans because anyone with half a brain can see them coming a mile off.
You have a choice: either wake up or get wiped out!
Most finance books are about as engaging as watching a riverbank erode. I see fear, perceived complexity, inertia and boredom all stopping people from taking the initial step to financial enlightenment, so wanted to see if we could circumnavigate those issues by writing something that is enjoyable as well as useful.
So the style is quintessentially irreverent but the message is deadly serious. I liken it to being invited by a friend into a bar for a drink and then being gently coshed over the head with an education before you have even realised it.
Given the current financial climate, the game is to protect what you have — end of story. People first need to make sure their savings and capital don’t disappear.
It’s all well and good having insurance but what happens when the insurer goes bust? That’s systemic risk for you. The illusion is that you think you are protected because that’s the way the system has worked up until now.
We are facing what I refer to as an “asymmetric risk mitigation” situation. Taking preventative action and being wrong has few consequences, taking no action and then being wrong may spell disaster.
But before I say anything else, I’m not a financial advisor so let’s put in the caveat that people are responsible for their own financial decisions.
Basically anything that is a paper asset or has counter party risk should be avoided like the bubonic plague until the system resets itself. You need tangible assets. For what those should be and why. . . . well you could read the book.
What I will say is that people should expect the mother of all panics this side of Xmas. That’s not a prediction; it’s just a precaution.